Day By Day

Friday, July 22, 2011

Thomas Sowell on the Tax Policy Debate

Tom Sowell, in an extended article, explains why Democrat invectives against "tax cuts for the rich" represent a fundamental, and deliberate, distortion of economic realities and that their dismissal of "trickle-down" theory is nonsensical. He writes:
At various time and places, particular individuals have argued that existing tax rates are so high that the government could collect more tax revenues if it lowered those tax rates, because the changed incentives would lead to more economic activity, resulting in more tax revenues out of rising incomes, even though the tax rate was lowered.


[S]uch proposals have... often been characterized by their opponents as "tax cuts for the rich"[although they lower taxes at all levels, and] ...the reasons for proposing such tax cuts are verbally transformed from those of the advocates — namely, changing economic behavior in ways that generate more output, income and resulting higher tax revenues — to a very different theory attributed to the advocates by the opponents, namely "the trickle-down theory."
"Trickle down" is not an economic theory.
No such theory has been found in even the most voluminous and learned histories of economic theories....
Instead of actually engaging in a discussion of legitimate economic theories, demagogues on the Left attack a caricature -- a misrepresentation of the actual proposals and the reasons for them.

He goes on to trace the history of this pernicious demagogic theme. It originated with the Roosevelt administration as a way to demonize Andrew Mellon, Secretary of the Treasury under Presidents Harding, Coolidge, and Hoover and a major architect of Republican policies in the 1920's, and has been repeated by Democrats ever since.

It has even been adopted as common wisdom by a number of prominent left-of-center historians, a fact that he attributes to the pressures of "peer consensus" in a field dominated by liberals and leftists and to the general economic illiteracy of many scholars.

Sowell concludes by noting that the Democrat attacks on Republican tax policy are based in a fundamentally false concept of the economy -- the idea that it is a "zero-sum" system in which gains by one group are achieved only at the expense of others, an idea that has been rejected by all legitimate economists and disproved by history.

Read the whole thing here, here, and here. It's a lovely take down of the principle economic arguments advanced by Democrat politicians and it should be read and understood by all politically involved people.

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