Democrats have been having a field day with the cry of “tax cuts
for the rich” — for which Republicans seem to have no reply. This
is especially surprising, because Democrats made the same arguments
back in the 1920s, and the Republicans then not only had a reply,
but one that eventually carried the day, when the top tax rate was
brought down from 73 percent to 24 percent.
What was the difference then?
The biggest difference is that Secretary of the Treasury Andrew
Mellon took the trouble to articulate the case for lower tax rates,
in articles that appeared in popular publications, using plain
language that ordinary people could understand. Seldom do
Republican leaders today even attempt to do any such thing.
In 1924, the ideas from these articles were collected in a book
which Mellon titled “Taxation: The People’s Business.” That book
has recently been reprinted by the University of Minnesota Law
Library. Today’s Republicans would do well to get a copy of
Mellon’s book, which shows how demagoguery about “tax cuts for the
rich” can be exposed for the nonsense that it is.
People in the media could also benefit by seeing how the “tax
cuts for the rich” demagoguery collapses like a house of cards when
you subject it to logic and evidence.
Those who argue that “the rich” should pay a higher tax rate,
and that the revenue this would bring in could be used to reduce
the deficit, assume that higher tax rates equal higher tax
revenues. But they do not.
Secretary Mellon pointed out that previously the government
“received substantially the same revenue from high incomes with a
13 percent surtax as it received with a 65 percent surtax.” Higher
tax rates do not mean higher tax revenues.
High tax rates on high incomes, Mellon said, lead many of those
who earn such incomes to withdraw their money “from productive
business and invest it in tax-exempt securities” or otherwise find
ways to avoid receiving income in taxable forms.
That is even easier to do today than in Andrew Mellon’s time.
The very same liberals who complain that Mitt Romney — among
thousands of others — puts his money in the Cayman Islands
nevertheless act as if raising the tax rates automatically raises
tax revenues. It can instead drive money out of the country and
drive jobs out of the country with it.
The United States has long been a place where foreigners from
around the world have sent their money to be invested, more than
offsetting the money that Americans invested abroad. But, in recent
years, the net flow of investment is out of America to places
overseas that don’t tax as much.
Mellon cited statistics that showed the opposite of what the
high-tax advocates claimed. Although incomes in general were rising
from 1916 to 1921, the taxable income of people earning $300,000
and up dropped by about four-fifths.
That didn’t mean that “the rich” were becoming poor. It meant
that they had arranged to receive their incomes in forms that were
not taxable. Mellon asked where the money of these high income
earners went. He answered: “There is no doubt of the fact that much
of it went into tax-exempt securities.” In today’s global economy,
much of it can also easily be sent overseas — much more easily
than workers can go overseas to get the jobs this money creates in
other countries.
After Mellon finally succeeded in getting Congress to lower the
top tax rate from 73 percent to 24 percent, the government actually
received more tax revenues at the lower rate than it had at the
higher rate. Moreover, it received a higher proportion of all
income taxes from the top income earners than before.
Something similar happened in later years, after tax rates were
cut under Presidents Kennedy, Reagan and G.W. Bush. The record is
clear. Barack Obama admitted during the 2008 election campaign that
he understood that raising tax rates does not necessarily mean
raising tax revenues.
Why then is he pushing so hard for higher tax rates on “the
rich” this election year? Because class warfare politics can
increase votes for his reelection, even if it raises no more tax
revenues for the government.
COPYRIGHT 2012 CREATORS.COM
