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Commentary

Thomas Sowell explains the historical effects of tax cuts

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Thomas Sowell
Thomas Sowell

Here’s part 1 of 3.

Excerpt:

The actual results of the cuts in tax rates in the 1920s were very similar to the results of later tax-rate cuts during the Kennedy, Reagan and George. W. Bush administrations — namely, rising output, rising employment to produce that output, rising incomes as a result and rising tax revenues for the government because of the rising incomes, though the tax rates had been lowered.

Another consequence was that people in higher-income brackets paid not only a larger total amount of taxes, but a higher percentage of all taxes, after what were called “tax cuts for the rich.” It was not simply that their incomes rose, but that this was not taxable income, since the lower tax rates made it profitable to get higher returns outside of tax shelters.

The facts are unmistakably plain, for those who bother to check the facts. In 1921, when the tax rate on people making over $100,000 a year was 73%, the federal government collected a little over $700 million in income taxes, of which 30% was paid by those making over $100,000.

[…]By 1929, after a series of tax-rate reductions had cut the tax rate to 24% on those making over $100,000, the federal government collected more than a billion dollars in income taxes, of which 65% was collected from those making over $100,000.

There is nothing mysterious about this. Under the sharply rising tax rates during the Wilson administration, fewer and fewer people reported high taxable incomes, whether by putting their money into tax-exempt securities or by any of the other ways of rearranging their financial affairs to minimize their tax liability.

Under Wilson’s escalating income-tax rates to pay for the high costs of the First World War, the number of people reporting taxable incomes of more than $300,000 — a huge sum in the money of that era — declined from well over a thousand in 1916 to fewer than three hundred in 1921. The total amount of taxable income earned by people making over $300,000 declined by more than four-fifths in those years.

Secretary Mellon estimated in 1923 that the money invested in tax-exempt securities had tripled in a decade, and was now almost three times the size of the federal government’s annual budget and nearly half as large as the national debt. “The man of large income has tended more and more to invest his capital in such a way that the tax collector cannot touch it,” he pointed out.

Getting that money moved out of tax shelters was the whole point of Mellon’s tax-cutting proposals. He also said: “It is incredible that a system of taxation which permits a man with an income of $1,000,000 a year to pay not one cent to the support of his government should remain unaltered.”

Here’s part 2 of 3.

Excerpt:

Empirical evidence on what happened to the economy in the wake of those tax cuts in four different administrations over a span of more than 80 years has also been largely ignored by those opposed to what they call “tax cuts for the rich.”

Confusion between reducing tax rates on individuals and reducing tax revenues received by the government has run through much of these discussions over these years.

Famed historian Arthur M. Schlesinger Jr., for example, said that although Andrew Mellon, secretary of the treasury from 1921 to 1932, advocated balancing the budget and paying off the national debt, he “inconsistently” sought “reduction in tax rates.”

Nor was Schlesinger the only highly regarded historian to perpetuate economic confusion between tax rates and tax revenues. Today, widely used textbooks by various well-known historians have continued to misstate what was advocated in the 1920s and what the actual consequences were.

According to the textbook “These United States” by Irwin Unger, Mellon, “a rich Pittsburgh industrialist,” persuaded Congress to “reduce income tax rates at the upper-income levels while leaving those at the bottom untouched.”

Thus “Mellon won further victories for his drive to shift more of the tax burden from the high-income earners to the middle and wage-earning classes.”

But hard data show that, in fact, both the amount and the proportion of taxes paid by those whose net income was no higher than $25,000 went down between 1921 and 1929, while both the amount and the proportion of taxes paid by those whose net incomes were between $50,000 and $100,000 went up — and the amount and proportion of taxes paid by those whose net incomes were over $100,000 went up even more sharply.

And here’s part 3 of 3.

Excerpt:

President Kennedy, like Andrew Mellon decades earlier, pointed out that “efforts to avoid tax liabilities” make “certain types of less-productive activity more profitable than other more valuable undertakings” and “this inhibits our growth and efficiency.” Therefore the “purpose of cutting taxes” is “to achieve a more prosperous, expanding economy.”

“Total output and economic growth” were italicized words in the text of Kennedy’s address to Congress in January 1963, urging cuts in tax rates. Much the same theme was repeated yet again in President Reagan’s February 1981 address to a joint session of Congress, pointing out that “this is not merely a shift of wealth between different sets of taxpayers.”

Instead, basing himself on a “solid body of economic experts,” he expected that “real production in goods and services will grow.”

Even when empirical evidence substantiates the arguments made for cuts in tax rates, such facts are not treated as evidence relevant to testing a disputed hypothesis, but as isolated curiosities. Thus, when tax revenues rose in the wake of the tax-rate cuts made during the George W. Bush administration, the New York Times reported:

“An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year.”

Expectations, of course, are in the eye of the beholder. However surprising these facts may have been to the New York Times, they are exactly what proponents of reducing high tax rates have been expecting, not only from these particular tax rate cuts, but from similar reductions in high tax rates at various times going back more than three-quarters of a century.

It’s Thomas Sowell – the official economist of the Tea Party.

Commentary

The American Enterprise Institute explains the top 5 myths about overpopulation

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The American Enterprise Institute lists 5 big myths about overpopulation.

They are:

  1. The world is overpopulated.
  2. Rapid population growth keeps poor countries poor.
  3. For all its ethical problems, China’s one-child policy boosts its economy.
  4. If your population declines, your economy does, too.
  5. The world will have 10 billion people by 2100.

Number 2 is the one I liked best:

In 1960, South Korea and Taiwan were poor countries with fast-growing populations. Over the two decades that followed, South Korea’s population surged by about 50 percent, and Taiwan’s by about 65 percent. Yet, income increased in both places, too: Between 1960 and 1980, per capita economic growth averaged 6.2 percent in South Korea and 7 percent in Taiwan.

Clearly, rapid population growth did not preclude an economic boom in those two Asian “tigers” — and their experience underscores that of the world as a whole. Between 1900 and 2000, as the planet’s population was exploding, per capita income grew faster than ever before, rising nearly fivefold, by the reckoning of economic historian Angus Maddison . And for much of the last century, the countries with faster economic growth tended to be the ones where population was growing most rapidly, too.

Today, the fastest population growth is found in so-called failed states, where poverty is worst. But it’s not clear that population growth is their central problem: With physical security, better policies and greater investments in health and education, there is no reason that fragile states could not enjoy sustained improvements in income.

This is a good post to read and store away, because what I’ve found is that fears of overpopulation is underneath many of policies pushed by the left, from abortion, to government regulation of production, to government regulation of consumption. I’m not entirely sure why this fear exists, but I know it’s there for many secular leftists. It’s not rational, it’s not supported by evidence, but it’s there and it animates much of their political agenda.

Commentary

Irony: the young men who voted for Obama now suffer from record unemployment

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This article from the Wall Street Journal explain why men are in decline. (H/T Mary, Tom)

Excerpt:

Few groups were hit harder by the recession than young men… The unemployment rate for males between 25 and 34 years old with high-school diplomas is 14.4%—up from 6.1% before the downturn four years ago and far above today’s 9% national rate. The picture is even more bleak for slightly younger men: 22.4% for high-school graduates 20 to 24 years old. That’s up from 10.4% four years ago.

[…]The share of men age 25-34 living with their parents jumped to 18.6% this year, up from 14.2% four years ago and the highest level since at least 1960, according to the Census Bureau.

Suzanne Venker comments on the consequences of this data for women for National Review.

Full text:

New data from the U.S. Census Bureau shows the percentage of men between the ages of 25 and 34 living at home rose from 14 percent in 2005 to 19 percent in 2011. Women, on the other hand, are doing just fine. Not only do they dominate today’s college campuses, they have little trouble staying away from mom and dad’s place. That’s because women are flourishing in the workforce while men are not. Writers and pundits blame this phenomenon on the economy, but the trend reflects a much larger sociological problem. America is in the midst of a sea change: Never before has it been more difficult for men and women to find their way to one another, settle in for the long haul, and build strong families together.

To read about it, you’d think the entire mess is out of our hands. You’d think the circumstances involving the roles of men and women in society have happened to us, rather than the other way around. The truth is that we created this new world — and while we may not be able to undo it, we can certainly stop the freight train from running off the tracks.

Hardly a day goes by that we aren’t made aware of this heartbreaking reality. It is so acute we now have not one but six new television series dedicated to men’s social demotion. In these programs, husbands are made to look like fools — while the wives wield a power so ugly it’s no wonder marriage has become so elusive. The modern generation has been sold a bill of goods about human nature, and the result is that men now have no idea how to be men. Why? Because women won’t let them.

There is a large and powerful group of women who see this shift in gender roles as a good thing. Hanna Rosin’s provocative piece in The Atlantic, called “The End of Men,” and Kate Bolick’s new piece “All the Single Ladies” (which may now become a TV series) make light of the demise of masculinity and the role men once played in society. They represent the kind of movers and shakers who help lead the feminist fight. Pointing to the latest statistics about men, they’d be likely to respond, “See how hopeless men are? Everything we’ve been saying about men all these years has proven to be true.”

But the laugh will be on them — if not for their own families, then for their children’s. The feminist policies that were put in place to help women flourish outside the home have suffocated men’s opportunities for economic self-sufficiency. In short, men’s desire to be good workers and family providers has been undermined. This is more than unfortunate; it is a loss of catastrophic proportions, for it is men’s consistent, full-time, year-round work that women depend on in order to live that ever-coveted “balanced life.” What too many women don’t understand (because they’ve been unduly influenced by feminist groupthink) is that male nature is ultimately beneficial to them, for women continue to put family — not career — at the center of their lives and are thus dependent on men to pick up the slack at the office.

It is a dangerous thing to create a society of frustrated young men. Feminists have no idea what a can of worms they’ve created — and what it’s about to do to our nation.

I think if we want men to marry, not only do we have to ask why the recession is affecting men disproportionately, but why the education system isn’t working for boys. We need to ask whether men learn better from female teachers or male teachers. We need to ask whether boys learn better in all-boys schools or in co-ed schools. We need to ask whether the promotion of sex education and contraception, which produces freely available sex, is the best way to encourage young men to prove themselves to women by trying hard to fit the traditional roles of protector, provider and moral/spiritual leader. We need to ask whether the denial of male-female differences encourages men to take on traditional male roles, and whether women are encouraged to prefer men who take on those roles. We need to ask whether our energy and economic policies favor job creation in areas dominated by men. We need to ask whether stimulus programs should be slanted towards industries dominated by women.  We need to ask whether affirmative action for women in education and at work helps men to be able to provide for a family. We need to ask whether men are well-served by no-fault divorce laws and biased domestic violence laws that promote false charges – especially during custody hearings. And lastly, we need to ask whether church serves men when it accepts or rejects postmodernism, anti-intellectualism and moral relativism.

But can’t we just tell men to “Man Up”?

The answer to the discincentives facing marriage-minded men is not a lazy, ignorant pronouncement for men to “Man Up”. That doesn’t solve any of the problems that cause men not to marry.

I think the desire of certain people to remove every incentive and capacity for men to perform as husbands and fathers – and then to nevertheless demand they marry and take on the traditional roles of men anyway without incentives or capacities – is the height of narcissism. Men are people too – we are not inanimate objects. We are not sperm donors and wallets. And if society decides to go in a direction where the traditional roles of men are replaced with  government social programs funded by high taxes and deficit spending, then marriage will die in this society.