Books like "Trickle Down Theory" and "Tax Cuts for the Rich"

When this "book" came in the mail, I was disappointed that it was 13 pages of text. A couple of hours later I saw that those 13 pages made up one of the most important defences of tax cuts I have ever read.I had often heard critics of President Reagan call his policy "trickle down" economics. Sowell explains that this is setting up a straw man. By calling it trickle down, they avoid addressing the issue. The desire of those who call for "tax cuts for the rich" are attacked for a desire to see higher income taxpayers retain more of their wealth, which will, presumably, trickle down to others. That is not, however, the intention or even the result of those who call for tax cuts. On the contrary, lower tax rates for the rich was seen as a means to increase their taxes, and reduce the share of the burden of taxation for the lower income taxpayers. Cutting rates in taxation was seen as a means to effect behavioral changes of the wealthy that can change the total output of the economy.The famed "robber baron" and Treasury Secretary Andrew Mellon called for congress to end "the grotesque" and "evil" tax exemptions for municipal bonds. He pointed out that while the value of these breaks was "relatively worthless" to low income taxpayers, they were used by the wealthy to move their money out of reach of the taxman. The result is to have "higher taxes on all the rest in order to make up the resulting deficiency in the revenues." When Congress refused for political reasons, Secretary Mellon worked to lower tax rates for all.Of course if a person is paying 70% of $100,000 he is going to receive more than someone making a couple of thousand dollars, even though the rates were cut by a higher rate for the less well off. But the point is, few were paying 70%. In 1921 the tax rate on people making over $100,000 was 73%, and the federal government took in about $700,000,000, 30% of which was paid by those $100,000 earners. By 1929 after the rate was cut to 24%, the federal government was collecting over $1 billion in income taxes, 65% of the revenue coming from the same people. This was no accident... under the increasing tax rates imposed during WWI, the number of people reporting $300,000 + income declined from over 1000 in 1916 to less than 300 in 1921... not because people were becoming poorer. Mellon pointed out that investments in tax-exempt securities tripled during the decade.President Coolidge also emphasized this rationale, saying, "When the taxation of large incomes is approached...the problem is to find a rate which will produce the largest returns. Experience does not show that the higher rate produces the larger revenue.... I agree perfectly with those who wish to relieve the small taxpayer by getting the largest possible contribution from the people with large incomes. But if the rates on large incomes are so high that they disappear, the small taxpayer will be left to bear the entire burden."This opinion of Coolidge and Mellon was shared by not only John F. Kennedy and Ronald Reagan, but was also stated by John Maynard Keynes, and even earlier by President Woodrow Wilson and two of his treasury secretaries.President Wilson claimed that high tax rates were "destructive of business activity and productive of waste and inefficiency. There is a point at which in peace times... [high] taxes discourage energy, remove the incentive to new enterprise, encourage extravagant expenditures, and produce industrial stagnation with consequent unemployment and other attendant evils."Treasury Secretary Carter Glass has said that a high rate of taxation "tends to withdraw the capital of very rich men from the development of new enterprises and place it at the disposal of State and municipal governments upon terms so easy to them... as to stimulate wasteful and nonproductive expenditure by State and municipal governments."Opponents then and now, mischaracterized the motives of those who called for tax cuts and results of such cuts. Senators Robert La Follette and Burton K. Wheeler claimed the Mellon tax plan was "a master effort of the special privilege mind...[to] tax the poor and relieve the rich."Arthur Schlesinger, Jr, claimed that Mellon inconsistently called for a balanced budget and paying off the national debt while at the same time seeking tax rate reduction. In reality the debt was reduced from $24 billion in 1921 to under $18 billion in 1928. A widely used textbook claims that "Mellon's spare-the-rich policies...shifted much of the tax burden from the wealthy to the middle-income groups." And yet another textbook claimed that Mellon believed that the burden of taxes should be placed on lower-income earners. It continues, a "share of the tax-free profits of the rich, Mellon reassured the country, would ultimately trickle down to the middle- and lower- income groups in the form of salaries and wages."What Mellon actually said wash that tax policy "must lessen, so far as possible, the burden of taxation on those least able to bear it." In addition to fighting for the elimination of tax-friendly instruments used by the wealthy, and lowering the tax rates, to ultimately increase the proportion of federal revenue paid by the wealthy, he also called for eliminating federal taxes on movie tickets, because these taxes were paid by "the great bulk of the people whose main source of recreation is attending the movies in the neighborhood of their homes." Mellon, Reagan, Bush Sr., Coolidge basically were motivated to do the exact opposite of what they are often charged with.