Sowell Versus Herbert on Taxes

http://www.futureofcapitalism.com/2011/02/sowell-versus-herbert-on-taxes

Thomas Sowell:

What are called "tax cuts for the rich" have been reductions in high tax rates under four different administrations, including the Democratic administration of John F. Kennedy. In each case, going all the way back to the 1920s, the reduced tax rates have led to increased tax revenues for the government.

"The rich" have ended up paying both a higher total amount of taxes and a larger share of all taxes than they did before what were called "tax cuts for the rich." The reason is very straightforward: high tax rates that people don't actually pay do not bring the government as much revenue as lower tax rates that they do pay.

High tax rates drive investors into tax shelters like tax-exempt bonds or drive their investments out of the country altogether, costing Americans jobs. This is not rocket science-- and the data are there to prove it. But somebody has to say it.

Bob Herbert:

Mark Hertsgaard, the author of "On Bended Knee: The Press and the Reagan Presidency," says in the film, "You cannot be fair in your historical evaluation of Ronald Reagan if you don't look at the terrible damage his economic policies did to this country."

Paul Volcker, who served as chairman of the Federal Reserve during most of the Reagan years, commented in the film about the economist Arthur Laffer's famous curve, which, incredibly, became a cornerstone of national economic policy. "The Laffer Curve," said Mr. Volcker, "was presented as an intellectual support for the idea that reducing taxes would produce more revenues, and that was, I think, considered by most people a pretty extreme interpretation of what would happen."

Toward the end of his comment, the former Fed chairman chuckled as if still amused by the idea that this was ever taken seriously.

Let's go to the numbers, in this case the historical tables from the White House Office of Management and Budget, which is now under President Obama's control. Federal receipts in 1980, the year before Reagan got in, were $517 billion; in 1988, his last full year in office, they were $909 billion. In what the OMB calls "constant (FY 2005) dollars," the number in 1980 for receipts was $1.2 trillion; for 1988 it was $1.4 trillion. Paul Volcker and Bob Herbert can chuckle all they want, but on this one, Mr. Sowell is right; Reagan cut tax rates, and government revenues increased. As Mr. Sowell puts it, "This is not rocket science-- and the data are there to prove it. But somebody has to say it."

You can do the same calculations, by the way, with the George W. Bush tax cuts, using the same table. In 2000, the year before George W. Bush got in, federal receipts were at $2 trillion. In 2008, his last full year in office, they were at $2.5 trillion. President George W. Bush cut tax rates, and federal revenues increased. Using the OMB's "constant (FY 2005) dollars," federal receipts stayed basically constant, from $2.3 trillion in 2000 to $2.3 trillion in 2008.

No one is claiming that reducing tax rates all the way to zero would still produce revenue for the government. And few conservatives would say that the sole or even most important measure of a tax policy is how much revenue it produces for the government, anyway — there are other considerations, like letting individuals keep more of what is, after all, their own money. But to treat the Laffer Curve as if it is some kind of joke, the way Mr. Herbert does, is just detached from the data.

by Ira Stoll  |  Feb 15, 2011 at 8:17 am Related Topics:  Politics, Press, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list