Friday, November 22, 2013

"'Trickle Down' Theory and 'Tax Cuts for the Rich'"


Thomas Sowell (Hoover Institution Press, 2012)

Reviewed by Donn Taylor

            The title repeats two often-repeated shibboleths of today's political spin. In this very short separately published essay, the distinguished economist and Hoover Institution scholar Thomas Sowell examines both concepts in the light of historical reality. His overall finding is that neither of the two concepts is supported by that reality.
             First of all, among economists there is no "trickle down theory," for the term is a political term used to argue against a caricature of what economists have actually said. What economists have argued is that at times "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…."

            Sowell continues by documenting what actually happened when high tax rates were lowered in the 1920s and under presidents Kennedy, Reagan, and George W. Bush. "What actually followed the cuts in tax rates in the 1920s were rising output, rising employment to produce that output, rising incomes as a result and rising revenues for the government because of the rising incomes…." Sowell cites actual figures showing that "people in the higher income brackets not only paid a larger total amount of taxes, but a higher percentage of all taxes…." Further, the "hard data" show that "both the amount and the proportion of taxes" paid by those with lower incomes went down, while "both the amount and proportion of taxes" paid by those with higher incomes went up. And the higher the income, the sharper the increase.
            Consequently, Sowell shows, the political caricature that these were "tax cuts for the rich" is false: tax rates were cut for everyone, everyone profited, and the government received more revenue—a win-win for all concerned.
            Politicians can be expected to falsify truth to serve their own purposes, but it is more disturbing that leading journalists have repeated these falsifications and some historians have enshrined them in history books. Sowell quotes several of these and contrasts them by quoting the actual persons (e.g., Secretary of the Treasury Andrew Mellon) who were misrepresented. He also follows these and similar misrepresentations through the Reagan and Bush administrations.

            Sowell's writing is clear and easily readable. But perhaps its most impressive feature is his extensive documentation. The number of pages devoted to end notes equals about one third of the number of pages of text. The documentation leaves no doubt that the author has thoroughly researched his subject.
            The result is a thoroughly readable explanation of the historical truth about an important and much-misrepresented subject. It should be required reading for everyone who intends to vote in any local or national election.

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