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Joined Nov 11, 2007
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A Tragic Irony: Tax The Rich, Hurt The Poor

We could definitely use another Abraham Lincoln to emancipate us all from being slaves to words.

In the midst of a historic financial crisis of unprecedented government spending, and a national debt that outstrips even the debt accumulated by the reckless government spending of the previous administration, we are still enthralled by words and ignoring realities.

President Barack Obama’s constant talk about “millionaires and billionaires” needing to pay higher taxes would be a bad joke if the consequences were not so serious. Even if the income tax rate were raised to 100% on millionaires and billionaires, it would still not cover the trillions of dollars the government is spending.

More fundamentally, tax rates — whatever they are — are just words on paper. Only the hard cash that comes in can cover government spending. History has shown repeatedly, under administrations of both political parties, that there is no automatic correlation between tax rates and tax revenues.

Tax Rates Vs. Hard Cash

When the tax rate on the highest incomes was 73% in 1921, that brought in less tax revenue than after the tax rate was cut to 24% in 1925. Why? Because high tax rates that people don’t actually pay do not bring in as much hard cash as lower tax rates that they do pay. That’s not rocket science.

Then and now, people with the highest incomes have had the greatest flexibility as to where they will put their money. Buying tax-exempt bonds is just one of the many ways that “millionaires and billionaires” avoid paying hard cash to the government, no matter how high the tax rates go.

Most working people don’t have the same options. Their taxes have been taken out of their paychecks before they get them.

Even more so today than in the 1920s, billions of dollars can be sent overseas electronically, almost instantaneously, to be invested in other countries — creating jobs there, while millions of Americans are unemployed. That is a very high price to pay for class warfare rhetoric about taxing “millionaires and billionaires.”

Nothing New

Make no mistake about it, that kind of rhetoric wins votes for political demagogues — and votes are their bottom line. But that is totally different from saying that it will bring in more tax revenue to the government.

Time and again, at both state and federal levels, in the country and in other countries, tax rates and tax revenue have moved in opposite directions many times. After Maryland raised its tax rates on people making a million dollars a year, there were fewer such people living in Maryland — and less tax revenue was collected from them.

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10 comments

  1. Growly

    With all due respect, the US is one of the lowest taxed countries in the ‘industrialized’ world, and also has some of the least generous social programs. Yet the public perception seems to be the complete opposite. Why is this? Is there any one country you could point to right now and say, “why can’t we do things the way they do?”

    I would be interested in your opinion on the elimination tax loopholes/subsidies for corporations, especially those that are highly profitable. It always seems grossly hypocritical for companies that promote low taxes and greater ‘responsibility’ to also benefit from these subsidies and tax breaks. Seems they stand on their convictions only when convenient

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    • Woodshedder

      Growly, the US has the highest corporate tax rate of any industrialized nation.

      However, due to loopholes and gov’t picking winners and losers, corps rarely pay the actual rate they are taxed.

      The problem is that gov’t uses the tax code to pick winners and losers. Therefore, nothing effective is accomplished. The gov’t doesn’t raise the appropriate revenue and it fucks with the supply/demand and competitiveness curve by using the tax code to penalize certain business sectors.

      As for the “least generous” social programs, we have 1 in 6 on food stamps, and 50% of Americans paid no Federal income tax whatsoever. Couple these figures with the number of Americans receiving Social Security, Medicare, Medicaid, etc. and I think that you are wrong that we have the “least generous” of social programs.

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      • TeahouseOnTheTracks
        TeahouseOnTheTracks

        Wood … the largest segment of our population (boomers) is retired and unless part of the upper class receiving dividends and cap gains from their investments or golden parachute pensions for the most part fall under the $0 tax status.

        The second largest segment (Baby boomers)are over 50 and a large portion of them are now unemployed thanks to “mobile capital” moving their once lucrative jobs overseas. They too are close if not already apart of the $0 tax status.

        These “facts” are notable and an anomaly when citing that “50% pay no taxes” statistic … you say it as though it’s a stat etched in stone as a result of tax policy invoked by one party as an entitlement to aide the poor or those too lazy to work … $0 tax status also means that workers are paying much more for housing, health care and education than they are earning which is attributable to many variables.

        Reality is that once the boomer generation passes and the economy improves those stats will change immensely until once again the baby boomers go into retirement and once again the stats become skewed.

        But these are generational and shouldn’t be used as an argument for lower taxes from what has always been the tax base of this nation … the rich and the corporations. Why do you feel a need to shift the burden to the middle class? Does the middle class get more protection by our government (person or property) than our wealthiest civilians or corporations or the other way around?

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  2. Juiceyfruit

    is this the op-ed section of IBC news?

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  3. ottnott

    Too effing funny.

    Wood has copied and pasted an article that cites the wisdom of Herbert Hoover’s tax policy.

    1922 top tax rate reduced
    1924 top tax rate reduced again
    1925 top tax rate reduced a third time
    1928 top tax rate reduced a fourth time
    1929 top tax rate reduced a fifth time
    C R A S H

    So much for magic potions.

    The article praises Andrew Mellon, the Treasury Secretary who pushed for the cuts. The author didn’t see fit to note that when the Great Depression inflated the budget deficit, Mellon supported tax increases:
    “I realize that arguments can be advanced against every increase in rate or additional tax proposed. This is true of all measures looking to an increase in the public revenue. But I trust that on this occasion the attitude of taxpayers will be different from that which, knowing human nature, we would expect under normal circumstances. We are in the midst of a grave emergency. It is essential to raise additional revenue, not just to cover current expenditures but to maintain unimpaired the credit of the United States Government.”

    The author (with Wood nodding in agreement like a biscuit-fueled bobblehead) would almost certainly denounce the foolishness of anyone making such a statement today.

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    • Jakegint

      It wasn’t Hoover, it was Coolidge who was responsible for the post WWI, boom, via “leaving the eff alone.”

      Like Wilson, Hoover was another “social engineer.” It was the hot thing at the time. He liked to tinker, the fool. What came after was even worse, of course.

      And “tax policy” had nothing to do with the crash. Like this one, it had to do w. loose monetary policy, and a near fraudulent expansion in housing.

      More economic illiteracy from the left coast… If you could actually refute one iota of what Sowell is saying above, I’d wire you a grand.

      “Capital is mobile” lefties… when will that simple concept ever get through your oh so thick skulls?

      ___________

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      • ottnott

        Dear Mr. Gint.

        Thank you for the post-WWI history.

        Let us return to the topic of the article that wood pasted. Mr. Sowell praised Treasury Secretary Mellon, because Treasury Secretary Mellon promoted a policy of reducing tax rates. Mr. Sowell credited implementation of that policy for making the economy wonderful.

        If it is your contention that the boom resulted from Coolidge “leaving the eff alone”, rather than from cutting the eff out of tax rates, please take it up with Mr. Sowell.

        My beef with Mr. Sowell, in this particular instance, is that he is a cherrypicker – of Treasury Secretary Mellon’s ideas about taxes, and of data on how tax revenues change with tax rates.

        In other words, it is just advocacy for his political position. It isn’t truth revealed. It isn’t useful to investors or traders. It isn’t amusing or interesting.

        As a great man once wrote, “politics is largely the art of deception, and political rhetoric is largely the art of misstating issues”. The author of that quote must be very familiar with Mr. Sowell or someone much like him.

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        • Woodshedder

          Ottnot, I always bring out the best in you. One day you will respond with facts rather than opinion. One day.

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        • JakeGint

          The facts on the economic effects of tax increases v. tax cuts are relatively consistent in the historical record.

          Care to speak to them? If not, perhaps you could explain how Coolidge’s low tax rates somehow destroyed the economy?

          I’m popping the corn as we speak. PS — Mellon was not omniscient, either. He was certainly wrong about tax hikes in the midst of the Great Depression.

          Or would you argue that point as well?

          ________________

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  4. Jakegint

    And Hoover supported tax increases too… did you miss that part of his exacerbating the crash’s effects?

    Knucklehead Roosevelt didn’t either, of course but geez, Ottnot, you’ve had 80 years and quite a few more examples…

    Including Roosevelt II, Electric Bugaloo, now in office and trying like heck to hit that magic Depression-Era unemployment high water mark…

    ___________

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