I keep reading the leftist putting down some thing they call trickle down economics. I dont even know what the hell that is. Mainly because it is not a thing. I have read a lot of economics texts, from Smith to Malthus, Marx to von Mises, Keynes to Hayek and there is no such thing as trickle down economic theory, it simply doesnt exist. The truth is that what they are calling trickle down is nothing more than a caricature of free market theory that has been fronted by socialists as being a real thing. Their fairy tale goes something like this: free marketers want to cut upper marginal tax rates believing that the money that the evil rich people will save will trickle down to poor people. And of course because they wrote the fairy tale it doesnt work. The truth is that every time the upper marginal tax rates have been cut exactly the opposite of what they say will happen, has happened. When the income tax was established in 1913 the top marginal tax rate was 7% on incomes over $500,000 which is the equivalent of $11.5 million in todays dollars. Following World War I the top marginal tax rate was moved progressively up to 77% on incomes over $1 million (1918 dollars) the equivalent of about $15.2 million in todays dollars. The problem was that virtually no one was paying the 77% tax rate and was instead sheltering income in tax exempt investments. Treasury Secretary Andrew Mellon made a push to lower the upper marginal tax rate to 58% on all incomes over $200,000. The result was not a lowering of the tax burden for the evil rich but instead an increase in the percentage of overall taxes paid by the evil rich (those over $200K) and an overall increase in tax receipts. The upper marginal tax rate was continuously lowered throughout the 1920s reaching a low of 25% in 1925 but with the benefit that both the percentage of tax receipts and over all tax receipts paid by those at the top marginal rates continuing to increase. After the stock market crash of 1929 the economic incompetents of both the Hoover and Roosevelt administrations raising the top marginal tax rate to 63% in 1932, 79% in 1936, 81% in 1941, 88% in 1942, 94% in 1944 and finally settling at 91% in 1946 where it remained until the Kennedy administration. The truth is that virtually no one was paying the top marginal rate, instead they were sheltering income in tax exempt bonds particularly municipal bonds. The problem you run into is that 94% of nothing is still nothing whereas 25% of 200,000 is 50,000. When Kennedy brought the top marginal rate from 91% to 77% and eventually 70% the exact thing that happened under the Coolidge administration occurred again. The top marginal tax payers paid more of a percentage of overall taxes and overall revenue to the treasury increased. The same thing occurred again in the 1980s when the Reagan administration lowered the top marginal rate yet again, producing the largest overall tax receipts per capita and again shifting more of the tax burden onto the top marginal payers. Economist Art Laffer explained it with what has since become the known as the Laffer curve, which explains that the increase in upper marginal rates create not only a disincentive to earn but also creates an incentive to shelter. However because tax sheltered investments tend to be much less profitable than standard investments a lower top marginal tax rate not only creates incentives to invest there is also the additional tax revenue that is gained from the taxes on capital gains. Of course the down side for those who want to create envy and hatred of the top marginal payers is that exactly the opposite of what they want to occur actually occurs. Of course since those who want the evil rich to pay their fair share have less than zero understanding of economics (if you are a socialist the one thing you dont understand is economics) they actually end up making the middle income brackets pay a higher percentage of overall taxes than they would if they simply lowered top marginal rates. Since socialists always see an economy as a zero sum game (if you win then I must necessarily lose) it stands to reason that they would see it this way. But as always reality is the polar opposite of what the left believes it is and therefore all their schemes to soak certain portions of the economy always backfire and produce the exact opposite effect that they believe they will.
Posted on: Fri, 14 Nov 2014 01:27:06 +0000
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