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Quotation of the Day…

Posted By Don Boudreaux On September 24, 2012 @ 7:48 am In History,Myths and Fallacies,Reality Is Not Optional,Taxes | Comments Disabled

… is from page 6 of Thomas Sowell’s superb new pamphlet, Trickle Down” Theory and “Tax Cuts for the Rich” [1] (original emphasis):

Repeatedly, over the years, the arguments of the proponents and opponents of tax rate reductions have been arguments about two fundamentally different things.  Proponents of tax rate cuts base their arguments on anticipated changes in behavior by investors in response to reduced income tax rates.  Opponents of tax cuts attribute to the proponents a desire to see higher income taxpayers have more after-tax income, so that their prosperity will somehow “trickle down” to others, which opponents of the tax cuts deny will happen.  One side is talking about behavioral changes that can change the total output of the economy, while the other side is talking about changing the direction of existing after-tax income flows among people of differing income levels at existing levels of output.

Read the entire pamphlet [1].  It’s brief, clear, and makes an important point.

If you read it you’ll notice how egregiously mistaken many historians (e.g., Arthur Schlesinger, Jr.) have been about the case for cuts in marginal tax rates made most famously in the 1920s by U.S. Treasury Secretary Andrew Mellon.  (And note that Mellon was hardly the only government official of note making that case.  Even Woodrow Wilson grasped the point.)  The faulty interpretation by these historians of Mellon’s case likely isn’t explained exclusively by their innocence of any economics beyond the most man-in-the-street variety; in addition, they seem not to have actually read what Mellon actually said.

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[1] Trickle Down” Theory and “Tax Cuts for the Rich”: http://www.tsowell.com/images/Hoover%20Proof.pdf

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