The Invincible Lie

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Anyone who wants to study the tricks of propaganda rhetoric has a rich source of examples in the statements of President Barack Obama. On Monday, July 9th, for example, he said that Republicans “believe that prosperity comes from the top down, so that if we spend trillions more on tax cuts for the wealthiest Americans, that that will somehow unleash jobs and economic growth.”

Let us begin with the word “spend.” Is the government “spending” money on people whenever it does not tax them as much as it can? Such convoluted reasoning would never pass muster if the mainstream media were not so determined to see no evil, hear no evil and speak no evil when it comes to Barack Obama.

Ironically, actual spending by the Obama administration for the benefit of its political allies, such as the teachers’ unions, is not called spending but “investment.” You can say anything if you have your own private language.

But let’s go back to the notion of “spending” money on “the wealthiest Americans.” The people he is talking about are not the wealthiest Americans. Income is not wealth — and the whole tax controversy is about income taxes. Wealth is what you have accumulated, and wealth is not taxed, except when you die and the government collects an inheritance tax from your heirs.

People over 65 years of age have far more wealth than people in their thirties and forties — but lower incomes. If Obama wants to talk about raising income taxes, let him talk about it, but claiming that he wants to tax “the wealthiest Americans” is a lie and an emotional distraction for propaganda purposes.

The really big lie — and one that no amount of hard evidence or logic seems to make a dent in — is that those who oppose raising taxes on higher incomes simply want people with higher incomes to have more money, in hopes that some of their prosperity will “trickle down” to the rest of the people.

Some years ago, a challenge was issued in this column to name any economist, outside of an insane asylum, who had ever said any such thing. Not one example has yet been received, whether among economists or anyone else. Someone is always claiming that somebody else said it, but no one has ever been able to name and quote that somebody else.

Once we have put aside the lies and the convoluted use of words, what are we left with? Not much.

Obama is claiming that the government can get more tax revenue by raising the tax rate on people with higher incomes. It sounds plausible, and that may be enough for some people, but the hard facts make it a very iffy proposition.

This issue has been fought out in the United States in several administrations — both Democratic and Republican. It has also been fought out in other countries.

What is the real argument of those who want to prevent taxes from rising above a certain percentage, even for people with high incomes? It has nothing to do with making them more prosperous so that their prosperity will “trickle down.”

A Democratic president — John F. Kennedy — stated the issue plainly. Under the existing tax rates, he explained, investors’ “efforts to avoid tax liabilities” made them put their money in tax shelters, because existing tax laws made “certain types of less productive activity more profitable than other more valuable undertakings” for the country.

Ironically, the Obama campaign’s attacks on Mitt Romney for putting his money in the Cayman Islands substantiate the point that President Kennedy and others have made, that higher tax rates can drive money into tax shelters, whether tax-exempt municipal bonds or investments in other countries.

In other words, raising tax rates does not automatically raise tax revenues for the government. Higher tax rates have often led to lower tax revenues for states, the federal government and other countries. Conversely, lower tax rates have often led to higher tax revenues. It all depends on the circumstances.

But none of this matters to Barack Obama. If class warfare rhetoric about taxes leads to more votes for him, that is his bottom line, whether the government gets a dime more revenue or not. So long as his lies go unchallenged, a second term will be the end result for him and a lasting calamity for the country.

Nothing produces more of a sense of the futility of facts than seeing someone in the mass media repeating some notion that has been refuted innumerable times over the years.

On July 9th, on CNN’s program “The Situation Room” with Wolf Blitzer, commentator Gloria Borger discussed President Obama’s plan to continue the temporary extension of the tax rates established under the Bush administration — except for the top brackets, where Obama wanted the tax rates raised.

Ms. Borger said, “if you’re going to lower the tax rates, where are you going to get the money from?”

First of all, nobody is talking about lowering the tax rates. They are talking about whether or not to continue the existing tax rates, which are set to expire after a temporary extension. And Obama is talking about raising the tax rate on higher income earners.

But when Ms. Borger asked, “where are you going to get the money from?” if you don’t raise tax rates, that assumes an automatic correlation between tax rates and tax revenues, which is demonstrably false.

As far back as the 1920s, a huge cut in the highest income tax rate — from 73 percent to 24 percent — led to a huge increase in the amount of tax revenue collected by the federal government. Why? Because investors took their money out of tax shelters, where they were earning very modest rates of return, and put their money into the productive economy, where they could earn higher rates of return, now that those returns were not so heavily taxed.

This was the very reason why tax rates were cut in the first place — to get more revenue for the federal government. The same was true, decades later, during the John F. Kennedy administration. Similar reasons led to tax rate cuts during the Ronald Reagan administration and the George W. Bush administration.

All of these presidents — Democrat and Republican alike — made the same argument for tax rate reductions that had been made in the 1920s, and the results were similar as well. Yet the invincible lie continues to this day that those who oppose high tax rates on high incomes are doing so because they want to reduce the taxes paid by high income earners, in hopes that their increased prosperity will “trickle down” to others.

In reality, high income earners paid not only a larger total amount of taxes after the tax rate cuts of the 1920s but also a higher share of all the income taxes collected. It is a matter of record that anyone can check out with official government statistics.

This result was not peculiar to the 1920s. In 2006, the New York Times reported: “An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year.”

Expectations are in the eye of the beholder. Tax cut proponents expected precisely the result from the Bush tax cuts that so surprised the New York Times. So did tax cut proponents in the John F. Kennedy and Ronald Reagan administrations.

If this concept has not yet trickled down to the New York Times or CNN’s Gloria Borger, that is a commentary on the media commentators.

Ms. Borger may simply not know any better, but Barack Obama cannot use that excuse. When he was a candidate for president back in 2008, Charles Gibson of ABC News confronted him with the fact that there was no automatic correlation between the raising and lowering of tax rates and whether tax revenues moved up or down.

Obama admitted that. But he said that he was for raising tax rates on higher income earners anyway, in the name of “fairness.” How higher tax rates that the government does not actually collect make any sense, whether from a fairness perspective or as a way of paying the government’s bills, is another question. The point here is that Obama knew then that tax rates and tax revenues do not automatically move in the same direction.

In other words, he is lying when he talks as if tax rates and tax revenues move together. Ms. Borger and others in the media may or may not know that. So they are not necessarily lying. But they are failing to inform their audiences about the facts — and that allows Obama’s lies to stand.

Thomas Sowell is a senior fellow at the Hoover Institution at Stanford University. His Web site is www.tsowell.com. To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate web page.

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