Posted on 09/12/2011 2:38:31 PM PDT by jazusamo
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Ninety years ago in 1921 federal income tax policies reached an absurdity that many people today seem to want to repeat. Those who believe in high taxes on "the rich" got their way. The tax rate on people in the top income bracket was 73 percent in 1921. On the other hand, the rich also got their way: They didn't actually pay those taxes. The number of people with taxable incomes of $300,000 a year and up equivalent to far more than a million dollars in today's money declined from more than a thousand people in 1916 to less than three hundred in 1921. Were the rich all going broke? It might look that way. More than four-fifths of the total taxable income earned by people making $300,000 a year and up vanished into thin air. So did the tax revenues that the government hoped to collect with high tax rates on the top incomes. What happened was no mystery to Secretary of the Treasury Andrew Mellon. He pointed out that vast amounts of money that might have been invested in the economy were instead being invested in tax-exempt securities, such as municipal bonds. Secretary Mellon estimated that the amount of money invested in tax-exempt securities had nearly tripled in a decade. The amount of this money that the tax collector couldn't touch was larger than the federal government's annual budget and nearly half as large as the national debt. Big bucks went into hiding. Mellon pointed out the absurdity of this situation: "It is incredible that a system of taxation which permits a man with an income of $1,000,000 a year to pay not one cent to the support of his Government should remain unaltered." One of Mellon's first acts as Secretary of the Treasury was to ask Congress to end tax exemptions for municipal bonds and other securities. But Congress was not about to set off a political firestorm by doing that. Mellon's Plan B was to cut the top income tax rate, in order to lure money out of tax-exempt securities and back into the economy, where increased economic activity would generate more tax revenue for the government. Congress also resisted this, using arguments that are virtually unchanged to this day, that these would just be "tax cuts for the rich." What makes all this history so relevant today is that the same economic assumptions and political arguments which produced the absurdities of 1921 are still going strong in 2011. If anything, "the rich" have far more options for putting their money beyond the reach of the tax collectors today than they had back in 1921. In addition to being able to put their money into tax-exempt securities, the rich today can easily send millions or billions of dollars to foreign countries, with the ease of electronic transfers in a globalized economy. In other words, the genuinely rich are likely to be the least harmed by high tax rates in the top brackets. People who are looking for jobs are likely to be the most harmed, because they cannot equally easily transfer themselves overseas to take the jobs that are being created there by American investments that are fleeing from high tax rates at home. Small businesses hardware stores, gas stations or restaurants for example are likewise unable to transfer themselves overseas. So they are far more likely to be unable to escape the higher tax rates that are supposedly being imposed on "millionaires and billionaires," as President Obama puts it. Moreover, small businesses are what create most of the new jobs. Why then are so many politicians, journalists and others so gung-ho to raise tax rates in the upper brackets? Aside from sheer ignorance of history and economics, class warfare politics pays off in votes for politicians who can depict their opponents as defenders of the rich and themselves as looking out for working people. It is a great political game that has paid off repeatedly in state, local and federal elections. As for the 1920s, Mellon eventually got his way, getting Congress to bring the top tax rate down from 73 percent to 24 percent. Vast sums of money that had seemingly vanished into thin air suddenly reappeared in the economy, creating far more jobs and far more tax revenue for the government. Sometimes sanity eventually prevails. But not always. |
No one will ever convince me that Obama doesn’t know this already. That being said, what reason, other than the destruction of our country, could he have for going forward with his plans?
Obama’s job bill is nothing more than a new tax bill. It breaks his promise of not increasing taxes on incomes below 250k. His new bar dropped to 200k and will hurt small business
None.
Another good one, Frank!
Thanks...it’s actually very old...the date is 04/2010 on that one. However I think it is still timely, considering who we have for a president.
Timmy boy Geithner remarked that small businesses need to pay much higher taxes. Looks like he is getting his wish !
> His new bar dropped to 200k and will hurt small business
When you think that nearly half, maybe more, in Congress are in the highest tax category themselves, they have to know this. They think we are stupid!
He does know it, and had publicly admitted it on more than one occasion, at least once to Bill O'Reilly in an interview. BoR actually confronted Obama with the fact that as tax rates drop, revenues to the treasury increase. Obama said he knew it, but he wanted to increase taxes for "fairness."
Mark
“Look to the past to see the future....” is something I learned in my youth, and always thought it made sense. History repeats.
Wondering why we elect politicians that have no knowledge of history.
Thanks again jaz. Appreciate the pings to Dr. Sowell, and to Lt. Col. Oliver North.
Excellent point, rqsr.
It may be that the majority do have a knowledge of history but choose to ignore it pandering to voters by saying they're doing something about the problem. Of course they don't say that doing something is far worse in many cases than doing nothing, they're thinking of nothing but their next election.
On the prior article I have no doubt Dr. Sowell is warning people big time that the unemployment numbers won't keep Obama from being reelected.
FDR had to die to leave the WH and Obama is using FDR's playbook to a tee on this economic mess. I believe we'll be hearing a lot more from Sowell on this.
Howie Carr (Boston talk radio host) has frequently mentioned that the bulk of Teresa Heinz Kerry's (Mrs. John) hundreds of millions are safely invested in tax-free munis. I can't believe Kerry's the only one who takes advantage . . . . (No wonder he's so willing to raise taxes on those making over $200,000 though he'd be affected!)
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