American Elephants

Obama’s “Trickle Down Government.” by The Elephant's Child

For some time in the campaign, Barack Obama has sneeringly referred to “trickle down snake oil” and to “trickle down theory” as something that Romney wants to do and is what caused all our problems in the first place. Democrats have long used the “trickle down economics” claim to denigrate supply-side economics. The latter has nothing to do with the former, which has never existed in theory or economic thought. “Trickle Down Theory is simply a tool,” as economist Walter Williams said yesterday, “of charlatans and political hustlers.”

Last night, Mitt Romney successfully skewered that tool of Obama’s by calling Obama’s policies as “trickle down government.” Wonderful. It is exactly descriptive of the Obama administration policies.  There is lots of evidence about the effect of tax cuts. Way back in the Harding administration, in 1921, Secretary of the Treasury Andrew Mellon advocated tax rate cuts, which Congress enacted into law.  As a result there was rising output, unemployment went down sharply, and the resulting higher income produced higher federal tax revenues. When more people are working, more people are paying taxes which means higher revenues even though rates have been lowered. Similar results were obtained in the administrations of John F. Kennedy, Ronald Reagan and George W. Bush when high tax rates were cut.

In 1921 the tax rate on people earning more than $100,000 a year was 73%., the federal government collected a little more than $700 million in income taxes, of which 30 percent was paid by those who earned more than $100,000. By 1929, after the tax rate had been cut to 24 percent on incomes higher than $100,000, the federal government collected more than $1 billion in income taxes, of which 65 percent was collected from those with incomes higher than $100,000. This is all explained in a short paper from Dr. Thomas Sowell from the Hoover Institution: “Trickle Down Theory and Tax Cuts for the Rich.”

One part of Dr. Sowell’s paper is a discussion of what Mellon called the “gesture of taxing the rich.” He tried unsuccessfully to put an end to the tax-exempt securities. Tax exempt securities and other tax breaks are valuable tools in envy and class warfare. Politicians get votes by raising taxes on the wealthy, while at the same time providing the wealthy a way out of high taxes through tax-exempt securities. This explains how President Obama can raise tens of millions of dollars in campaign contributions from Hollywood millionaires and Wall Street tycoons. “Tax cuts for the rich” demagoguery is deception perpetrated on the gullible and useful idiots.

We’ll see if Romney’s “trickle down government” has ended Obama’s use of the deceitful tool. Great term for Republicans to use at every opportunity.


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