Golden Oldies vs. Brass Oldies

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Thomas Sowell posted an article at Townhall.com today about golden oldies and brass oldies.  I like his description of both--golden oldies are the classic songs from years past, brass oldies are political fallacies that have been around for a long time.  In the article is relates the history of one of the most common "brass oldies."

Mr. Sowell states:

"One of these brass oldies is a phrase that has been a perennial favorite of the left, "tax cuts for the rich." How long ago was this refuted? More than 80 years ago, the "tax cuts for the rich" argument was refuted, both in theory and in practice, by Andrew Mellon, who was Secretary of the Treasury in the 1920s."

Mr. Sowell explains that the reason tax cuts generate revenue is that tax policy influences behavior.  He cites one example:

"...taxpayers change their behavior according to what the tax rates are. When one of the Rockefellers died, Mellon discovered that his estate included $44 million in tax-exempt bonds, compared to $7 million in Standard Oil securities, even though Standard Oil was the source of the Rockefeller fortune."

Generally speaking, ''the rich" understand more about how money works than the rest of us (or else we would be rich, too).  They also have the cash available to move into areas that will be taxed less. 

The article further states:

"In short, huge amounts of money were not being invested in productive capacity, such as factories or power plants, but was instead being made available for local political boondoggles, because this money was put into tax-exempt state and local bonds.

"When tax rates are reduced, investors have incentives to take their money out of tax shelters and put it into the private economy, creating higher returns for themselves and more production in the economy. Andrew Mellon understood this then, even though many in politics and the media seem not to understand it now."

The article concludes:

"The rich actually paid more total taxes, and a higher percentage of all taxes, after the Bush tax rate cuts, because their incomes were rising with the rising economy.

"Do the people who keep repeating the catch phrase, "tax cuts for the rich" not know this? Or are they depending on your not knowing it?"

Thomas Sowell contributes more to my economic education in a few paragraphs than a whole semester of economics did in school!  Thank you, sir, for your insight.

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This page contains a single entry by Granny G published on October 26, 2010 8:49 AM.

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