Taxes

Sowell's Lower Taxes on Rich Mean More Revenue: Spin or Not?

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A recent Sowell column characteristically argues for extending the Bush tax cuts, claiming that lower tax rates for the richest increase tax revenues and to think otherwise is 'sheer hogwash.' He cites data (probably from some Heritage Foundation report) from the 1920s.

Some things he doesn't tell us, however, tell us a lot. For instance, after Reagan's income tax cuts took effect in 1982, here's what happened over the next six years (in $millions):

                    Ind.+Corp.                                                   Tax

                    Income                                   Taxes/          Cut

Year            Taxes              GDP                  GDP            Loss

1982           346,951          3,253,200            0.107         

1983           325,960          3,534,600            0.092          51,002

1984           355,308          3,930,900            0.090          63,919

1985           395,862          4,217,500            0.094          53,931

1986           412,102          4,460,100            0.092          63,564

1987           476,483          4,736,400            0.101          28,650

1988           495,689          5,100,400            0.097          48,264

Taxes in the absolute rose for the simple reason the economy (GDP) grew. In other words, removing the effect of the rising economy, taxes would have fallen from the 1982 base by at least one whole percentage point in five of the six years (that's over $300 billion over the six years).

Maybe you could try and argue that the tax cuts for the rich were a cause of the GDP growth, but you need more evidence than Sowell's claim that if you press into the wealthiest's income with too high tax rates (he, of course, never specifies the tax rate range over which this works--how about zero?), they will simply shift some portion of their their income into some unspecified non-taxable shelters (presumably, then, entailing some loss of productive resources to society).

There are other periods, likewise, that don't support the stuff-the-fed-coffers-by-lowering-tax-rates-on-the-rich scheme. Like the Clinton 1993 tax increases with resulting increased revenues. There are good reasons Sowell's claim is counter-intuitive, if not 'sheer hogwash.'