TRUMP: Trickle Down Theory & Tax Cuts for the Rich


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We fight for and against not men and things as they are, but for and against the caricatures we make of them.” J. A. Schumpeter

Hello Everyone, Happy Hump Day.

I hope that we all had a fun, safe, and amazing Labor Day Weekend and a wonderful start to the labor week. 

I was reading my Fundamentals of Corporate Taxation Theft*™ Cases and Materials, Tenth Edition last night for my Fundamentals of Corporate Taxation Theft*™ class tonight, and learned a very interesting fact. In These Beautiful United States many, many, many moons ago in the late 19th and early 20th century, our federal income tax rate for individuals and corporations was a very high, worrisome, and economic crippling… 2%. 

Lately, I have received some great constructive criticism about my columns. That being said, I hope by now for my readers and followers, the sarcasm is apparent. However, in the light of the aforementioned, I make this very crucial note: I do enjoy being sarcastic. Now, we are all on the same page; pun intended.  

Regarding the implementation of those taxes, it was seen as a “Socialist Plot.” And, those advocating that position weren’t entirely wrong, source: New Deal programs, “War on Poverty.” Safety nets are okay; wealth redistribution, well, someday, you run out of other peoples’ money. Then the Fed turns on the printers, and that isn’t the smartest or safest strategy

Our topic of discussion for today is one I have always seen become recurrent since entering the public forum for political debate. A topic that, somehow, is always relevant during election years, especially when Republicans tout tax cuts and other changes to the Internal Revenue Code (IRC). 

Such “Republican” changes which are lambasted, reprimanded, and condemned as “Tax Cuts for the Rich” meant to intensify, proliferate, and strengthen, an economic system of the “Trickle Down Theory” of economics—a system even “expert” economists do not tout. Politicians, however, do.

With the General Election closing in on us, I thought I would take the liberty and get out ahead to set the stage with a primer for when this topic creeps back in on Facebook, Twitter, etc. by arm-chair-leftists economists being useful idiots and sharing Krugman and Krew from The New York Times and Washington Post

The ones we all know who post about how raising tax rates will increase Gross Domestic Product—somehow, some way. Where there’s a will, there’s a way, as the old adage goes. Or that raising the federal minimum wage 100% won’t have any negative ramifications on the private sector and will somehow, magically, create more jobs with higher wages. Hm. It seems Obama, Sanders, and Biden are the ones who think this economics stuff works with a flick of a wand. Interesting. 

Divert. Distract. Detract. 

The “theory” or “economic philosophy” is one that “says we should give more and more to those with the most and hope that prosperity trickles down to everyone else” –Barack Obama, 2008. People elected Obama on hope; hope did not get us very far. And having “hope” in a “economic philosophy” is quite an interesting inclusion on an important topic that affects most of us a lot differently than that top 1% we hear about. Increase the gasoline tax? Why not! That’ll show those 1%’ers. 

For some basic numbers, a 15% tax increase on a yearly bill of $2,000 would, in theory, increase that bill to $2,300. Gas, “sin” tax goods, and many other goods we do not think much of when it comes to the taxes we pay are in-elastic goods. In-elastic goods means the price has to increase really dramatically, really fast, to affect consumer behavior noticeably

The effect of a 15% tax increase to the top 10% is not as much to their pocketbooks as a 15% increase is to the bottom 80%. This also works vice versa regarding tax decreases—you know, tax cuts. Moreover, items such as these, the taxes disproportionately fall on the poor. I think that’s called a, regressive tax? Yet liberals in government keep raising these types of taxes. Odd. 

I digress. 

Back to Obama, Sanders, and Bidens’ theory: Tax Cuts for the Rich, then, allow the rich to pay less in taxes and then, in theory, because they have more, they will give us more through the trickle-down effect of their…something. I’m not entirely sure, it’s a flawed thought process. Ironically, some of the steepest Tax Cuts for the Rich have come under Democrat Administrations, Houses, and Senates. Those times, however, they seem to be tax cuts for the people. Or somehow trickle-down theory is just not brought up, I guess. 

Along with the many other flaws which are inherent with the philosophy of Tax Cuts for the Rich and Trickle Down Theory, such as being, wrong, it conflates many metrics which are not remotely the same. Tax revenues are not the same as tax rates, which sounds like common sense. Absolute gain and percentage gain—sometimes, oddly enough, having a larger percent of a smaller pie is better than having a smaller percentage of a larger pie. 

Especially when we’re talking about the pie you currently have; not the pie you want. In a progressive tax system, such as our own, for everyone to get tax cuts, each bracket and the percentage applied have to be lowered. So, those Tax Cuts for the Rich and Trickle Down Theory, are also tax cuts and “trickle down theory” for everyone else, too. (If it was a real theory.) 

Moreover, when so-called economists are called to create economic modeling based on, say, Jobless Joe Biden’s economic policies, the projections are done ceteris paribus, or all things constant. 

Sure. If we raised the tax rates to 100% on all income produced in the United States in 2019, ceteris paribus, the federal government and the Treasury Department could tax $23.1 trillion in federal tax revenues. What a genius idea. Then we could maybe, finally, start putting a dent in our federal public debt. 

Of course. That is not how any of this stuff works in the real world, which seems to be something said a lot when discussing Joe Biden’s policies. 

Humans have free-will and respond to the systems within which we operate based on personal perceptions. If the income tax was 100%, no one would work—or at least be employed on the books. Or people would not work under their own volition. Amen, Second Amendment. Some of this, I swear, sounds like I am beating a dead horse. I understand. However, maybe if we lead the live horses to enough ponds, they will finally take the Red Pill. Whoops. I mean, drink the water. 

Tax Cuts for the Rich, Trickle Down Theory, and its proponents disregard the fact that tax rates come down the most for the lower tax brackets, i.e. those who make less, pay less in taxes in percentage terms, and in absolute terms. I hate to break it to ANTIFA and the Socialist Squad, but when we lower the effective tax rates more for those making less, that is probably something we should make permanent. H.R. 1. (2018). Because an effective tax rate of 15% on an income of $100,000 means more to that person than an effective tax rate of 50% for people making a million. $500,000 in income will always go a lot further than $85,000. Or at least it should, in theory. 

So, ignoring those minor details for a moment, if we lowered the rich persons effective tax rate to, say, 25% they would have a higher income of $750,000. 

Every time the United States has lowered tax rates, federal tax revenues have gone up. Ironically, if the object of the socialist left and democrats is to have more money at the federal level to dish out, you think they would be on board with letting Americans keep more of their own hard-earned money. They must have some other type of motive, it seems, or just not that smart. Who knows these days? 

Back during the debates on federal taxation in the 1920s, Secretary of the Treasury Andrew Mellon had quite the progressive point: 

Just as labor cannot be forced to work against its will, so it can be taken for granted that capital will not work unless the return is worthwhile. It will continue to retire into the shelter of tax-exempt bonds, which offer both security and immunity from the tax collector. 

Remember those Panama Papers and all those rich people hiding their assets all over the world in tax safe havens—clearly, we are still learning from our government’s mistakes of the past. False rhetoric to the public doesn’t help much, Main Stream Media. Regardless, when the economic and taxation framework incentivizes individuals to invest, spend, consume, and even, maybe, not lie about how much money they really make, then individuals will do just that

Here is a wild idea: simplify the tax code. Sure, lawyers who get paid really high and fancy fees to do things like the Panama Papers will be upset, but everyone else, economy, and government revenues included, will benefit. 

People with a lot of money, like a lot of money, it’s a funny thing when you really think about it—they seem to like making a lot of money. So, when they have freed up capital to further invest more and make more money, they will do it because they want to. Jeff Bezos, for all of Washington Post’s rhetoric, probably loves being the richest person in the world. Who wouldn’t? I am sure he likes to keep it that way, too. 

New capital infused into an economy is not “trickling down” when it was locked up in a cage. Instead, think of a bird finally being set free, or whose wings really weren’t actually clipped, like my friend Wally and my three-hundred-meter dash to help my good neighbor Tim catch his daughter’s bird. That’s a story maybe for another time. However, no cliff hanger, we did catch Wally.

Yes, those darn tax cuts benefit some wealthy people too. But a large corporation or high net worth individual who has $100 billion in assets overseas who does not want to pay excessive taxations to bring the money to the United States is $100 billion in assets overseas not in our economy. I am sure we could all agree if for every dollar you earned Uncle Sam wants forty cents, or you could also not pay the forty cents and keep the whole dollar, you would choose the latter, too. I would. 

However, if Uncle Sam maybe lowered that rate to, fifteen cents, and I could keep $85 billion, that’s a whole lot of new jobs, increased wages, investments, charity, and economic improvement that can happen.

Oh. And it would also be $15 billion in tax revenue for Uncle Sam. Everyone wins. Interesting.

Moreover, all those new jobs, increased wages, investments, charity, and economic improvement further widens, increases, and expands the government’s tax base. 

Wow. Maybe it is as easy as flicking a wand. Or picking up a pen, signing a new Act, and letting Americans create prosperity. We could call it The American Main Street Economic Recovery (E.R.) Act, seeing as we are still emerging from the economic turmoil caused by China’s communist incompetence

(Pun intended.)

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