A False Dichotomy

I heard on the radio yesterday that a new poll says most people are confident that Obama will fix the economy.

Then, this: only one in three wanted tax cuts, yet 8 of 10 want to prioritize on fixing the economy and creating jobs.

Ironically, tax cuts are more likely to accomplish both of those other goals than to prevent them.

Raising taxes reduces tax revenue and slows economic growth and makes jobs go away. If this seems counter-intuitive, then instead of questioning the concept, it might be time to question the underlying assumptions, which are not backed by history.

The economics of a free market is one thing that everybody who votes should really try to understand better. I’m no expert, but I do know that when it comes to the economy, government doesn’t fix anything — it can’t, because it doesn’t produce anything other people want to pay for. It just gets in the way. And the evidence is pretty clear that higher taxes are bad for everybody, not just the people paying them. Yet every election cycle, we hear all about “tax cuts for the rich”, which is code for “the wealthy are screwing the rest of us”. It doesn’t really work that way, but we hear it anyway, and lots of people buy it. Don’t fall for it.

I’m a relative newcomer to the power of the free market, just in the last few years, after having read various free-market economists like Thomas Sowell. A book by Virginia Postrel, The Future and Its Enemies, was also very influential in changing my thinking about the power of markets (a website for it is  here). And anything by P.J. O’Rourke, but especially All the Trouble in the World, which is an instant classic, and caused me to think “wow” on nearly every page just for the quality of writing therein.

The truth of the matter — which is why politicians never mention it — is that tax policies advocating higher taxes are really about class warfare. They want you to think of the economy as a big pie that has finite size, and more pie for others means less pie for me. But free market economies grow, and shrink, and they do so because of things like tax rates, and interest rates, and other factors that affect investment decisions. And when free market economies grow, or shrink, they do so for nearly everybody, not just rich people.

So — even if your main objective is to help poor people — the sensible thing to do is to advocate for policies that encourage investment. Choosing instead to raise taxes in order to spite rich people, AND inevitably hurt the poor and middle-class, is not just mean-spirited, it’s dumb.

But enough of my pitiful attempts to explain this, read the experts (and excellent writers, to boot) like Sowell and Postrel and O’Rourke.

Just for fun, a bonus chart of the highest marginal tax rates during the Great Depression, which increased from 25% just before to 79% in 1939. How’d that work out?

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