Many people find it hard to understand how lowering taxes on the rich can increase the tax revenue collected by government. Many liberals then put forth a condescending opinion about “trickle down economics”. The theory of lower taxes is not “trickle down” theory. Geez…you would think these liberals educated in esteemed institution would know at least a little bit about economics.

Thomas Sowell has a way of explaining economic for non-economists:

How can (lower taxes increase tax revenue)? Because 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.

For the country as a whole, the amount of money tied up in tax-exempt securities was estimated to be three times as large as the federal government’s expenditures and more than half as large as the national debt.

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.

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Not only does Thomas Sowell have the proper logic, he also has the history as proof. The roaring twenties were enabled by government cuts in  spending and lowered tax rates. The JFK tax cuts also lead to economic expansion, as did the Reagan tax cuts. During the Clinton years, the capital gains rate was lowered and investment in new technologies took off.

Let history be your guide. History will show you failure (socialism) and success (lower taxes).

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