Thomas Sowell: The Invincible Lie: Part II or Higher Tax Rates Equal LESS Tax Revenue
As far back as the 1920s, a huge cut in the highest income tax rate — from 73 percent to 24 percent — led to a huge increase in the amount of tax revenue collected by the federal government. Why? Because investors took their money out of tax shelters, where they were earning very modest rates of return, and put their money into the productive economy, where they could earn higher rates of return, now that those returns were not so heavily taxed.
This was the very reason why tax rates were cut in the first place — to get more revenue for the federal government. The same was true, decades later, during the John F. Kennedy administration. Similar reasons led to tax rate cuts during the Ronald Reagan administration and the George W. Bush administration.
All of these presidents — Democrat and Republican alike — made the same argument for tax rate reductions that had been made in the 1920s, and the results were similar as well. Yet the invincible lie continues to this day that those who oppose high tax rates on high incomes are doing so because they want to reduce the taxes paid by high income earners, in hopes that their increased prosperity will “trickle down” to others.