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The Myth of Trickle-Down Economics

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    Economist Thomas Sowell on why a lower tax rate helps the economy.

  • Duration 5:49
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Well president Obama's almost certain to characterize Mitt Romney's tax plans tonight as tax cuts for the rich or accuse him of advocating trickle down a cut economic says he's done before.

But is that a fair characterization where did it come from.

Famed economist Thomas -- -- been looking into all this he just wrote an essay entitled trickle down theory and tax cuts for the rich.

Is published by the Hoover institution press and professor soul joins us now professors always gonna have -- thanks for coming in.

Thanks for having me so it has any Republican.

Actually ever advocated something called trickle down economics.

Neither Republican nor Democrat.

-- -- any other group -- any human being that I know.

-- ever do that so where does that come from.

It doesn't people who are opposed.

To tax cuts.

Who say that the people who -- what the tax cuts just want to argue more money to the rich.

And hopes that you don't that the their prosperity -- trickled out.

No -- that no one that was that and years ago in my column my challenged anyone to name any human being who ever is that it outside of an insane asylum.

No one ever did many people -- someone who said the someone else that it which you can never find that ultimate someone else who actually said it.

So it's setting up a straw man and and what it's doing is playing into the the notion that that the us vs them notion that they are rich.

Or that we are poor because they are rich and we will never get rich unless they are brought down to our level right.

Absolutely the irony is this is a recent thing if you go back to the time low blows they run 19901920s.

Democrats and Republicans alike.

Secretaries of the treasury in the Wilson administration in the -- administration and the Coolidge administration also.

When tax rates are too high.

Are there you -- collect the money because people going to tax shelters.

They'll buy tax free municipal bond from Seoul on and so you have -- -- less money -- you would it will lower tax rate.

And based apply that argument tax rates were cut -- 1920s.

From a high of 73%.

To 24%.

-- 24%.

The government collected far more revenue than they ever -- -- -- 3%.

I mean 700% of nothing does not bring in revenue.

But -- the point is is that the fact that when you lower tax rates the economy gets a charge and that increases economic activity.

And it added and it increases actually government revenue was well because there's -- work.

Tax dollars and that doesn't mean that there's trickle down that doesn't mean that -- the rich giving little pieces.

Of the applied to the poor right.

Absolutely and -- the conception of the economy that every -- one group -- some of the group loses -- they have no interest in what causes that for the economy to produce more -- of the blessed.

And the holds -- -- the tax cuts both from the Coolidge administration they.

Kennedy administration Reagan bush etc.

Is that people's behavior changes when you change the tax rates and and and general.

If you look at -- alleviation of poverty.

That is not come about by changing the shares of the out cop out what.

That is among different groups is come because the whole pie has gotten bigger not because fifth fighting for a law to slice what you meant.

You mentioned the Kennedy administration if in fact we do hear this from President Obama tonight that accusing -- have -- pushing a trickle down.

Economic theory perhaps the -- -- to -- -- to -- John F.

Kennedy who was very clear in specific.

About supporting the idea of lowering tax rates who -- increase economic activity he said.

Back in 1962 it is a paradoxical truth that the -- this way.

To raise the revenues in the long run is to cut the tax rates now the purpose of cutting taxes now.

Is not to incur a budget deficit but to achieve a more prosperous expanding economy which can bring.

A budget surplus could -- it said it any better.

No I could not another -- the Kennedy said was a rising tide lifts all boats.

In other words he was getting away from the class warfare stuff.

The class warfare thing makes a lot of sense politically but only politically.

That is I don't they Obama knows this because -- he was asked this question back in 2008.

And he understood -- some value deck of the tax rate you get less and sometimes you could bring it down -- get more.

But what.

That his his goal obviously about to get more revenue for the government is to get more votes from self.

But -- in the Republicans have defenders -- the rich while he's the champion of the middle class before.

Well in 1980 as you well remember they tried the same thing against Ronald Reagan -- even some Republicans like George Herbert Walker Bush -- called it voodoo economics this idea.

But it didn't work the American public didn't -- they said we like the notion of lower tax rates across the board for everybody.

Do you think -- fell by at this time or do you think they'll be suckered in to lead the trickle down theory.

I think it all depends on whether the Republicans ought -- -- -- When you -- are Ronald Reagan was certainly the most articulate of the Republicans the last hundred years.

Whether anybody else is gonna do about -- get the same idea across through.

Any other Republican would get the same idea across the republic.

That is something we may see some clue about tonight.

The economist Thomas soul who is author most recently got so many books it's hard to keep him in.

In memory but -- this what is called trickle down theory and tax cuts for the rich you get a through the Hoover institution press top so great to see you again thanks for coming in appreciated.

Thanks everybody thank you.

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