Arguments without arguments

SolitaryRoad.com

Website owner:  James Miller

[ Home ] [ Up ] [ Info ] [ Mail ]

Widely used textbooks written by various well-known historians make a particular assertion. It is an assertion which is either true or not true and it’s truth can be checked and verified. The authors of the textbooks are professors in some of our leading universities and are well known and accepted authorities. Some are Pulitzer Prize winners. Would you believe the assertion that they make? Would you trust the integrity and authority of these authors sufficiently to believe that they would certainly not make a statement of fact unless they knew absolutely that it was in fact true? Or are they just regular human beings with all of the foibles of human beings who say a lot of things that they think they know, but in fact are wrong much of the time?

What is the process by which you come to believe almost anything that you know (or think you know)? Do you not take the word of experts? Where does the most of the information that most of us know (or think we know) come from? Doesn’t it come from authorities of some kind or other? Teachers in school or college. School textbooks. Various books and magazines. Newspapers. Church. Parents. TV. YouTube videos. Could it be that most of what we think we know is actually false?

Consider the following:

The following is from Thomas Sowell. Intellectuals and Society. pp. 147 - 157

______________________________________________________________________________

arguments without arguments

Not only are people who oppose the vision of the anointed deemed to be unworthy, arguments inconsistent with that vision are likewise often deemed to be unworthy of serious engagement, and are accordingly treated as something to be discredited, rather than answered. This process has produced many examples of Schumpeter’s observation about fighting not against people and ideas as they are but against caricatures of those people and those ideas. Among other things, this has produced two of the most fashionable political catch phrases of our time, “tax cuts for the rich,” and the “trickle-down theory.” An examination of these particular phrases may shed light on how other such phrases are generated and keep getting repeated, without benefit of either evidence or analysis — in short, as arguments without arguments.

At various times and places, particular individuals have argued that existing tax rates are so high that the government could collect more tax revenues if it lowered those tax rates, because the changed incentives would lead to more economic activity, resulting in more tax revenues out of rising incomes, even though the tax rate was lowered. This is clearly a testable hypothesis that people might argue for or against, on either empirical or analytical grounds. But this is seldom what happens.

Even when the particular tax cut proposal is to cut tax rates in all income brackets, including reducing tax rates by a higher percentage in the lower income brackets than in the upper brackets, such proposals have nevertheless often been characterized by their opponents as “tax cuts for the rich” because the total amount of money saved by someone in the upper brackets is often larger than the total amount of money saved by someone in the lower brackets. Moreover, the reasons for proposing such tax cuts are verbally transformed from those of the advocates — namely, changing economic behavior in ways that generate more output, income, and resulting higher tax revenues — to a very different theory attributed to the advocates by the opponents, namely “the trickle-down theory.”

No such theory has been found in even the most voluminous and learned histories of economic theories, including J. A. Schumpeter’s monumental 1,260 page History of Economic Analysis. Yet this non-existent theory has become the object of denunciations from the pages of the New York Times and the Washington Post to the political arena. It has been attacked by Professor Paul Krugman of Princeton and Professor Peter Corning of Stanford, among others, and similar attacks have been repeated as far away as India. It is a classic example of arguing against a caricature instead of confronting the argument actually made.

While arguments for cuts in high tax rates have often been made by free-market economists or by conservatives in the American sense, such arguments have also been made by people who were neither, including John Maynard Keynes and President John F. Kennedy, who in fact got tax rates cut during his administration. But the claim that these are “tax cuts for the rich ,” based on a “trickle-down theory” also has a long pedigree.

President Franklin D. Roosevelt’s speech writer Samuel Rosenman referred to “the philosophy that had prevailed in Washington since 1921, that the object of government was to provide prosperity for those who lived and worked at the top of the economic pyramid, in the belief that prosperity would trickle down to the bottom of the heap and benefit all.” The same theme was repeated in the election campaign of 2008, when presidential candidate Barack Obama attacked what he called “the economic philosophy” which “says we must give more and more to those with the most and hope that prosperity trickles down to everyone else.”

When Samuel Rosenman referred to what had been happening “since 1921,” he was referring to the series of tax rate reductions advocated by Secretary of the Treasury Andrew Mellon, and enacted into law by Congress during the decade of the 1920s. But the actual arguments advocated by Secretary Mellon had nothing to do with a “trickle-down theory.” Mellon pointed out that, under the high income rates at the end of the Woodrow Wilson administration in 1921, vast sums of money had been put into tax shelters such as tax-exempt municipal bonds, instead of being invested in the private economy, where this money would create more output, incomes and jobs. It was an argument that would be made at various times over the years by others — and repeatedly evaded by attacks on a trickle-down theory found only in the rhetoric of opponents.

What actually followed the cuts in tax rates in the 1920s were rising output, rising employment to produce that output, rising incomes as a result and rising tax revenues for the government because of the rising incomes, even though the tax rates had ben lowered. Another consequence was that people in higher income brackets not only paid a larger total amount of taxes, but a higher percentage of all taxes, after what have been called “tax cuts for the rich.” There were somewhat similar results in later years after high tax rates were cut during the John F. Kennedy, Ronald Reagan and George W. Bush administrations. After the 1920s tax cuts, it was not simply that investors’ incomes rose but this was now taxable income, since the lower tax rates made it profitable to get higher returns by investing outside of tax shelters.

The facts are unmistakably plain, for those who bother to check the facts. In 1921, when the tax rate on people making over $100,000 a year was 73 percent, the government collected a little over $700,000 million in income taxes, of which 30 percent was paid by those making over $100,000. By 1929, after a series of tax rate reductions had cut the tax rate to 24 percent on those making over $100,000, the federal government collected more than a billion dollars in income taxes, of which 65 percent was collected from those making over $100,000.

There is nothing mysterious about this. Under the sharply rising tax rates during the Woodrow Wilson administration, fewer and fewer people reported high taxable incomes, whether by putting their money into tax-exempt securities or by any of the other ways of rearranging their financial affairs to minimize their tax liability. Under Woodrow Wilson’s escalating income tax rates, to pay for the high costs of the First World War, the number of people reporting taxable incomes of more than $300,000 — a huge sum in the money of that era — declined from well over a thousand in 1916 to fewer than three hundred in 1921. The total amount of taxable income earned by people making over $300,000 declined by more than four-fifths during those years. Since these were years of generally rising income, as Mellon pointed out, there was no reason to believe that the wealthy were suddenly suffering drastic reductions in their own incomes, but considerable reason to believe that they were receiving tax-exempt incomes that did not have to be reported under existing laws at that time.

By the Treasury Department’s estimate, the money invested in tax-exempt securities had nearly tripled in a decade. The total value of these securities was almost three times the size of the federal government’s annual budget and more than half as large as the national debt. Andrew Mellon pointed out that “the man of large income has tended more and more to invest his capital in such a way that the tax collector cannot reach it.” The value of tax-exempt securities, he said, “will be greatest in the case of the wealthiest taxpayer” and will be “relatively worthless” to a small investor, so that the cost of such tax losses by the government must fall on those other taxpayers “who do not or cannot take refuge in tax-exempt securities.” Mellon called it an “almost grotesque” result to have “higher taxes on all the rest in order to make up the resulting deficiency in the revenues.”

Secretary Mellon repeatedly sought to get Congress to end tax-exemptions for municipal bonds and other securities, pointing out the inefficiencies in the economy that such securities created. He also found it “repugnant” in a democracy that there should be “a class in the community which cannot be reached for tax purposes.” Secretary Mellon said: “It is incredible that a system of taxation which permits a man with an income of $1,000,000 a year to pay not one cent to the support of his Government should remain unaltered.”

Congress, however, refused to put an end to tax-exempt securities. They continued what Mellon called the “gesture of taxing the rich,” while in fact high tax rates on paper were “producing less and less revenue each year and at the same time discouraging industry and threatening the country’s future prosperity.” Unable to get Congress to end what he called “the evil of tax-exempt securities,” Secretary Mellon sought to reduce the incentives for investors to divert their money from productive investments in the economy to putting them into safe havens in these tax shelters:

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 in worth while. It will continue to retire into the shelter of tax-exempt bonds, which offer both security and immunity from the tax collector.

In other words, high tax rates that many people avoid paying do not necessarily bring in as much revenue to the government as lower tax rates that more people are in fact paying, when these lower tax rates make it safe to invest their money where they can get a higher rate of return in the economy than they get from tax-exempt securities. The facts are plain: There were 206 people who reported annual taxable incomes of one million dollars or more in 1916. Bu as tax rates rose, that number fell to just 21 people by 1921. Then, after a series of tax rate cuts during the 1920s, the number of individuals reporting taxable incomes of a million dollars or more rose to 207 by 1925. Under these conditions, it should not be surprising that the government collected more tax revenue after tax rates were cut.

Nor is it surprising that, with increased economic activity following the shift of vast sums of money from tax shelters into the productive economy, the annual unemployment rate from 1925 through 1928 ranged from a high of 4.2 percent to a low of 1.8 percent.

The point here is not simply that the weight of evidence is on one side of the argument rather than the other but, more fundamentally, that there was no serious engagement with the arguments actually advanced but instead an evasion of those arguments by depicting them as simply a way of transferring tax burdens from the rich to other taxpayers. What Senators Robert La Follette and Burton K. Wheeler said in their political campaign literature during the 1924 election campaign — that “the Mellon tax plan” was “a device to relieve multimillionaires at the expense of other taxpayers,” and “a master effort of the special privilege mind,” to “tax the poor and relieve the rich” — would become perennial features of both intellectual and political discourse to the present day.

Even in the twenty-first century, the same arguments used by opponents of tax cuts in the 1920s were repeated in the book Winner-Take-All-Politics, whose authors refer to “the ‘trickle-down’ scenario that advocates of helping the have-it-alls with tax cuts and other goodies constantly trot out. No one who actually trotted out any such scenario was cited , much less quoted.

Repeatedly, over the years, the arguments of the proponents and opponents of tax rate reductions have been arguments about two fundamentally different things — namely (1) the distribution of existing incomes and existing tax liabilities versus (2) incentives to increase incomes by reducing tax rates, so as to get individuals and institutions to take their money out of tax shelters and invest it in the productive economy. Proponents and opponents of tax rate reductions not only had different arguments, they were arguments about different things, and the two arguments largely went past each other untouched. Empirical evidence on what happened to the economy in the wake of those tax cuts in four different administrations over a span of more than eighty years has also been largely ignored by those opposed to what they call “tax cuts for the rich.”

Confusion between reducing tax rates on individuals and reducing tax revenues received by the government has run through much of these discussions over these many years. Famed historian Arthur M. Schlesinger, Jr., for example, said that although Andrew Mellon advocated balancing the budget and paying off the national debt, he “inconsistently” sought a “reduction of tax rates.” In reality, the national debt was reduced, as more revenue came into the government under the lowered tax rates. The national debt was just under $24 billion in 1921 and it was reduced to under $18 billion in 1928. Nor was Professor Schlesinger the only highly regarded historian to perpetuate economic confusion between tax rates and tax revenues.

Today widely used textbooks by various well-known historians have continued to grossly misstate what was advocated in the 1920s and what the actual consequences were. According to the textbook These United States by Pulitzer Prize winner Professor Irwin Unger of New York University, Secretary of the Treasury Andrew Mellon, “a rich Pittsburgh industrialist,” persuaded Congress to “reduce income taxes at the upper levels while leaving those at the bottom untouched.” Thus “Mellon won further victories for his drive to shift more of the tax burden from high-income earners to the middle and wage-earning classes.” But hard data show that, in fact, both the amount and the proportion of taxes paid by those whose net income was no higher than $25,000 went down between 1921 and 1929, while both the amount and proportion of taxes paid by those whose net incomes were between $50,000 and $100,000 went up — and the amount and proportion of taxes paid by those whose net incomes were over $100,000 went up even more sharply.

Another widely used textbook, co-authored by a number of distinguished historians, two of whom won Pulitzer prizes, said of Andrew Mellon: “It was better, he argued to place the burden of taxes on lower-income groups” and that a “share of the tax-free profits of the rich, Mellon reassured the country, would ultimately trickle down to the middle- and lower-income groups in the form of salaries and wages.” What Mellon actually said was that tax policy “must lessen, so far as possible, the burden of taxation on the least able to bear it.” He therefore proposed sharper percentage cuts in tax rates at the lower income levels — and that was done. Mellon also proposed eliminating federal taxes on movie tickets, because such taxes were paid by “the great bulk of the people whose main recreation is attending the movies in the neighborhood of their homes.” In short, Mellon advocated the direct opposite of the policies attributed to him.

Those who attribute a trickle-down theory to others are attributing their own misconception to others — including, in this case, a highly successful businessman like Andrew Mellon — as well as distorting both the arguments used and the hard facts about what actually happened after the recommended policies were put into effect.

Another widely used history textbook, a best-seller titled The American Nation by Professor John Garraty of Colombia University, said that Secretary Mellon “opposed lower tax rates for taxpayers earning less than $66,000.” Still another best-selling textbook, The American Pageant with multiple authors, declared: “Mellon’s spare-the-rich policies thus shifted much of the tax burden from the wealthy to the middle-income groups.”

There is no need to presume that the scholars who wrote these history textbooks were deliberately lying, in order to protect a vision. They may simply have relied on a peer consensus so widely held and so often repeated as to be seen as “well-known facts” requiring no serious re-examination. The results show how unreliable peer consensus can be, even when it is peer consensus of highly intellectual people, if those people share a very similar vision of the world and treat its conclusions as axioms rather than as hypotheses that need to be checked against facts. These history textbooks may also reflect the economic illiteracy of many scholars outside the field of economics, who nevertheless insist on proclaiming their conclusions on economic issues.

When widely recognized scholars have been so cavalier, it is hardly surprising that the media have followed suit. For example, New York Times columnist Tom Wicker called the Reagan administration’s tax cuts “the old Republican “trickle-down” faith.” Washington Post columnist David S. Broder called these tax cuts “feeding the greed of the rich” while “adding to the pain of the poor” — part of what he called the “moral meanness of the Reagan administration.” Under the headline , “Resurrection of Coolidge,” another Washington Post columnist, Haynes Johnson, characterized the Reagan tax cuts as part of the “help-the-rich-first, and let-the-rest-trickle-down philosophies.”

John Kenneth Galbraith characterized the “trickle-down effect” as parallel to “the horse-and-sparrow metaphor, holding that if the horse is fed enough oats, some will pass through to the road for the sparrows.” Similar characterizations of a “trickle-down” theory were common in op-ed columns by Leonard Silk, Allan Brinkley and other well-known writers of the time, as well as New York Times editorials.

When President George W. Bush proposed his tax rate cuts in 2001, citing the Kennedy administration and Reagan administration precedents, denunciations of “trickle-down” economics came from, among others, Arthur M. Schlesinger, Jr., Paul Krugman, and Jonathan Chait. Washington Post columnist David S. Broder denounced “the financial bonanza that awaits the wealthiest Americans in the Bush plan.”

Implicit in the approach of both academic and media critics of what they call “tax cuts for the rich” and a “trickle-down theory” is a zero-sum conception of the economy, where the benefits of some come at the expense of others. That those with such a zero-sum conception of the economy often show little or no interest in the factors affecting the creation of wealth — as distinguished from their preoccupation with its distribution — is consistent with their vision, however inconsistent it is with the views of others who are focused on the growth of the economy, as emphasized by both Presidents John F. Kennedy ad Ronald Reagan, for example.

What is also inconsistent is attributing one’s own assumptions to those who are arguing on the basis of entirely different assumptions. Challenging those other assumptions, or the conclusions which derive from them, on either analytical or empirical grounds would be legitimate, but simply attributing to them arguments that they never made is not.

In the 1960s President Kennedy, like Andrew Mellon, decades earlier, pointed out that “efforts to avoid tax liabilities” made “certain types of less productive activity more profitable than other more valuable undertakings” and “this inhibits our growth and efficiency.” Therefore the “purpose of cutting taxes” is “to achieve the more prosperous, expanding economy.” “Total output and economic growth” were italicized words in the text of John Kennedy’s address to Congress in January 1963, urging cuts in tax rates. Much the same theme was repeated yet again in President Ronald Reagan’s February 1981 address to a joint session of Congress, pointing out that “this is not merely a shift of wealth between different sets of taxpayers.” Instead, basing himself on a “solid body of economic experts,” he expected that “real production in goods and services will grow.”

Even when empirical evidence substantiates the arguments made for cuts in tax rates, such facts are not treated as evidence relevant to testing a disputed hypothesis, but as isolated curiosities. Thus when tax revenues rose in the wake of the tax rate cuts made during the George W. Bush administration , the New York Times reported: “An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year.” Expectations, of course, are in the eye of the beholder. However surprising the increases in tax revenues may have been to the New York Times, they are exactly what proponents of reducing high tax rates have been expecting, not only from these tax rate cuts, but from similar reductions in high tax rates going back more than three-quarters of a century.

______________________________________________________________________________

In the above article it is obvious that people on the left thoroughly hate the rich and resent anything that might be given to them. It seems like a sort of knee-jerk reaction. Apparently they would oppose any reduction of taxes for the rich even if the measure would also reduce their own taxes.

It is not clear to me if these liberals are opposed to the idea of reducing the taxes on the rich because of their great hatred for the rich or because their minds are just not capable of understanding the basic mechanism involved in this (how low taxes incentivize the rich to change the way they invest their money, investing in taxable business enterprises instead of tax-exempt securities). Perhaps liberals are as a class just dumb and the concept involved is too subtle for their minds.

Just as people who become involved in a religious cult can have their minds, hearts, beliefs, attitudes and values programmed and molded in some particular way by such techniques as constant repetition of various ideas and assertions (thus giving them their outlooks, values and mentality), in the same way people who become adherents of political ideologies can have their minds formed by the repeated repetition of particular assertions, ideas, outlooks, attitudes, and values giving them a particular type mind and mentality. Communism is an example of this. Communists have their own unique set of axioms, premises, assumptions, and beliefs. Today’s liberal Left is also an example of this.

The foundation of today’s liberal Left is Secular Humanism, an atheistic kind of “religion.” See Religious liberalism; Humanism

One of the bad things that tends to happen to people who get involved in cults is that they lose their common sense. Their good judgment, natural intuition, sensibleness becomes inoperative. The same kind of thing happens to people who become victims of ideological (political) movements. The modern Left that is now ruling in the western world is such a cult. That is why the Liberals so often seem to people on the Right to lack good sense.

One of the things to remember is that it is a fact of human nature that most people are more inclined toward impulse, feeling and emotion than toward mind, reason, and intellect. They follow their feelings rather than their mind. They are too lazy to take the time to question, analyze, think. They follow natural instinct, follow the crowd, believe whatever they are told, and are creatures of bias and prejudice.

More than this most people only listen to people who think as they think, believe as they believe. They stay within their own philosophical group. Thus their group becomes a kind of “echo chamber” where the only outlooks and facts they hear are of those who see life in the same way they do — people of their own outlook and mentality.

10 Jan 2024