Sowell: The Once And Future Mellon

You Can’t Tax the Rich - Thomas Sowell - National Review Online: "Secretary Mellon estimated that the amount of money invested in tax-exempt securities had nearly tripled in a decade. The amount of this money that the tax collector couldn’t touch was larger than the federal government’s annual budget and nearly half as large as the national debt. Big bucks went into hiding.

Mellon highlighted the absurdity of this situation: “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.”

One of Mellon’s first acts as secretary was to ask Congress to end tax exemptions for municipal bonds and other securities. But Congress was not about to set off a political firestorm by doing that.

Mellon’s Plan B was to cut the top income-tax rate, in order to lure money out of tax-exempt securities and back into the economy, where increased economic activity would generate more tax revenue for the government. Congress also resisted this, using arguments that are virtually unchanged to this day — that these would just be “tax cuts for the rich.”

What makes all this history so relevant today is that the same economic assumptions and political arguments that produced the absurdities of 1921 are still going strong in 2011.

If anything, “the rich” have far more options for putting their money beyond the reach of the tax collectors today than they had back in 1921. In addition to being able to put their money into tax-exempt securities, the rich today can easily send millions — or billions — of dollars to foreign countries, with the ease of electronic transfers in a globalized economy.

In other words, the genuinely rich are likely to be the least harmed by high tax rates in the top brackets. People who are looking for jobs are likely to be the most harmed, because they cannot equally easily transfer themselves overseas to take the jobs that are being created there by American investments that are fleeing high tax rates at home."

Did I forget to mention that Sowell rocks?