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The Left’s Favorite Economic Fallacies

In early October on the Senate floor, Senator Rand Paul (R-KY) said, “Rather than bicker over raising taxes on some people and lowering taxes on other people, we should cut everyone’s taxes.” This notion is one that many on the Left cannot seem to rebuke as they oppose the recently released GOP tax reform bill by claiming it will “cut taxes for the rich” and that “trickle-down economics” fails. Senator Bernie Sanders (D-VT) even stumbles on this question, recently making a fool out of himself when asked about it by a small business owner during a CNN debate with Senator Ted Cruz (R-TX).

The reason for this is that there simply is no good argument against why all Americans deserve to have their taxes lowered. Lower taxes and fewer regulations provide the only means for an economy to reach its full potential. “Trickle-down economics” and “tax cuts for the rich” are lines created by the Left and are nothing but slurs for how economics actually works. They are fallacious terms because they only look at the immediate effects of the policy, rather than its long term implications.

The term “trickle-down” is not one that any conservative came up with. It was first coined as a joke by comedian Will Rogers and later adopted as political mud by opponents of the Reagan administration’s economic policies of the 1980’s. Today, it is the usual retort thrown at folks who advocate for lower taxes by claiming that we believe in a so-called “trickle-down” effect from the rich to the poor. The term is woefully misguided. The point of cutting taxes is the force that drives an economy is individuals who have the means to save and invest their own money.

The actual term for what we on the Right advocate for is “supply-side” economics. It’s the theory that the supply of goods and services is what propels the economy, rather than the demand. Lower taxes and less regulation are designed to increase the amount and availability of supply in the market. A main Democratic argument against lowering individual and corporate taxes centers on the fact that consumer spending accounts for 70 percent of economic growth in the country, rather than corporate investment. This is true, but consumer spending is the end result of economic activity. Goods and services do not come from consumers, but from producers. In order for there to be a demand, there must first be an availability of supply.

This brings us to “tax cuts for the rich.” Democrats have used this phraseology to criticize the recently released House GOP plan, even though it really does not lower taxes in a significant way for wealthy people. They say that the rich need to “pay their fair share” and that the re-circulation of money around the economy will boost consumer spending and create expendable capital for the bottom tier of income earners. They argue that this will create an economy that “works for all.”

The rich not only pay their fair share in our current tax system, they pay nearly all of the income taxes going to the federal government. According to IRS data for the fiscal year of 2015, U.S. citizens making over $200,000 accounted for nearly 60 percent of all income taxes paid to the federal government, while only receiving 33 percent of the total income. When you factor in the benefits that people receive back in the form of entitlements, the adjusted rate is upwards of 80 percent. In addition, citizens making $50,000 or less paid only 4 percent of federal income taxes. This is both a wrong and an inefficient way to tax people.

Economies also rely on people who have expendable capital that they can use to start businesses, create new products and services, and allow commerce to flourish. It’s the unfortunate truth that poor people do not propel the market. Generating expendable income for the poor via the re-circulation of tax dollars will result in those people spending it on the essentials, such as food, water, and clothing. It may help those people in the short run, but it’s not what will assure their future economic security. It’s simply impossible to spend somebody into wealth. That is not to say that the poor do not deserve some sort of social safety net, but it cannot happen at the expense of those who are putting more supply into the market. The inherent problem with demand-side economics is that a demand for iPhones does not guarantee that more iPhones will be produced. It comes from the work of entrepreneurs who had the knowledge and the resources to bring that product into the world.

Someone who creates a business that provides a product or service that makes lives better, while creating jobs in the process, is doing more to eliminate poverty than social security ever will. It’s wrong to look at tax cuts and say that “the rich need to pay their fair share” and that “trickle-down” economics does not work. Capitalism requires freedom to flourish. The U.S. economy has been growing in recent months because of an increase in consumer spending and capital investment mostly due to the promise of business-friendly policies, such as corporate rates being lowered to 20 percent. I ardently hope that tax reform is signed into law and that the GOP leadership will continue to lower taxes for everyone, unleashing the power of American enterprise. Contrary to the belief of those on the Left, it has and always will be impossible to tax an economy into prosperity.

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