OPINION: Taxes and truth, another look at some claims

I read with great interest Tom Shaughnessy’s response to my original letter in the Daily Inter Lake titled “Other People’s Money.” Let’s look at a few of the points of disagreement we seem to have, which he enumerated in his response titled “Republicans Have No Problem Stealing Other People’s Money.”

First, Tom implied that I might consider all Democrats to be evil. If this were true, I would need to consider many of my friends and relatives to be evil. No, it’s just that, in my opinion, sometimes their policies can be a bit misguided.

Let’s continue by further examining some of the other points Tom made in his response. He seems to think that I would be in favor of eliminating all taxes. He also seems to believe that I might think that lowering taxes could make us all rich or millionaires. If these were actually things I believed, it could in fact be what Tom considers “twisted logic.”

Instead, my belief is that reasonable taxation is indeed necessary to finance federal and state governments. However, I do believe, as history has shown us, that as tax rates are increased there is some level of taxation that begins to create negative returns (less revenue collected). This is best exemplified by the Laffer Curve, which graphically shows the relationship between tax rates and revenue actually collected.

At some point as taxes are increased, people and businesses begin searching for ways to avoid higher taxes, thus decreasing revenue. We see this today where large companies are increasingly using inversions to avoid 35 percent corporate tax rates in this country. By changing company domicile to countries such as Ireland, they are able to capitalize on Ireland’s 12.5 percent corporate tax rate.

Let’s not try to correct this by punishing corporations by adding more punitive regulations to keep them here but instead provide incentives for them to want to stay. I believe the easiest way to stem this tide is, yes Tom, by lowering corporate tax rates in this country so our companies can more fairly compete in world markets.

Next let’s examine Tom’s theory that the tax cuts in the 1920s “created the Great Depression.” There have been many books written about this subject, and renowned and highly respected economists have debated it at length. In fact they are still talking about it today and there are several different theories. None that I can find blame it on the tax cuts of the 1920s.

For example, the late Milton Friedman, winner of the Nobel Memorial Prize in Economics, believed that it was the failure of the Federal Reserve for not stepping in and providing the necessary liquidity to stop the run on the banks.

 There are many other theories espousing the cause of the Great Depression. Among them and not at all inclusive are the stock market crash of 1929, loss of confidence in the banking system, unemployment, and restricted trade by new tariffs such as the Smoot-Hawley Tariff Act. I have not found anywhere, in any lectures or printed material, information supporting Tom’s theory that the tax cuts of the 1920s “created the Great Depression.”

Tom’s theory is also that FDR ended the Great Depression by his “90 percent tax rate and massive deficit spending.” This also has been debated thoroughly in books and lectures.

Perhaps we only need to look back at what FDR’s Secretary of Treasury and chief architect of FDR’s New Deal, Henry Morgenthau, said: “We have tried spending money [to end the depression]. We are spending more than we have ever spent before and it does not work.” He further remarked, “I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started ... and enormous debt to boot.”

Unemployment did not begin to decline until 1942 when the U.S. began the draft preparing for World War II. This caused unemployment to decline from 17.2 percent in 1939 to 1.9 percent by 1945.

It does not appear that Secretary Henry Morgenthau would agree with Tom that FDR’s “90 percent tax rate and massive deficit spending” was responsible for bringing an end to the Great Depression

Still is a resident of Kalispell.