Friday, October 26, 2012

Logic versus Emotion in Society (Part 4 of 8)

by Elaine Walker, October 26, 2012 (Downloadable PDF file)

(1399 words)

"Much of the social history of the Western world over the past three decades has involved replacing what worked with what sounded good." –Thomas Sowell 


Taxation and "the rich"

There are many things in politics that are repeatedly preached in an emotional context that are complete fallacies. It's not always clear if the person stating the fallacy realizes the misleading quality of their statements, or if they are just cleverly using rhetoric and feeling-messages to convince the masses that their ideas are for the best. Are the intentions diabolical or just naive and well intentioned? It depends on who is saying them of course.

Some of the most often quoted fallacies lately have to do with taxation or "the rich". No one else can manage to include more fallacies about Republicans and taxes and rich people in one sentence than our current president, Barack Obama. And no one can dissect it better than Thomas Sowell. I found this gem in one of Dr. Sowell's columns:

On July 9, 2012, President Obama pronounced, "Many members of the other party [the Republicans] believe that prosperity comes from the top down, so that if we spend trillions more on tax cuts for the wealthiest Americans, that that will somehow unleash jobs and economic growth." 

I found a transcription of the speech on the official White House website, and not only did he reiterate this sentiment in so many words in the same speech, but gave similar speeches such as a "weekly address" shortly thereafter, so there is no chance he misspoke. So let's dissect his words.

His use of the word spend is a complete fallacy. Cutting taxes does not equate at all to government "spending". Cutting taxes is not the same as spending. Why? Because cutting taxes does not correlate directly to less tax revenues coming into the government, which would be needed in order to even remotely call it "spending". There are various cause and effect relationships in society that happen in between these two steps. 

For instance, when taxes are lowered, a causal chain of events propagates in society. Individuals can do more with their personal funds boosting the economy any number of ways. When someone suddenly has more funds to hold a conference at a hotel, for example, it benefits the hotel workers on all different levels, from the manager, wait staff, cleaning service, A/V personnel, bartenders, bussers, concierge, bell hops, not to mention the local taxi services, restaurants and their entire staffs, etc. 

If someone buys anything from a loaf of bread to a yacht it benefits the suppliers of the parts or products to make it, the workers who made it, the store that sold it, the media that advertised it. In the case of a yacht there might even be people hired to maintain it who will benefit thereafter. When taxes are lowered for businesses or individuals who run them, they can then hire more employees, raise wages, and improve their business in general. In other words, the poor and middle class fare better when people are allowed to keep their money since it is used to invest in business, create jobs or buy goods and services. In turn, the population is likely to pay more total tax dollars even if tax rates are lower simply because their income is higher and/or there are more people employed.

To put all of this in simpler terms, cutting taxes can sometimes actually raise revenue – not overnight – but after the effects of cutting taxes propagate throughout society. Society is not a static block, but a complex web of interactions. Yet so many assume that tax rates and revenue are directly tied and that therefore it makes sense to call collecting less tax dollars "government spending". But it is sheer fallacy. 

It follows then that if taxes are raised on businesses or on the individuals that run them, it also doesn't correlate directly to the amount of revenues coming into the government. For one thing, it forces companies to make a tradeoff. You can't be forced to pay a higher tax rate and then somehow magically still have the same amount of money leftover to do everything else you were already doing. The new tax burden will inevitably get passed on to the consumer in the form of higher prices, or job layoffs, or pay cuts, and after some time it may actually result in enough of a drop in company revenue that less taxes will be paid, even at the higher tax rate. 

Moving on to more fallacies, when Obama refers to the "wealthiest Americans" he's not actually talking about the wealthiest Americans, since taxes are on income and income does not equate to "wealth". Wealth is what has been accumulated, such as assets, and wealth is not taxed. Older people tend to have more wealth but lower incomes than people in their thirties and forties. So when he refers to the "wealthiest Americans" you can be assured he is really talking about people in their thirties and forties; not necessarily older, uptight, super-rich Conservatives as the stereotype goes. Just because a family makes over $250,000 per year does not mean they are millionaires or billionaires. And millionaires and billionaires can make less than $250,000 per year if they have accumulated wealth. 

Most importantly, it is sheer fallacy to claim that Republicans believe "prosperity comes from the top down" or "trickle down" economics, as they say. To the contrary, Republicans support free-market economics, where individuals at the lowest levels interact voluntarily in the marketplace (microeconomics) – not a top-down scheme (macroeconomics). He is literally stating the exact opposite of what Republicans believe! In fact, a top-down view is a more Liberal stance, where the government is at the top and we are all on some lower level, and that the government's generosity might trickle down to us, if we're lucky.  

Again, in a free market economy, patterns bubble up from the masses, companies are formed, products and services are rendered, and so on and so forth. Only when this bottom-up froth is bubbling do businesses, small and large, "unleash jobs and economic growth". The market only becomes a top-down scheme where the heavy-hand of the government gets involved! 

He repeats this fallacy in the same speech: "So we don’t need more top-down economics. We’ve tried that theory. We’ve seen what happens. We can’t afford to go back to it. We need policies that grow and strengthen the middle class – policies that help create jobs, that make education and training more affordable, that encourage businesses to start up and create jobs right here in the United States." Obama is a master at convincing people of the opposite of reality, and the mainstream media repeats his words without question, no matter how ridiculous the statements.

It is his mastery of rhetoric that somehow makes these fallacies believable to so many. Rhetoric is very flexible. When he extends the Bush tax cuts he calls it "cutting taxes". When he talks about letting the Bush tax cuts expire for the wealthy he doesn't call it raising taxes but rather, "going back to the Clinton tax rates." When he accuses Republicans of possibly letting the tax cuts expire, due to gridlock in Congress, he calls it "raising taxes". The rhetoric is effective because the whole conversation is enough to make anyone's heads spin and it's much easier to grab onto these sound bites than it is to actually think it all through.

"Taxing the wealthy" seems to be all about "spreading the wealth", preventing the "rich" from "hoarding the wealth" and generally equalizing the incomes of society. Fallacies abound. Wealth redistribution is a very unfortunate fallacy because, like so many policies, it harms the very people whom left-wing Democrats intend to help. And the rhetoric can be extreme. Somehow wanting to keep your hard earned money is "greedy" yet it is "idealistic" to want to take what someone else has earned.

Again, it really all comes down to the fact that our legislators, the mainstream media and even our education system have become increasingly emotion based in their messages, rather than logic based, and in doing so present data as simple snapshots in time, as if adjusting tax rates only has one effect (less revenue), instead of explaining the more realistic multiple causes and effects that take time to propagate. The result is that a large sector of the public has increasingly built up negative emotions towards "the rich" which has set off class warfare in our society that is largely misguided and unfortunate.

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Copyright © 2012 by Elaine Walker. Permission to reprint in whole or in part is gladly granted, provided full credit is given and author notified.

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