Soaking the Rich Never Works

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The New York Times is doing their best to cover the spending tracks left by President Obama. The op-ed, titled "The Truth About the Deficit" could win gold in mental gymnastics. They bend, twist and contort the facts into a pretty little ball of "blame Bush."

I showed you yesterday that George W. Bush was part of the problem, but Obama is pressing the accelerator. The Times claims that the deficit is the result of cutting taxes on the wealthy and they offer this stern warning: "The last thing the government should do is slash spending."

History tells us that "taxing the rich" and slashing government spending are both progressive lies. I read a lot and I read a lot of in-depth history. I could send you to "Woodrow Wilson and the Roots of Modern Liberalsm," but it will make your eyes bleed. Instead, this is a beginner’s book of history, a gateway to the history that no one is teaching: "A Patriot’s History of the United States."

I can’t believe I’m going here, but let me tell you a little about Presidents Harding and Coolidge.

Andrew Mellon — he was the Timothy Geithner without the TurboTax scandal — did a study in 1921 on why the wealthier classes had paid less and less in taxes as the government raised the rates on them over and over again. Mellon found that higher taxes actually drove the money underground.

Let’s put it in today’s context. On Monday, I showed you the reports on Oprah Winfrey and her mansion in Montecito, California — because California has one of the highest progressive tax rates on people making over $1 million a year, she actually monitors the number of days she stays there, in order to avoid being considered a "full-time resident" and thus avoid paying the full punishment in taxes.

Here’s another example: In 1969, Ireland introduced a tax-exempt status for artists. When they decided, in 2006, to put a cap on that tax break — 250,000 euros — Bono, another one of these celebrities who champion progressive politicians, promptly moved U2′s business operations to the Netherlands.

That’s how the money goes "underground," just like Mellon found in the 1920s; the uber-rich look to save money any way they can. And as long as it’s legal, I don’t blame them. But it drives me nuts when I see people like Oprah campaigning for the guy who wants more taxes and then she doesn’t want to pay the taxes.

I mean, who do you think he’s talking about when he says "the wealthiest one percent?" Come on, Oprah! Do your patriotic duty, like Vice President Biden says.

How about Michael Moore? I thought the rich don’t pay their fair share? So why did he apply for and receive a tax credit from the state of Michigan of all places for shooting his latest film there? Michael, why are you so greedy?

Soaking the rich doesn’t work; they move their money as California and New Jersey are finding out. They leave the state. New Jersey in four years has lost $70 billion in wealth.

They leave!

In the 1920s, Mellon found that "the rich" tended to invest abroad rather than build new factories and mills in the United States and pay the 73 percent tax on the income from those investments. That’s right, 73 percent.

It didn’t start that way, though. When progressive Woodrow Wilson introduced the "progressive income tax" in 1913, the 16th Amendment had to be passed because income taxes were unconstitutional. How did these reformers manage to get it passed? They said taxes would be extremely low. Many would pay no taxes at all.

The richest of the rich only paid seven percent, while the average American paid one percent. Of course, it didn’t last. By the end of Wilson’s term the lowest bracket bumped up to four percent and the highest at 73 percent.

President Harding decided to listen to Mellon. And from 1921 to 1926, Congress worked to reduce the top tax rates. Eventually they got to top rates down to 25 percent. The result: Tax revenues from the wealthiest taxpayers tripled. The national debt dropped from $24 billion to $18 billion.

President Calvin Coolidge assumed the presidency in 1923 after Harding suddenly died and continued with the smaller government, lower tax strategy. He talked about not building up the weak by pulling down the strong; not being in a hurry to legislate and cutting the size of government. Coolidge and Harding decreased the real per capita federal expenditures from $170 per year in 1920 to $70 in 1924.

These policies, along with fostering the mentality of self-reliance (the opposite of what progressives had been preaching the previous 20 years) and the opposite of what they preach now, by saying "too big to fail" or you can’t make it without government safety nets.

What followed was arguably one of the most prosperous eight years this country has ever seen. You’ve probably heard of a little term called "The Roaring Twenties," right? The progressive history books have done their best to hide the fact that a lot of it had to do with Mellon’s tax policies, including the tax cuts for the wealthy.

Progressives don’t want you to know this. They’ll say the tax cuts and small government caused the Great Depression. No, I’m going to go out on a limb here and use common sense: The same things that caused the problems of today were the root of the problem in 1929: greed; the Federal Reserve; government making every single mistake. The president before the crash was a Republican, but a progressive Republican. But, that’s for another show.

Let me get back to what happened when they cut taxes in 1921:

Automobile production was up 191 percent for the decade and while the elites bemoaned those wealthy fat cats and their automobiles, their appetite for driving created jobs. The demand for auto-related products skyrocketed: metal; lumber; steel; cotton; leather; paint; rubber; glass and of course, gasoline. Companies had to be created to meet the demand. This is real job creation. People had to be hired. Roads were being built. State highway construction spending increased tenfold between 1918 and 1930; did they fire all the cops and teachers?

In 1920 there were only 5,800 passengers who had flown on a plane. By 1930 it was 70 times that amount.

RCA brought us the radio and along with it, advertising. Now you could hear Babe Ruth hitting home runs all anywhere in the country.

Thomas Edison brought us movies in the 1880s, but in the 1920s the true modern-era motion picture arrived with Cecil B. Demille and "The Ten Commandments."

A whistling Mickey Mouse was introduced to America by Walt Disney in 1928; the first cartoon with synchronized sound.

Conveniences like telephones became less exclusive and more commonplace in the ’20s. More Americans had irons, vacuums, washing machines and refrigerators. And all of these new products meant there was a demand for something else: energy. America needed huge power plants.

Does all of this innovation and growth seem to anyone else, like lasting job creation? Assuming the Fed and the government don’t come in and screw everything up. And unlike the temporary jobs or the low-paying census jobs our government creates, per capita income had increased 37 percent from 1921 and 1929. People saved and invested like never before, gaining access to things for the first time such as life insurance.

It was America’s coming-out party. And all of this success, all of the innovation, all of the prosperity without punishing the rich, without big government, absolutely baffled progressives. Especially the fact that everyone benefited; from the bottom up.

Evidence? Leon Trotsky, a Marxist revolutionary in the Soviet Union with Lenin, later lived in New York City in 1917. He fought all his life for Marxism to help the working class. Here’s what he said about New York: "We rented an apartment in a workers district… and that apartment, at $18 a month, was equipped with all sorts of conveniences that we Europeans were quite unused to: Electric lights, gas cooking range, bath, telephone, automatic service elevator, and even a chute for the garbage."

What would Mr. Communism himself have said about New York a decade later? This was the conditions for the working class under evil, evil capitalism.

I can tell you what the intellectuals and the progressives said. F. Scott Fitzgerald said that Americans had engaged in "the greatest, gaudiest spree in history."

What do you think "The Great Gatsby" was all about? How materialistic and evil the average American had become? No. Did you read your own book?

The fact that the middle class was closing in on the upper class because the policies of smaller government — decreasing government spending and cutting taxes on the wealthy — were working didn’t sit well with progressives.

And we are at the same place in history today.

We have a clear choice: Do we listen to the elites and The New York Times who warns of the dangers of cutting spending and lowering taxes? Or do we listen to our gut and common sense? The things that work in our own home. If the boss is having trouble keeping the doors open, you don’t ask for a raise. If you are in debt, you stop spending.

We need to set the country back on the course of personal responsibility and innovation because that leads to prosperity and a better life for all of its citizens.

— Watch Glenn Beck weekdays at 5p & 2a ET on Fox News Channel