The 12 Biggest Myths About Raising Taxes on the Rich
Some politicians are calling for higher taxes on the rich. Naturally, these proposals have unleashed a torrent of opposition – mostly from…the rich. Here are the 12 biggest myths they’re propounding:
Myth 1: A top marginal tax rate applies to all of a rich person’s total income or wealth.
Wrong. It would only apply to dollars in excess of a certain level. The 70 percent income tax rate proposed by Congresswoman Alexandria Ocasio-Cortez would apply only to dollars in excess of 10 million dollars a year. The 2 percent wealth tax proposed by Elizabeth Warren would apply only to wealth in excess of 50 million dollars.
Myth 2 : Raising taxes on the rich is a far-left idea.
Baloney. 70 percent of Americans – including 54 percent of Republicans – support raising taxes on families making more than 10 million dollars a year. And expecting the rich to pay their fair share is a traditional American idea. From 1930 to 1980, the average top marginal income tax rate was 78 percent. From 1951 to 1963 it exceeded 90 percent – again, only on dollars in excess of a very high threshold. Even considering all deductions and tax credits, the very rich paid over half of their top incomes in taxes.
Myth 3: A wealth tax is unconstitutional.
Rubbish. Most locales already impose an annual wealth tax on the value of peoples’ homes – the main source of household wealth for most people. It’s called the property tax. The rich hold most of their wealth in stocks and bonds, so why should these forms of wealth escape taxation? Article I Section 8 of the Constitution gives “Congress [the] power to lay and collect taxes.”
Myth 4: When taxes on the rich are cut, they invest more and everyone benefits, when taxes on the rich are increased, economic growth slows.
Utter baloney. Trickle-down economics is a cruel joke. Donald Trump, George W. Bush, and Ronald Reagan all cut taxes on the rich, and nothing trickled down. There’s no evidence that higher taxes on the rich slows economic growth. To the contrary, when the top marginal tax rate has been high – between 71 to 92 percent – growth has averaged 4 percent a year. But when top rate has been low – between 28 and 39 percent – growth has averaged only 2.1 percent.
Myth 5: When you cut taxes on corporations, they invest more, and create more jobs.
Wrong again. After Trump and the Republicans lowered the corporate tax rate in 2018, America’s largest corporations cut more jobs than they created. They used their tax savings largely to increase their stock prices by buying back their own shares of stock – enriching executives and wealthy investors but providing no real benefit to the economy.
Myth 6: The rich already pay more than their fair share in taxes.
This is misleading, because it focuses only on income taxes – leaving out the large and growing tax burden on lower-income Americans; payroll taxes, state and local sales taxes, and property taxes take bigger bites out of the pay of lower-income families than higher-income.
Myth 7: The rich shouldn’t be taxed more because they already pay capital gains taxes.
Misleading. Rich families avoid paying capital gains taxes by passing their wealth on to their heirs. In fact, the largest share of big estates transferred from generation to generation are unrealized capital gains that have never been taxed.
Myth 8: The estate tax is a death tax that hits millions of Americans.
Baloney. The current estate tax, which only applies to assets in excess of 11 million dollars, or 22 million dollars for couples, affects fewer than 2,000 families.
Myth 9: If taxes are raised on the wealthy, they’ll find ways to evade them. So very little money is going to be raised.
More rubbish. For example, a 2 percent wealth tax, as proposed by Senator Elizabeth Warren, would raise around 2.75 trillion dollars over the next decade with very little tax evasion, according to research. A 70 percent tax on incomes over 10 million would raise close to 720 billion dollars over 10 years.
Myth 10: The only reason to raise taxes on the wealthy is to collect revenue.
No. Although these proposals would generate lots of revenue – and help us reduce the national debt while investing in schools, roads, and all the things we need – another major purpose is to reduce inequality, and thereby safeguard democracy against oligarchy.
Myth 11: It’s unfair to raise taxes on the wealthy.
Actually, it’s unfair not to raise taxes on the rich. For the last 40 years, most Americans have seen no growth in their incomes at all, while the incomes of a minority at the top have skyrocketed. We’re rapidly heading toward a society dominated by a handful of super-rich, many of whom have never worked a day in their lives. More than 60 percent of wealth in America is now inherited.
Myth 12: They earned it. It’s their money.
Hogwash. It’s their country, too. They couldn’t maintain their fortunes without what America provides – national defense, police, laws, courts, political stability, and the Constitution. They couldn’t have got where they are without other things America provides – education, infrastructure, and a nation that respects private property. And to argue it’s “their money” also ignores a lot of other ways America has bestowed advantages on the rich – everything from bailing out Wall Street bankers when they get into trouble, to subsidizing the research of Big Pharma.
So the next time you hear one of these myths, know the truth.