Yes, I know this video is almost a year old. First of all, it takes an order of magnitude more effort to refute BS than the effort to create it, second, I've had other things to occupy my time while I have been writing and researching this.
Robert Reiche, economist extraordinaire (just ask him), New York Times columnist and destroyer of nations put out a video in April 2019 which is nothing more than another rapid fire video, full of platitudes, carefully distorted half-truths that sound good and talking points that are totally devoid of any sustenance.
I pulled apart one of his points of his “The 7 Biggest economic lies” video in this post. Here I will tackle all twelve of these.
Before I begin, a couple of points so we have a common ground to work upon. First, Reich attempts to portray “The Rich” like Scrooge McDuck, like this:
In reality, someone like Bill Gates (net worth $90 Billion or more) probably has less than 1% of his wealth in cash, either physical or in a bank. The other 99% of his wealth is in various forms of investments. Stocks, bonds, property and the like. These investments have a variety of degrees of difficulty to turn into cash.
Second, when you own something, it’s worth only what someone else will pay you for it, not what you paid for it. Say I have a house I bought for $100,000 ten years ago. If for whatever reason I try to sell it today and the best offer I could get is $30,000, then the house is worth only $30,000, no matter what me, the county property assessor or the appraiser says. The person who sets the value is the person who is willing to shell out the most cash. Also, the value of things go up and down. As I write this, shares of Microsoft are going for $178.59 and Bill has about 298 million shares, which works out to about $53.2 billion and 3.8% of the total company stock. If Bill did something stupid and caused the stock price to tank to $60, he now only has $17.8 billion in stocks, if he sold them. The same goes for cars, property, collectables and the like.
Third, you become wealthy by having a cash income greater than your expenses over an extended period. If you have $1,000 a week income, but you spend $1,100 a week (rent, utilities, food, other expenses, etc.) you will never become wealthy. If you have that $1,000 a week income, but you only spend $800 and put the remaining $200 into an investment (or even under your mattress), that’s how wealth is acquired.
Here is the video, be ready to be stupefied.
Here are my responses, point-by-point.
Myth 1 – A top marginal tax rate applies to all of a person’s total income or wealth.
I have to admit, he’s right on this point. The US has a regressive “last dollar” marginal tax rate. I’m sure Reich was deliberately correct on the opening point to get you to let your guard down because he “might be reasonable this time.” Fat chance.
Myth 2 - Raising taxes on the rich is a far-left idea.
Look at it this way. Since the establishment of the Sixteenth Amendment (the income tax) in 1913, we have seen five presidents enact some kind of lowering or restructuring of the income tax rates. Those presidents are/were Hoover, Kennedy, Reagan, Bush 43 and Trump. Kennedy proposed the tax cut, but was assassinated before it passed. It happened under Johnson and was considered part of Kennedy’s legacy. All of these tax cuts had success, some better than others. All were/are Republicans except for Kennedy. And while Kennedy was a Democrat, if you were to look at his 1960 stances on race relations, taxes, gun ownership and more, his positions viewed through the political lens of 2020, he could undoubtedly be called a Racist Republican Nazi.
Then Reich quotes an opinion poll showing the support of a general “tax the rich” proposal, including 57% of Republicans. All this tells me is Leftists like Reich have been effective in making the Liberal talking point about having the rich “pay their fair share” sound reasonable.
According to The Tax Foundation, in 2014 the top 1% of US households paid 35% of the total income taxes paid to the federal government.
The 90% top marginal tax rates in the 1950's is correct. But did you know there were less than 50 households out of a total of 60 million at that time which were subject to that tax bracket? That’s 0.00000083% of households.
Myth 3 – A wealth tax is unconstitutional.
Remember, the Constitution is a document that defines and limits the federal government. Property taxes are determined, assessed and collected on the city and county level and have zero to do with the federal government. State sales and income taxes also have nothing to do with the federal government.
Then Reich says, “But THE RICH hold most of their wealth in stocks and bonds, so why should these forms of wealth escape taxation?” This guy claims to be an economist, right?
You have already paid income tax of some kind (federal, state and local) on the money you used to purchase those stocks and bonds. When you sell them at a profit, that’s called INCOME and is taxed as capital gains. The same goes for losses. If you buy stock at $10 and sell it at $5, that’s a loss and can be deducted from any profitable trades you made in that year.
And when Mr. Reich brings up Article I Section 8, he neglects the last half of the clause: “…but all duties, imposts (a tax on imported goods, called tariffs today), and excises shall be uniform throughout the United States;” Which means this doesn’t include taxing personal income, or profits from sales. It means a tax on imported goods and it must be equal for the entire country.
The Sixteenth Amendment modified the power of the Congress to lay and collect income taxes and reads thusly:
The Congress shall have power to lay and collect taxes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
By that Amendment, Congress can tax personal income and set whatever tax rates they want, subject to the normal lawmaking process. Which includes capital gains tax rates.
Myth 4 – When taxes on the rich are cut, they invest more and when taxes on the rich are increased, economic growth slows. (Trickle-down economics)
“The Rich” have two things going for them that regular people don’t: accountants and campaign donations. Accountants practice the art of tax avoidance by structuring a person’s or company’s assets in such a way as to pay the least amount of tax possible. They do this by knowing the rules of the game (tax laws) and taking advantage of every deduction possible.
Campaign donations are really nothing more than an investment, in politicians rather than companies. By “investing” in politicians, the politicians write laws into the tax code that are advantageous to the donors. I don’t like it either, but that’s the reality of our present political system.
I have already spoken at length on “Trickle-Down Economics.”
I found a Pew Research chart that showed between 1981 and 1991, the group with the lowest income did grow by 1%, while the top tier income group grew by 2%. So yes, some people became poorer, but more got richer.
Now Reich brings up a chart saying that average real GDP growth between 1950 and 2010 averaged 2.1% for lower tax rates and 4% when the tax rate is 71% or higher. I verified his numbers, and they are correct. I see statistically equal samplings (18 years for the higher tax rate and 14 for the lower), but I have learned to never trust Bob when it comes to statistics, and I was justified in my distrust. Bob should go into magic, with his mad misdirection skills he’d give David Copperfield a run for his money.
You have to pay attention to what is being compared. Reich is doing the equivalent of comparing the length of women’s skirts in the US to the price of coal in India, i.e., these things are not related. Instead of comparing the whole GDP, why not compare each person’s share of the GDP? Because the population as a whole changes, just like the GDP itself. So I found the data for “Average Real GDP Growth Per Capita” (GDP divided by the number of people in the country), and lo and behold, his GDP growth for the high tax rate drops from 4% to 1.07%, while the number change for the lower taxation increases slightly from 2.1% to 2.33%.
Myth 5 – When you cut taxes on corporations, they invest more and create more jobs.
Reich then explains how corporations took the tax cut and bought back their own stock, keeping the stock price high. This is a shell game, and Reich is not explaining the rules.
The “Market cap” of a company (its price if someone wants to buy it) is determined by the number of shares issued times the share price. So which is a bigger company? One that has 1 million “shares outstanding” and has a share price of $100, or one that has 50,000 shares that trade for $2,000 each? They have the same “market cap” so the companies are considered the same size.
Corporations like to keep their stock price in a certain range to make them attractive to certain types of investors. Wal-Mart keeps its’ share price around $100 a share, while Google/Alphabet’s stock price is over $1,100. If the corporation grows, the stock price goes up (see math above). If the value goes down, same thing.
When the stock price goes out of the target range, the corporations can do several things:
- Stock split: When the price gets too high, they “stock split.” What was one share becomes two (or three, or four, it depends). With a 2-for-1 split, that single $100 share becomes two $50 shares.
- Stock merger: This is the opposite of a split. If you have two $50 shares, they become a single $100 share. Don’t ask about odd numbers, I don’t know.
- Stock buyback: A corporation purchases and keeps shares to reduce the “shares outstanding” and raise/keep the stock price up. This is part of the first rule of economics, the supply and demand curve.
Mr. Reich gives you the impression that this is a “nefarious action.” But if you pay attention to the markets, all three of these are common occurrences.
“Enriching executives and wealthy investors but providing no real benefit to the economy.” This is one of these few times where the phrase “A rising tide lifts all boats” applies. It doesn’t matter if you have 10 shares or 10 million shares, you benefit from a higher stock price (when you sell it) and the associated dividends. So not just “executives and wealthy investors.” All investors benefit.
As a last point, looking at the recent unemployment numbers, the number of unemployed people are at records lows, like “the last 50 years” record lows. That includes Blacks and Hispanics, who historically have had higher unemployment numbers than the general population.
During Obama’s tine in the White House, seeing a business with a “help wanted” sign was an anomaly, on the scale with “hen’s teeth.” As I write this in 2020, you can’t turn around without bumping into a help wanted sign. In such a market, companies have to pay more to gain and keep good workers, so employee pay has been increasing since Trump took office. Yes, the pay of the top 20% of workers is rising, what isn’t reported is the pay for the bottom 20% is increasing more.
What was that again, Bob? I would call this “myth” a reality.
Myth 6 – The rich already pay more than their fair share in taxes.
Reich starts out by saying, “This is misleading because it only talks about income taxes.” Remember, wealth is acquired when your expenses are lower than your income for an extended period of time.
Reich then shows a pie chart with Income Taxes, Payroll Taxes, State Taxes, Local Taxes and Property taxes. Again, are we talking about federal, state or local taxes, or all three combined? He jumps back and forth, hoping to confuse you. Income taxes include those capital gains taxes paid by THE RICH. They file a 1040 like the rest of us and use Schedule D to figure out their Capital Gains (or Loss) and the taxes assessed from that form end up on line 11a on the 1040 form.
Payroll taxes (invented by Milton Friedman) are your tax pre-payments to the government that are taken out of every paycheck. What you paid in payroll taxes during the year is compared to what taxes you actually need to pay when you file. If your payroll tax withholding is too high, you get a big refund check (you gave Uncle Sam an interest-free loan) when you file your taxes. If you didn’t withhold enough from your paycheck, you have to send the difference in to get square. So, federal, state and local income taxes all fall under that “payroll taxes” umbrella.
And wouldn’t you think THE RICH pay the same rate in property taxes?
In my county, there is a 1.38% tax on the fair market value of a property. A $75,000 house pays $1,035 a year, a $7,500,000 house pays $103,500 a year. Or does Mr. Reich suggest we should go with a regressive property tax system like our income taxes?
Myth 7 – The rich already pay capital gains taxes.
Reich says, “The rich avoid paying capital gains taxes because they pass their wealth on to their heirs.” Then he passes quickly over “unrealized capital gains.”
See paragraph 5 at the top of this article. An “unrealized capital gain” happens no matter if you hold onto it yourself or pass it to your heirs, any profits (or losses) made are counted when you sell the asset. If I used $100,000 of my money to buy an investment and a couple years later it’s appraised for $200,000, if I haven’t sold it, that extra $100,000 is an unrealized capital gain. It is not taxed nor counted as taxable income because I haven’t sold it yet. “Unrealized” is “ghost money” because if I (or the government) think it’s worth $200,000, but I can only sell it for $95,000, then I have a “capital gains loss” (I know that’s confusing).
Myth 8 – The estate tax is a death tax that hits millions of Americans.
I admit it, he’s right on this one. The estate tax doesn’t kick in until you have assets in excess of $11 Million for a single person, $22 Million for a couple, and a minuscule amount of estates are affected.
But you see, my positions on things like this are based on principles, not political ideology or which way the political winds are blowing. Would you want the IRS showing up at the funeral of your parent, their hand out asking for money? Once you realize the size of the estate is irrelevant, the side of the issue to be on becomes easy. Remember, the IRS will collect taxes when the property is sold.
Myth 9 – If taxes are raised on the wealthy, they’ll find ways to evade them. So very little money will be raised.
Now we skirt the edge of Constitutionality here. Reich states “Elizabeth Warrens’ 2% wealth tax will raise about $2.75 Trillion over 10 years.” First of all, that’s an accounting trick. Let me put it this way, every year, Reich claims this tax would raise $275 Billion, which is about 7% of the annual federal budget. That’s what Leftists have previously called “a rounding error.” It’s also only about 20% if the annual deficit. It doesn’t really matter if you’re overspending by $4 or $5, you’re still overspending.
The Constitutionality of such a tax could be contested under Article I, Section 9, Clause 3 which reads,
“No bill of attainder or ex post facto law shall be passed.”
A bill of attainder is a law that is directed toward a specific person or groups of people. A “wealth tax” that would affect only the top 1% (about 2 million people or 0.00625% of the population) could bump up against this Clause.
A “loophole” is an imperfection in how a law is written or interpreted. Taking advantage of loopholes is called tax avoidance and is legal. Tax evasion is where you falsify documents to pay less taxes (or don’t file or pay them at all) and against the law. Loopholes can be accidental or they can be intentional on the part of the law writer. The more complex the tax laws are, the easier it is to have loopholes. And with the current tax law running over 75,000 pages, that’s a lot of loopholes.
This was one of the reasons for the Flat Tax proposal. There were no deductions, no write-offs, no exemptions, no targeted tax cuts. Line 1, “How much did you make?” Line 2, “Multiply Line 1 by the tax rate.” Line 3, “How much have you paid already?” Line 4, “Subtract Line 3 from Line 2. If positive, send this amount in.”
Then Reich says “ 'for a 70% tax over $10 million' we would raise a whopping $720 billion over the next ten years." Again, per year that works out to $72 billion a year, or about a quarter of Warren’s 2% wealth tax.
Myth 10- The only reason to raise taxes on the wealthy is to collect revenue.
“Help us reduce the national debt?” Really Bob? Really?
Sorry Bob, the only way to reduce the national debt is if the federal government spends less than it raises in tax revenues. Just raising taxes (no spending cuts) is a horrible way to achieve that goal. In 1981, the federal government collected about $505 Billion in taxes and spent $578.8 Billion, leading to a spending deficit of $73.8 Billion. When Reagan left office in 1988, thanks to his tax cuts the government collected $949 billion that year. Thanks to Congress, the 1988 deficit was $155.18 Billion because Congress spent $1.104 Trillion. If Congress had kept spending level (or near to it), we would have been filling in that hole of the national debt instead of digging deeper.
Then Reich spills the beans by saying, “It’s to promote [income] equality and prevent oligarchy.”
So, a small cadre of people who get Political Science degrees in prestigious Universities and immediately enter into government service, then work to rise to positions of power in the federal government and basically dictating what is actually done, not necessarily what the elected leaders tell them to do, how is this not an oligarchy?
And if we confiscate the wealth of "The Rich," then who would have the incentive to start a small business with the intent of becoming wealthy? I mean, you put everything into your business, 80-100 hour work weeks, 3rd mortgage on the house, sell everything but the kids to keep things running until it takes off, then as soon as you become successful and get that big cash flow... the government takes most if not all of it.
Myth 11 – It’s unfair to raise taxes on the wealthy.
Let me put it this way. If you took every dollar, every asset of “The Rich” over $250,000, that would be about $1.5 Trillion dollars. At the current spending rate, that would fund the government from 12:01 January 1st until about April 30th at 8:30pm. There’s 244 days left in the year after we confiscate all the wealth of “The Rich.” And what are we going to do next year? There’s nothing left to take or tax from them. You didn’t shear the sheep and remove its wool, so it could grow more wool, you killed it, harvested its meat and other parts and there is nothing left.
Myth 12 – They earned it. It’s their money!
I just found a whole new level of stupid, and Bob’s his name. He sets up the strawman of Myth 12, then says, “[The Rich] couldn’t maintain their fortunes without what America provides… and a nation that respects private property rights.”
So he plagiarizes Obama’s “You didn’t build it” speech, then says "we live in a nation that respects property rights." Literally 82 seconds after Bob is talking about overtaxing “The Rich” to provide “income equality,” he then says, “…a nation that respects private property rights.” This makes my brain hurt. I’ve heard the phrase, “The logic is inescapable” before, for this instance I’m going to have to say, “The logic is inachieveable.” Bob is needing you to have the memory of a goldfish (11 seconds) to swallow his BS.
When we get right down to it, what is money but private property? Money is a measure of the value of my work product. The more valuable my work product is, the more money I get for a given period of time. Doctors are paid more than plumbers because their work product is more valuable.
And there you have it. My article on “What is money?” should enlighten you a bit as well.