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Stossel: Tax Myths

Alexandria Ocasio-Cortez thinks taxing the rich at 70 percent will bring in lots of tax money. It won't.

On 60 Minutes, Rep. Alexandria Ocasio-Cortez (D–N.Y.) recently said "people are going to have to start paying their fair share in taxes."

Anderson Cooper then asked her what a "fair share" would be.

Ocasio-Cortez responded that in the past, "Sometimes you see tax rates as high as 60-70 percent."

Soon, that became the progressive plan.

But economic historian Phil Magness, of the American Institute for Economic Research, says that progressives miss an important fact: The high tax rates that America had in the past actually didn't bring in much revenue.

When rates were at 70 percent, Magness tells John Stossel, "A millionaire on average would pay 41 percent."

That's because rich people find loopholes. When America had its highest top tax rates, newspapers ran ads like "Cruise for free...$2,499 value."

Magness explains: "Basically [you could] take a vacation around the Caribbean, but while you're onboard the ship, you attend, say, an investing seminar or a real estate seminar—then write off the [whole] trip."

Stossel says that deductions became so complex that rich people, instead of investing in, say, a precursor to the iPhone, hired accountants and tax lawyers to study the tax code. Some also worked less.

This led President Ronald Reagan, with bipartisan support from Democrats, to lower rates and remove deductions. That began the path to the 37 percent top rate that rates that we have today.

Despite the lower rates, federal government revenue—as a percentage of the economy—is still about the same as it was when the top rate was 70 percent. It's even about the same as it was when the rate was 90 percent.

Stossel asks Magness about the claim that "the government will collect more and do good things."

"You're asking for an economic disaster," Magness replies. More money will be wasted in the hands of government. "Do we leave it in the private sector where the market decides? Or do we subject it to corrupt politicians?"

Stossel says: Let the market decide, even though that means some get really rich, because economic growth benefits everyone.

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The views expressed in this video are solely those of John Stossel; his independent production company, Stossel Productions; and the people he interviews. The claims and opinions set forth in the video and accompanying text are not necessarily those of Reason.

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  • Rockabilly||

    Fact or fiction.

    Democrat/progressive/socialist/communists can achieve orgasm by taxing, regulating, and controlling.

    FACT

    Trump's tax returns would be an aphrodisiac for a Democrat/progressive/socialist/communist.

    FACT

  • Enjoy Every Sandwich||

    If the rich don't find loopholes, they'll take their riches and depart for sunnier climes.

  • Ray McKigney||

    Right. Anyone who's bringing in enough money to be subject to that rate would have enough money to pay someone to figure out how not to pay that rate.

  • creech||

    One wonders why Manafort didn't have adequate tax counsel. The usual practice is for your CPA/tax attorney to give you a warning letter if you want to file a return, against their advice, that is hinky.

  • Ray McKigney||

    Good question.

  • DesigNate||

    Didn't his accountant steal a crap ton of money from him?

  • loveconstitution1789||

    Rick Gates — the star witness against President Trump's former campaign chairman — admitted in federal court Monday that he committed a host of crimes with his former boss, and confessed to stealing from him and others.

    In his first hour on the witness stand, Gates catalogued years of illegal activity, saying most of his wrongdoing was committed on behalf of his former boss, Paul Manafort, while other crimes were for his own benefit, including the theft of hundreds of thousands of dollars. Gates also made clear that he was testifying against Manafort with the hope of receiving a lesser prison sentence, having pleaded guilty in February as part of a deal with special counsel Robert S. Mueller III.
    -WaPo

  • Tony||

    While their political party beats everyone over the head with flag-humping patriotism, no doubt.

  • loveconstitution1789||

    Poor Tony. He watches as all his dreams of Socialism circling the drain.

  • Enjoy Every Sandwich||

    No doubt. But that doesn't solve the revenue problem, does it?

  • Last of the Shitlords||

    We have plenty of revenue. Unfortunately we have plenty of spending too.

  • Brian||

    And the other side of the aisle overnights their excess income to the government, no doubt.

  • The Knuckle||

    Ala William Jefferson keeping that cash in the freezer for safe keeping until he got it to the IRS.

  • AER1972||

    Yes Willie was keeping it cool

  • loveconstitution1789||

    Thanks Stossel.

  • loveconstitution1789||

  • Quo Usque Tandem||

    AOC won her primary because the incumbent did not take her seriously; it was a low turnout primary election and her supporters showed up to help her win; she won the general because Bronx = whoever the Democrat on the ticket.

    Now in addition to her freshman/woman whatever position in Congress, she is a "social media star" with an adoring block of idiots who promote her views without ceasing. So she gets lots of media attention to spout the nonsense they like to hear.

    Personally I am glad for it; I cannot imagine a greater encumbrance to liberal politics, along with the likes of Talib [MI]. Omar [MN], Gabbard [HI] and the other 98 members of the Progressive Congressional Caucus. They will do more than anyone to keep Trump [ass that he is] in office for another term.

  • loveconstitution1789||

    Part of me wants all the current Democrats to run against Trump.

    This way it would illustrate how little support these lefties actually have. Only a few Democrats would get above 10% support with Democrats like Pete Buttigieg would be lucky to get a few percentage points.

    None would beat Donald J. Trump.

  • Kevin Smith||

    Personally I am glad for it; I cannot imagine a greater encumbrance to liberal politics

    The Democrats ceased to be a liberal party years ago

  • Weigel's Cock Ring||

    The views expressed in this video are solely those of John Stossel; his independent production company, Stossel Productions; and the people he interviews. The claims and opinions set forth in the video and accompanying text are not necessarily those of Reason.

    As always, the understatement of the century!

  • Tony||

    Societies have managed to successfully tax the rich before. There's a reason the world of Downton Abbey no longer exists. What a stupid hack.

  • loveconstitution1789||

    "Societies have managed to successfully tax the rich before."

    Your citation fell off.

  • Brian||

    ... and the people lived happily ever after.

  • Enjoy Every Sandwich||

    It can be done so long as it isn't too over-the-top. But that's not a reasonable thing to expect from your bunch. You don't know when to quit.

  • Brian||

    When policy is driven by butthurt, I expect nothing less.

  • Enjoy Every Sandwich||

    "Driven By Butthurt"...sounds like a good name for a band. A progressive band of course.

  • Last of the Shitlords||

    Tony, societies have also successfully amazed to cast off parasites like you, and often even execute al, of you.

    You really belong face down in a landfill.

  • Rossami||

    re: "There's a reason the world of Downton Abbey no longer exists."

    Yes, there is. No, the tax code was not it.

  • You're Kidding||

    so Tony

    by sucessful you mean they taxed away their property?

    in what world is that not theft?

  • Rich||

    "people are going to have to start paying their fair share in taxes." Anderson Cooper then asked her what a "fair share" would be.

    Easily computed: government expenditure divided by population.

  • vek||

    Then there's the small problem that even if people didn't try to game the system, which they will, it still isn't anywhere close to enough money to pay for all the rainbows and unicorns she wants.

  • Last of the Shitlords||

    If we got rid of the socialists, then there will be no socialism.

  • Magnitogorsk||

    "This led President Ronald Reagan, with bipartisan support from Democrats, to lower rates and remove deductions. That began the path to the 37 percent top rate that rates that we have today."

    Weird not to mention the tax cuts actually started under JFK in the early 60s, when the top rate was 91%

    "Despite the lower rates, federal government revenue—as a percentage of the economy—is still about the same as it was when the top rate was 70 percent. It's even about the same as it was when the rate was 90 percent."

    Because FICA taxes skyrocketed over the time time period.

    Lower taxes = more revenue is a Big Government myth. Cut spending.

  • ||

    Weird not to mention the tax cuts actually started under JFK in the early 60s, when the top rate was 91%


    And the Kennedy tax cuts, which actually came into effect under LBJ, were opposed by Republicans like Barry Goldwater, who demanded spending cuts before tax cuts.

    Meanwhile, between the Vietnam war and the "War on Poverty" LBJ and Congress made spending explode. Republicans were willing accomplices; they never opposed a military spending bill and were lukewarm in opposition to the welfare state expansion that was happening at the time.

  • Fats of Fury||

    Hell with people like Nixon and Dole they were active participants.

  • mpercy||

    It's worth noting that we've have all-time high revenues pretty much every year since 2013; practically going back forever, excepting 2001-2004 and 2008-2012. Rate of growth of spending is just higher than rate of growth of revenue and spending has outpaced revenue for years.

    Revenues first hit $1T in 1990, $2T in 2000, $3T in 2014, $4T projected in 2022.

    Spending first hit $1T in 1987, $2T in 2002, $3T in 2009, $4T in 2018.

    Question: what exactly are we getting for $1T more in spending today than we were getting from government in 2009?

  • Fats of Fury||

    Taco trucks.

  • You're Kidding||

    inflation

  • mpercy||

    Wikpedia:

    "Notably, the Forbes 400 Richest Americans list is published annually since 1982. The combined net worth of the 2017 class of the 400 richest Americans was $2.7 trillion, up from $2.4 trillion in the previous year.[1] As of March 2018, the U.S. had 585 billionaires.

    So confiscating all of the net worth of the Forbes 400 will run the federal government for about 7 or 8 months, assuming they can find someone else to buy all the stock they just confiscated at market value. Because that's were almost all of their wealth is held, despite AOC and her ilk thinking that they have rooms full of cash they swim through a la Scrooge McDuck.

    Confiscating the net worth of all 585 billionaires would get an extra $280B or so, so a total of somewhere near $3T, so maybe 10 months of spending?

    And as a bonus for AOC: then we'll have no more billionaires! So everything will be wonderful and equal!

  • Moderation4ever||

    There are a lots of myths and Mr. Stossel is just pushing his own. A big problem here is that all the tax cutting in recent years has not lead to the increase in revenue promised and that we have rising deficits and debt. You may say that the problem is spending but there is no real indication that people want a less government services. The real problem is that most of the tax cutting has been at the high end by reducing rates. A more effective strategy would be to focus tax cuts around the median income. This group is most likely to use the extra income moving it back into the economy. Ms.Ocasio-Cortez's suggestion of a 70% tax bracket will not affect the middle class and unlikely to be disruptive. Mr. Stossel also fails to mention that many tax loops still exist, so the effect is that the wealthy get a reduced rate and then use the loopholes to further reduce their taxes. Adding to the problem of not enough revenue.

  • ChuckNorrisBeardFist||

    One in every crowd.

    Did revenue go down?
    Have wages gone up?
    Has employment fallen?
    Is the government spending more?
    A 70% tax bracket - you do realize it would hit most small business?
    Define fair share - how do we know you are paying fair share.

    It's great to say the rich should pay their fair share when you don't define it. And you might be rich to someone who is poor. You do realize a 70% tax bracket, people who work less or produce less. But I know your fight for 15 worked out so well so..

  • The Knuckle||

    It's been said before, but I'll say it again. The dirty little secret of the "utopian" Scandinavian countries is that their standard of living is lower and they tax their middle class to pay for all the state largesse as they can't leave.

  • Weigel's Cock Ring||

    The Scandinavian countries also have almost no immigration. They're extremely fortunate not to border a shithole region like Meso-America.

  • Jett Rucker||

    The Scandinavian countries, particularly Sweden, have a great deal of "immigration."

    Check your facts.

  • Kevin Smith||

    To fund AOC's "Green New Deal" that 70% bracket would have to kick in at around 60k household income. Don't believe me? Look at Denmark, Sweden, or Norway, they all have top tax rates of 60 to 70% kicking in at or below 75k household income, and they even have all the programs AOC wants

    It would not only impact the middle class, but a good chunk of the working class in many areas as well

  • Kevin Smith||

    They *don't* even have all the programs AOC wants

  • qoheleth||

    There are twin fallacies in our defacto two-party state here in the U.S. The fallacy with the Republicans is that businesses will act in their best interests and thus capitalism will improve the quality of life. The fallacy on the Democrats is that government will act in the best interest of its constituents and will improve the quality of life. Both government and business are made up of large numbers of human beings and we have an amazing capacity to act in short-sighted and counter-productive ways. That said, the Democrat fallacy has a worse effect because most businesses are still in the practice of producing something whereas government has always taken to achieve its ends. Even at its best, government has a negative effect.

  • Kevin Smith||

    Also if I feel that one business isn't acting in my best interests I can take my money to another business. Not so easy when its the government I want to avoid

  • TJJ2000||

    The Math -
    At 25-yrs old $116K is the Top 1%
    Subtract 15% for S.S./Medicare Tax = $98K
    Subtract proposed 90% Income Tax = $9.86K / Year

    A 90% Income Tax would put the 1% into deep poverty - Hello food stamps and subsidized housing.

    At 50-yrs old $452K is the Top 1%
    Subtract 15% for S.S./Medicare Tax = $384.2
    Subtract proposed 90% income Tax = $38.4K / Year

    Only $13K/yr over the poverty line.

  • Moderation4ever||

    This math is out in left field. The rates are not based on your total income, they are based on the amount of your income over a certain amount. The proposed tax rate is 70% for earning over $10 million. The rate is not applied until you make $10 million and 1 dollars. And that 70% rate is only on the $1 dollar, so you pay an extra 70 cents. So neither the 25 yr old or the 50 yr old would be affected by this rate.

  • You're Kidding||

    many normally inteligent people fail to grasp the concept of brackets

  • Kevin Smith||

    Which also means that 70% rate won't actually bring in much extra revenue, certainly not the trillions AOC wants to spend, and probably not even enough to cover the current deficit

  • TJJ2000||

    So what's all this talk about "Taxing the 1%" then??!?!?!?!
    I swear; Trying to peg Democratic policy is like trying to nail Jello to the wall.

  • TJJ2000||

    Here's something you CAN peg to the wall. In a free-market EVERY single $1 of a $10 million dollar income was FREELY given to them by the "poor", "middle" or "rich" class. The only 'Power' (i.e. Force) based monopolizing going on is "Daddy Gov".

  • ChuckNorrisBeardFist||

    From Motley Fool
    " Who would pay more taxes?
    Approximately 16,000 Americans earned over $10 million in 2016, the most recent year for which data is available, according to The Washington Post. That's about 0.05% of all households, or 1 in 2,000, Post reporter Jeff Stein noted.

    One can't pinpoint with precision how much added tax revenue the Ocasio-Cortez proposal would bring in, but Stein did a rough calculation based on available data that the pool of income being taxed would be about $244 billion. At the current 37% top rate, America's wealthiest pay $90 billion in taxes on that money. At 70%, that figure would rise to $170 billion. The actual revenues might be lower, though, depending on what options were available to those individuals for shielding that money from taxes."

    So 80 billion more. What are you going to get the rest of your pipe dreams?

  • Spookk||

    Of COURSE taxing the hell out of the rich (not just income, but also wealth, and transactions) will bring in lots of money - because that's where the money actually IS. The stupid argument that "rich people will find loopholes" just means you need to eliminate those loopholes.

    But banks and stock transactions need a nice tax - too much hanky-panky there that does nothing except suck wealth and capital from the economy.

  • The Knuckle||

    Yeah, we should keep discouraging savings and investment and encouraging debt with artificially low I interest rates. That's gonna be great.....

  • You're Kidding||

    ine mans loophole is another government economic policy being dangled

  • aajax||

    I think it has more to do with what she considers a "fair share" and reduce inequality than raising revenues. And any of those ridiculous loopholes could be closed, maybe starting with the tax break on the income of hedge fund managers.

  • markm23||

    So if you have more pie than her, she prefers taking away your pie to baking more.

    But if that economics and international relations degree of hers had taught her _any_ economics, she would know that an effect of tax raises is less economic activity. She wants to take away your pie and trash one of the baking ovens.

  • RodgerMitchell||

    Stossel neglects to mention that unlike state and local government taxes, which pay for state and local government spending, federal taxes do not pay for federal government spending.

    Even if the federal government collected $0 taxes, it could keep spending, forever. (Yes, if FICA were zero, the government could pay Social Security and Medicare, forever.)

    And before anyone starts foaming at the mouth about inflation, consider this: Since 1940, the federal government has "printed" $20 Trillion brand new dollars, and in that time, inflation has averaged close to the Fed's 2.5% target. Recently, inflation has been worryingly below target.

    The government could provide Medicare for All and not collect a single extra dollar in taxes and still not subject us to inflation.

  • ValVerde1867||

    The tax bracket may be 70%, but the actual tax rate, the amount you actually pay verses your income, will be well less than half that 70%. AOC needs to enroll in HR Block Tax school...and guess what? It's free!

  • Jett Rucker||

    I would say John Stossel and his economic historian might do well to do the same. Their rhetoric implies: people whose income reaches the xx bracket pay xx times their income.

    10% of Americans, and almost 100% of the intelligent ones know that top tax BRACKETS are NOT the percentage of your income you pay - it's just the percentage of your income (the "top" of your income) that falls in that bracket.

    I've already lost most of you few who would even read this far. It comes from the structure of "brackets" that are the necessary characteristic of "progressive" tax schemes. Don't know what "progressive" taxation is? Then there's no hope for you. Just shut up and pay.

    And don't listen too closely to the palaver in this article - it plays upon your ignorance (or failure to remember what you might once have known.

    Yes, I'm a CPA, but that has NOTHING to do with this that I know, and am telling you.

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