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3 Right-Wing Lies About Rich People and Taxes -- Debunked

Conservative media outlets have pushed a number of myths to suggest that a large number of Americans will be negatively affected by a tax increase on the wealthy.
 
 
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In an effort to discredit President Obama's plan to increase taxes on the wealthy, conservative media outlets have pushed a number of myths to suggest that a large number of Americans will be negatively affected. In reality, only a small percentage of taxpayers would be affected by Obama's proposals.

1. MYTH: Those Who Earn $250,000 In Income Are Not Wealthy

Levin: Those Who Earn More Than $250,000 Are The "So-Called" Rich. On the November 9 edition of Fox News' Your World with Neil Cavuto, conservative radio host Mark Levin implied that those making over $250,000 are not legitimately rich, claiming that President Obama's plan to raise taxes on high-income earners is "trashing the so-called rich." [Fox News, Your World with Neil Cavuto, 11/9/12, via Media Matters]

Willis: "Lots And Lots" Of Middle Income People Make $250,000 A Year. On the November 9 edition ofMarkets Now, Fox Business host Gerri Willis attempted to portray a tax increase on high income earners as one that affects a large number of Americans. From Markets Now:

WILLIS: Then we get an AP story this afternoon with Jay Carney, the president's spokesperson, saying that the president will veto any legislation that raises taxes on the wealthy. Now we don't know if that means people who are earning 250,000 or more, which is what the president frankly has said in the past and in this part of the country where we live lots and lots of people, lots of middle income people make that amount of money between the two incomes. [Fox Business, Markets Now, 11/9/2012, via Media Matters]

Charles Payne: $250,000 Threshold Not The "Real" Definition Of Rich. On the November 14 edition ofAmerica Live, frequent Fox contributor Charles Payne derided Obama's plan to increase tax rates on households making more than $250,000 a year, claiming that this income threshold does not reflect the "real" definition of rich. From America Live:

PAYNE: You know, realistically, I think the question is a lot of people resign themselves to the idea that taxes are going to go up. The real thing is how do you define rich. I think this is really the big sticking point, and this where I have a big problem because 250,000 certainly is not the real definition of rich and certainly that's not where the average American family who gets to that point should be punished for all the work that they put in. [Fox News, America Live, 11/14/2012]

REALITY: Very Few Americans Make More Than $250,000 A Year

Census Bureau Data: Median Household Income In U.S. Far Below $250,000. According to the most recentCensus Bureau data, median household income currently stands at $50,054, about one fifth of the threshold for Obama's proposed tax rate hikes.

Tax Policy Center: Only 6 Million Americans Earn More Than $200,000. According to the non-partisan Tax Policy Center, "about 6.07 million Americans earned above $200,000 in 2011," making up the top 4.2 percent of taxpayers. The Tax Policy Center and the Census Bureau do not publish data for those earning above the $250,000 threshold.

Politifact: Only 2 Percent Of Households Earn More Than $250,000. A Politifact article reviewing claims made by President Obama found that, according to the Internal Revenue Service, less than 2 percent of earners reported income higher than $250,000. From the article:

Using statistics from the IRS website, we found that 137,988,219 tax returns out of 140,494,127 -- or 98.2 percent -- reported adjusted gross income of less than $250,000 a year in 2009, the most recent data available. [Politifact, accessed 11/19/2012]

2. MYTH: Lower Top Tax Rates Benefit Everyone, Higher Top Tax Rates Bad For Growth

The Wall Street Journal: Lower Tax Rates Good For Everyone. In a November 15 opinion piece titled "Why Lower Tax Rates Are Good for Everyone," WSJ editorial board member Stephen Moore argued that "over the past century, lower [tax] rates have shifted the tax burden onto high-income earners and away from the middle class." Moore argues that lower tax rates are responsible for economic growth and thus raise middle-class living standards. From The Wall Street Journal:

A cut in spending is the economic equivalent of a cut in taxes now, or later. This point is effectively conceded by Mr. Obama demanding that his spending and borrowing binge of the past four years must be paid for by a giant increase in taxes over the next decade.

Some liberals acknowledge these fiscal facts of life but argue that tax revenues from the wealthy increased simply because the rich got richer. And so they did. But the economic growth that was touched off by lower tax rates, particularly in the 1960s and 1980s, also benefited middle-class incomes and living standards. If Mr. Obama has his way and raises tax rates on upper-income groups, it will slow the economy, and everyone will lose. [The Wall Street Journal, 11/15/2012]

Art Laffer: Obama Tax Rate Hike Will Stifle Economic Growth. In an interview with guest host Stuart Varney on Your World with Neil Cavuto, former Reagan adviser Art Laffer claimed that Obama's plan to increase tax rates for wealthy Americans would hurt job creators, and thus stalls economic growth. From the November 19 edition:

LAFFER: Job creators are basically upper income people. They're the people who decide how much they're going to employ and where they're going to employ them and all of that. If you raise tax rates on that, on those people, it makes them less enthusiastic to employ people, to create jobs, to create output, to create employment. You can't love jobs, Stuart, and hate job creators. And that is exactly what this administration has been trying to do for a long time. [Fox News, Your World with Neil Cavuto, 11/19/2012]

REALITY: Tax Cuts To Wealthy Have Encouraged Inequality

Krugman: Tax Policy "Leaned Into" Growing Inequality. In a September 2011 op-ed in The New York Times, Nobel Prize winning economist Paul Krugman explained that cutting taxes on the wealthy has not helped decrease inequality, and potentially helped increase it. From The New York Times:

Changes in tax rates have strongly favored the very, very rich.

Now, they're only a fairly small part of the huge growth in the after-tax inequality of income. But tax policy has very much leaned into that growing inequality, not against it -- and anyone who says otherwise should not be trusted on this issue, or any other. [The New York Times,9/20/2011]

Center For American Progress: Tax Code Changes From 1979 To 2007 Did Not Reduce Income Inequality. In an April 2012 analysis of the effect of changes in the federal tax code on income inequality, the Center for American Progress found that decreases in effective tax rates paid by the wealthy over the past four decades failed to achieve the federal tax code's goal of reducing inequality. From the report:

From 1979 to 2007 there were a number of major tax changes, but the cumulative effect was to render the federal tax code less progressive and therefore less able to dampen income inequality. By one measure of inequality, the federal tax code in 2007 was about one-third less effective at reducing income inequality than it had been in 1979.

[...]

But even as inequality has risen, the federal system has become less progressive and therefore less able to reduce that inequality. In 1979 the richest 1 percent of Americans paid 37 percent of their income in federal taxes. Nearly 30 years and numerous tax cuts later, the effective tax rate for the richest 1 percent of American households was down under 30 percent. As the amount of taxes paid by the super-rich fell and then temporarily rose, and then fell again, so too did the overall impact of the tax code on the post-tax distribution of income. By 2007 the federal tax system's impact on income inequality was at a 15-year low. [Center for American Progress, 4/19/2012, emphasis added]

REALITY: Low Top Tax Rates Not Linked To Growth

Tax Policy Center: Tax Cuts To Wealthy Do Not Boost Short-Term Growth. In an August 2010 blog post examining the then potential extension of Bush era tax cuts, Tax Policy Center fellow Howard Gleckmannoted that because high income earners are "more likely to bank" any extra income from a tax break, tax cuts for high income earners "will do relatively little to boost the economy in the short run."

Krugman: No Evidence Of "High-End Tax Cuts And Growth." In an opinion piece reacting to thewithdrawal of a Congressional Research Service study that found no relationship between decreasing top tax rates and economic growth, economist Paul Krugman explained:

Nobody has ever been able to find clear evidence of a link between high-end tax cuts and growth. The raw fact, after all, is that the US economy did better in the first half of the post World War II era, with high top marginal rates, than it did in the second half: growth was both somewhat slower and much more unequal in the years after Reagan's 1981 cut than before.

And the tax-cut faithful have delivered one forecasting debacle after another. I'm old enough to remember not just the predictions that the Bush tax cuts would unleash a huge economic boom, but the claims that Clinton's 1993 tax hike would cause a deep depression. [The New York Times, 11/3/2012, emphasis added]

Economists: "Higher Top Tax Rates Tend To Go With Higher Economic Growth." In an April 2012 op-ed piece in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez made the case that slightly increasing top tax rates would likely not have an effect on economic growth. Furthermore, the authors noted that historically, higher top tax rates have been associated with higher growth rates:

But will raising top tax rates significantly lower economic growth? In the postwar U.S., higher top tax rates tend to go with higher economic growth--not lower. Indeed, according to the U.S. Department of Commerce's Bureau of Economic Analysis, GDP annual growth per capita (to adjust for population growth) averaged 1.68% between 1980 and 2010 when top tax rates were relatively low, while growth averaged 2.23% between 1950 and 1980 when top tax rates were at or above 70%.

Neither does international evidence support a case for lower growth from higher top taxes. There is no clear correlation between economic growth since the 1970s and top tax-rate cuts across Organization for Economic Cooperation and Development countries. [The Wall Street Journal, 4/23/2012]

Congressional Budget Office: Increasing Top Tax Rates Only Marginally Affects Growth.According to ananalysis by the Congressional Budget Office, implementing tax rate hikes on households making more than $250,000 a year would only lower GDP growth by 0.25 percentage points when compared to an extension of all current rates. From Reuters:

The CBO said extending all of the tax cuts would boost U.S. gross domestic product growth next year by a little less than 1.5 percentage points.

If the tax rates were extended only for individuals earning less than $200,000 and couplesearnings less than $250,000, CBO said, growth would rise by 1.25 percent. [Reuters,11/8/2012]

For more on the lack of evidence that low top tax rates lead to economic growth, click here.

3. MYTH: Obama's Estate Tax Plan Will Lead To Shutdown Of Family Farms

Fox & Friends Airs Segment On Estate Taxes And Farms. On the November 16 edition of Fox & Friends,reporter William La Jeunesse ran a misleading segment that highlighted the effects of Obama's plan to decrease the maximum exemption and increase the tax rate for the estate tax, implying that implementing these measures would force small family farms to cease operations.

REALITY: Very Few Small Farms Would Be Affected

Tax Policy Center:Obama To Restore 2009 Estate Tax Structure. According to the non-partisan Tax Policy Center, President Obama's plan to alter estate tax policy - decreasing the maximum exemption from $5 million to $3.5 million and increasing the rate to 45 percent - would simply "return the estate tax to its 2009 structure."

Center On Budget And Policy Priorities: Very Few Small Farm And Business Estates Affected. In an analysis of the effects of reverting estate tax policy back to 2009 parameters, the Center on Budget and Policy Priorities explained that very few small farm and business estates - defined as "[ones] in which more than half of the value of the estate is in a farm or business and the farm or business assets are valued at up to $5 million" - would be affected by the policy change. From the report:

Despite rhetoric from estate-tax opponents portraying small businesses and farms as being severely burdened by the estate tax, only 60 small farm and business estates in the entire country would owe any estate tax next year under the 2009 rules, TPC estimates. [Center on Budget and Policy Priorities, 7/24/2012, emphasis original]

Center On Budget And Policy Priorities: "Overwhelming Majority" Of Farms Can Pay Estate Tax Without Closing. In an article debunking myths about the estate tax's economic effects, the Center on Budget and Policy Priorities, citing a 2005 study by the Congressional Budget Office, claimed that few small farms would have to shut down in order to fund estate tax payments. From the CBPP:

CBO found that of the few farm and family business estates that would owe any estate tax under the 2009 rules, the overwhelming majority would have sufficient liquid assets (such as bank accounts, stocks, bonds, and insurance) in the estate to pay the tax without having to touch the farm or business. [Center on Budget and Policy Priorities, 11/5/2012]

For more on the right-wing media's tax myths in the wake of budget negotiations, click here.

 
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