Six Persistent Myths About Taxes


Lawmakers debating tax reform, the FY 2018 budget resolution, and the Democrats’ new “Better Way” agenda often operate within fundamentally opposite frameworks on tax policy. Clearing up misinformation is a necessary first step to reform, beginning with the following six common beliefs that are demonstrably false:

Myth #1: Long-term deficits are driven by tax cuts and falling revenues
Fact: They are driven entirely by rapid spending growth
Revenues are projected to rise from 17.8 to 18.4 percent of GDP over the next decade – well above the 17.4 percent average of the past 50 years. This means lawmakers could cut taxes by $1.7 trillion over the decade and still leave revenues at historically-average levels. Long-term deficits are entirely driven by projected spending, soaring from 20 percent to nearly 30 percent of GDP over the next few decades

Myth #2: Democratic tax proposals would significantly reduce the deficit
Fact: Their most common proposals would raise little revenue
Despite insisting that “fair share” tax policies negate the need for major entitlement reforms or spending caps, elected Democrats have not rallied around any tax blueprint that would even cut the deficit in half. Their revenue claims are a bluff.
President Obama’s last budget proposal was not modest. Freed from having to face voters again, it contained large tax increases far beyond those proposed in his first term, and beyond even what congressional Democrats would endorse. Yet those taxes still would have closed less than one-quarter of the budget deficit by 2026.
Congressional Democrats’ seven most common tax proposals – raising investment taxes, repealing tax breaks for oil and gas, taxing carried interest as ordinary income, imposing a Wall Street fee, imposing the “Buffet tax,” repealing the depreciation schedule for corporate jets, and taxing the business costs of moving overseas – would together close just 3 percent of the $9.4 trillion ten-year deficit. If they caused annual economic growth rates to fall from 2.1 percent to 2.0 percent, those tax increases would actually lose revenue.

Myth #3: Taxing millionaires and corporations can balance the long-term budget
Fact: These taxes cannot cover Washington’s current commitments, much less new liberal wish lists
It is mathematically impossible to balance the budget solely on the backs of upper-income earners. Seizing all income earned above the $1 million threshold would fund the federal government for less than two months per year. Setting the threshold at $500,000 merely adds a third month. The 39.2 percent corporate tax rate and 23.8 percent capital gains tax rates (both among the highest in the world) are already considered near the revenue-maximizing level. The only sustainable way to spend like Europeans is to tax like them – with a 15 to 28 percent value-added tax (similar to a national sales tax) aimed right at the middle class. Democrats have wisely avoided such a painful and unpopular proposal.

Myth #4: The U.S. income tax is more regressive than other nations
Fact: It is the most progressive in the entire OECD
In 2008, the OECD reported that the U.S. had the most progressive income tax code of all its 24 nations, even adjusting for relative income inequality. The 2013 upper-income tax increases made our tax code even more progressive.
While many other countries tax the rich more than does the United States, they also tax the middle class substantially more, resulting in a flatter tax code. Furthermore, this analysis does not account for the painful, regressive value-added taxes imposed by all other OECD countries.

Myth #5: The U.S. tax code is becoming more regressive over time
Fact: It has become increasingly progressive over the past 35 years
The top 20 percent of earners pay 88 percent of all income taxes – up from 81 percent in 2000. When including all federal taxes, the top quintile’s share has increased from 66 percent to 69 percent over that period. This increased tax progressivity occurred during a period in which the top quintile’s share of pre-tax income slightly dipped to 53 percent.
Meanwhile, the top 1 percent earns 15 percent of pre-tax income and pays 38 percent of all federal income taxes – significantly higher than in the past.
The bottom 40 percent of earners collectively pay no income tax, and less than 5 percent of all federal taxes.
This leads to the question of how progressive is enough? Should the top quintile be forced to shoulder 95 percent of the income tax burden? 100 percent?

Myth #6: Tax rates do not matter much to economic growth
Fact: They are among the most important factors
Nobel Laureate Ed Prescott has shown that much of America’s widening economic advantage over other major economies between the 1970s and 1990s can be traced to America’s decision to lower tax rates while other countries raised them. Harvard economist Martin Feldstein estimates that a $1 increase in taxes costs the economy 76 cents of growth. Even liberal University of California-Berkeley economist Christina Romer – formerly President Obama’s Council of Economic Advisers chair – calculated that, in most circumstances, a “tax increase of 1 percent of GDP reduces output over the next three years by nearly three percent.”
Between the 1950s and the 1970s the economy grew despite a top marginal tax rate between 70 percent and 91 percent (which barely anyone paid). That growth was driven by historic labor force growth, the maturation of earlier technological innovation, and America’s status as the lone Western economic superpower while Europe and Japan rebuilt after the war. Since 1950 there has been a consistent, negative correlation (-0.19) between the top marginal income tax rate and income tax revenues. What matters more is the income tax brackets for all taxpayers, the amount of available deductions, and economic growth.

The broad lesson is that lawmakers should not assume they can tax their way out of escalating budget deficits. The commonly-proposed tax increases would raise little revenue and could significantly harm the economy.

Brian Riedl is a senior fellow at the Manhattan Institute.


This right-wing nonsense really misses the mark. No reality whatsoever. I wonder if the writer took a moment to consider that some people can’t afford to pay their taxes because wages have been stagnating? Probably not. Republicans just want to crush the little guy.

Corporate profits have been at record levels, but the majority of the gains go to the shareholders instead of the workers. If workers were able to get their fair share of income growth, then taxes wouldn’t be an issue.

Cutting taxes can help workers, but long term it seems like a race to the bottom. There is only so much tax you can lower before you are forced to make significant cuts in government spending.

Sure you can raise taxes on someone else, but that is easier said than done, which is why Republicans have the advantage in this debate. If you are going to change the tax code while keeping the revenue the same, you are going to have winners and losers.

I think we can raise the taxes of top income brackets to 50%, but other than that, there isn’t much easy revenue out there. Everything involves tradeoffs which can end up falling on the middle class. The devil is in the details.

I’m surprised this right-wing list of myths didn’t include some complaints about taxes on investments, but one solution to the conservative myth of “high taxes hurt investors” is to tax IRA withdrawals. Not taxing withdrawals from IRA accounts means that you have to find a way to raise the revenue somewhere else. Those who have significant IRA accounts are in the top quintile of earners so it won’t be taken advantage of by the majority of Americans. The money was never taxed to begin with, so it is a way to avoid paying income taxes.

Please work harder on formatting your posts - they are hard to read (use paragraphs, bold, italics, quotes, etc). No one wants to be slammed with a wall of unformatted text.

Also - please post sources! You did not write this. Show who did.


Levy a Wall Street tax on every stock transaction, easy to collect just build it into the exchanges. Remove all taxes on wages to be replaced with 15% on all non-wage income, e.g. Interest, dividends, except those on investments in a retirement fund up to $1,000,000, capital gains, except gains on primary home. Lower corporate taxes to bring USA in line with other countries and eliminate ALL corporate loop holes. Address small business taxes to make them more desirable than large, menacing corporations.


Apparently your English is as bad as your reading comprehension

Brian Riedl is a senior fellow at the Manhattan Institute.

psst. Don’t tell anyone, they tax IRA/401K withdrawals. ohs are exempt as they are invested with after tax dollars.

As a side note investors take risks for profits in a company. People working there are rewarded with pay. As to corporate taxes, corporations pay no tax, the consumer pays the taxes as it’s a cost of doing business. When taxes get to b a burden and prices cannot be raised, business looks at ways to cut expense. (people=expense) Off shoring is a favorite.

I’m always amazed at the lefts lack of knowledge when it comes to business.


It’s because business is a vague concept; something other people do, likewise ‘sacrifice’ and ‘adversity’ and ‘long hours’- all foreign concepts to the leftist. He/she/it/them/… has an undemanding job in a govt. agency, or no job at all.

‘Higher taxes on the rich’ is the dogwhistle, and the leftist always imagines that:

a. People will still flock to starting difficult, moderate to low margin manufacturing businesses even after there is no reward for doing so.

b. The higher the taxation, the greater the prosperity.

c. Anything anyone wants is magically a ‘need’ then a ‘civil right’ that must be paid for no matter the cost.

d. Those who are successful never pay enough taxes, no matter how much that is.

e. Bums, and thugs are magically ‘the disenfranchised’, and by extension ‘the oppressed’.

All leftists see is the success of a person who has worked and sacrificed for decades- and they believe that since they themselves never put forth effort in their lives, than the successful person is just “lucky” and should be forced to give up that “luck”


It would never occur to the left that some people starting businesses actually miss paychecks on a regular basis until you build enough business to be sustainable.

Higher taxes for me resulted in terminating my staff of 7 field people and 1 office person.
I now run a smaller operation, sole propritor, and actually I get paid for working.


We just met with a cpa today who told us make your money during the next four years, because when the Dems get back in, they’ll be out for blood.


I cut back during the Bama years as it just wasn’t worth it.

4 years from now if the dems are back in the WH, I will do much the same.


I like this myth thread…let’s have some more. Let’s start with conservatives actually achieving anything.


Your off topic, start your own topic!

This thread is about taxes.

Get it.


The truth hurts…maybe this should be filed in the Fake News from the right.