Stossel: Tax Myths

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

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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.

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.