“Prager U” Misrepresents Taxation On Wealthy

When a political party becomes the arm and representative of the wealthy elite, videos such as these are the unfortunate result.   For in accordance to today’s Republican party, the victims in today’s America are not those who are the least among us; they are those among us who have the very most.

To sell this viewpoint which is not only completely baseless but also immoral, Professor Lee Ohanian representing Prager U must sell us a bill of deception, in hopes that there are purchasers who possess an unalterable believe in a conservative ideology and carry not an inquisitive notion.   Here is the video of Professor Lee Ohanian conveying the deception.  What follows is a selection of his insincere moments.

1) He is being extremely misleading by speaking only about income taxes and not capital gains.  If you’re going to make a case that the wealthy are unjustly taxed, it is dishonest to exclude taxes on capital gains as part of the discussion. Most of the earnings by the very wealthy are made through investments taxed at a rate considerably lower than ordinary income.  And according to Forbes, the top 0.1% own around half of these investments.

2) When speaking of fairness, Ohanian should include the distribution of overall wealth, not just income taxes.  The top 0.1% currently have nearly as much wealth as the bottom 90%.  But for Ohanian to commence a discussion on how this grotesque gap of inequality fermented, he’d have to speak of a suppressed minimum wage, the weakening of unions, unregulated “free” markets, destructive trade policies, Reaganomics,  and a plethora of other reasons for this gap that Republican orthodoxy is primarily responsible for.

3) He tells us that most people only get to the top 1% level ($500K in income a year) through many years of hard work.  This is the standard overly-simplistic and often-repeated Republican mantra which states that if you’re not wealthy, you’re simply not working hard enough.  Yet, there are plenty of those in the working poor who toil long hours working several jobs, sometimes in occupations that require back-breaking physical labor.  Working hard isn’t strictly a characteristic of those making $500K+, and in fact you can find many who make much less yet work much harder.

4) He says a characteristic of the 1% is they often have a lot of debt from “education” and “business expenses”.  Once again, this is not just an expense that the 1%  carry – those in the lower income brackets not only accumulate this debt, it actually becomes a larger burden to them.  And only basic common sense is needed to truthfully deduct that the lower income earnings struggle with this debt at a much greater proportion than higher-income earners do.  The wealth of the 1% enables them to pay off any debt at a much quicker rate than someone in a lower income bracket. And when that debt can only be paid off slowly, or not paid off at all, it can become truly debilitating.  Furthermore, despite my efforts, I cannot find any support for his claim that those who earn $500K in income a year hold a lot of debt from education.

5) He states that there are people making many millions, even billions, but says the number is very small.  Yes, but that very small number has been extensively destructive when you have corrupt ideologues emerge from that group and wreak havoc using their sizable financial influence.  To reiterate, that small number (0.1%) has nearly more wealth then the bottom 90%, owns half of the private equity, and is getting nearly all of the new wealth that is being created.  This drastic inequality just doesn’t randomly occur – it manifests when our politicians are essentially purchased by the very wealthy, who in turn write legislation and pass laws that are written to not only preserve, but to expand the wealth of those very donors.

6) He uses an overly simplistic assessment of what “fair” is.  He presents fairness as being those representing 10% of income earned paying 10% of income taxes,  20% pays 20% etc..  But no mention of the off-shore tax havens that upper-income earners and corporations use to hide a percentage of their earnings from taxation.  He doesn’t speak of the loopholes inserted into our tax code indirectly written by the beneficiaries themselves.  And when framing an entire argument based on percentage of income paid through income taxes only,  he distorts the big picture involving all the other types of taxes collected – most of which take a larger percentage of a low-income worker’s earnings than those of a higher-income earner.

7) “The benefits we receive from social security are capped, no matter how much we’ve paid in.”  Completely dishonest for Ohanian to make this statement without explaining that the amount of income subject to taxation for any individual who pay for Social Security and Medicare through the payroll tax is actually capped at $127,200 annually.   This results in someone making $12.72 million a year only having 1% of their income subject to the payroll tax, while and individual making $127,200 or less has 100% of their income taxed.  Also as mentioned earlier, the very wealthy make most of their money via capital gains, which are not subject to a payroll tax and thus contribute nothing to Social Security or Medicare.

8) He says that our tax code is “more progressive” than other countries such as Germany and Sweden, and defines “more progressive” as to mean “income taxes rise as income rises”.  This is cleverly worded, but it’s a completely misleading and meaningless.  All he’s really saying is that there are more tax brackets in the U.S. then there are in Germany and Sweden.  Does this mean that those European countries tax the wealthy at a lower rate as Ohanian is seemingly attempting to imply?  No.  The actual top income tax rates in Germany and Sweden are both higher than here in the U.S.  Germany’s top income tax rate is 45%, and even those making 52,154 euros (roughly the same in U.S. dollars) are taxed at 42%.  Sweden’s top tax rate is at 51%. Their tax rate on “capital gains” is twice as ours at 30%.  But Germany and Sweden each only have four separate tax brackets, the U.S, has seven – a meaningless point which sounds good if you don’t analyze what he actual said.

9) He picks California and New York (states with the highest state taxes) and say that people can be paying a tax rate greater than 50% if they live there.  Hardly, if ever do residents in these states pay over half their income in Federal, State, and FICA taxes combined.  Do the calculation for yourself here.   Inputting the highest amount allowed by the calculator ($10,000,000 a year),  the only way the rate is at 50% is if no deductions are taken, which is ludicrous.  Everyone can take either the standard or itemized deduction and can usually claim at least an exemption or two along the way to bring the nominal rate down.  Furthermore, I’m not seeing an exodus of wealthy businessmen fleeing either California nor New York.  If they chose to relocate to a tax free state such as Florida or Texas, they certainly have the means to do so.  But most seem to accept what their tax dollars get them as they operate their businesses in the thriving economic bastions that are New York and California.

10) Finally, he states that studies, (some of them conducted by himself) show that when taxation is too high, investment/risk-taking/job-creation decline.  Of course when you simply have a 90% tax rate, people are not going to invest. But this is not how tax codes work.  We had a 90% upper-income tax rate under Dwight Eisenhower which certainly did not prohibit job creation and growth. This is because once a business owner realized his income was getting near the bracket where every dollar above that bracket would be taxed at 90%, he would shift any new income earned into their business.

This is extremely beneficial on two fronts – it kept your personal income level from reaching the upper income bracket while allowing for you to expand your business as a no tax/low tax investment.  Unfortunately, the issue is not often honestly portrayed like this, as many of these “studies” that are usually funded by right-wing think-tanks don’t represent how the tax code is applied in real life.

Despite what this clip may lead one to believe, any rational person isn’t upset with the amount of money someone makes, but instead it’s the way in which some in that financial bracket use that money to influence policy that benefits themselves.  And unfortunately, they’re the ones writing our legislation, laws, and tax code. ■


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