I was spending my Thanksgiving evening listening to Thomas Sowell and William F. Buckley Jr when I was scrolling through Facebook and saw that Robert Reich (who has me blocked because I called out “Inequality for All”) recently posted a video. My curiosity got the best of me and I paused a intelligent conversation and went to listen to a video where Reich “debunks” seven economic “lies” and lays down the “truth”. Now I will spend my time refuting Reich.

“Lie” #1 Tax cuts will trickle down to the rest of us

First off show me someone who says tax cuts will “trickle down” or this is a strawman.

Second Reich claims that wages, adjusted for inflation have been stagnate. Note the Reich picked wages which is only monetary compensation. When we take into account all benefits real total compensation has not stagnated.

Screenshot (114).png

And were also working less hours as an added benefit 🙂

“Lie” #2 High taxes on the rich hurt the economy 

There are two parts to this claim. The first is that high taxes on the rich hurt the economy and the second is that top tax rate was over 70% back in the good old days.

Here is a chart from the Congressional Research Service on the effective tax rates (taking into account tax breaks) post 1966 (yes I know Reich’s claim goes further back but I didn’t follow him because of the academic study I cite on the effects of taxes).

1aaa.png

Reich uses the marginal rate which does not take into account loopholes. According to the NBER “[T]ax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. The large effect stems in considerable part from a powerful negative effect of tax increases on investment…we find that a tax increase of one percent of
GDP lowers GDP by about 3 percent.”

He also says small business owners won’t be deterred but I wonder who invests in small businesses?

“Lie” #3 If we shrink government we’ll create jobs.

Reich says that cause we will cut government jobs well lose jobs and jobs of government contractors but he ignores the fact that government doesn’t get money out of thin air. It either takes it from the private sector through taxation or takes purchasing power from the private sector through inflation. Either way they crowd out private sector jobs. Horst Feldmann finds that “I find that a large government sector is likely to increase unemployment. It appears to have a particularly detrimental effect on women and the low skilled and to substantially increase long-term unemployment. It seems that dominant state-owned enterprises, a large share of public investment, as well as high top marginal income tax rates and the low income thresholds at which they apply are particularly detrimental.”

“Lie” #4 Cutting the deficit now is more important than boosting the economy through stimulus.

The premise of this argument is that fiscal stimulus works. See “lie” #3.

Lie #5 Medicare and Medicade aren’t killing the budget.

Reich never actually rebuts this. He just tries to explain why their costs are rising and that expanding them will lower their costs. Of course he can not rebut this because the two programs up about 25% of the budget.

total-spending-pie-2015.png

“Lie” #6 Social Security is a ponzi scheme

Reich argues that it isn’t a ponzi scheme because it’s solvent for 20 more years but every ponzi scheme is solvent till it runs out of people to pay into it like Social Security is going to do in 2033.

“Lie” 7 It’s unfair that lower income americans pay no income tax

Happy Thanksgiving Robert. I agree with you here.

 

Bit of advice. Leave the debunking to the professional debunkers (ie me).

 

Thanks to Being Classically Liberal. Got some of my sources through them.

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Posted by Roman Bilan

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