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Millionaire Myths, Indeed

The Washington Post’s “Five Myths About Millionaires” piece yesterday by John Steele Gordon did more to perpetuate myths than dispel them.  Below are corrections to each of his five points:

  1. Gordon confuses total wealth and annual income to claim that millionaires aren’t really rich, arguing that “Today, $1 million in the bank generates only about $50,000 per year in interest.”  Anyone paying attention to today’s tax debate understands that President Obama’s proposed “Buffett Rule” would apply to people with annual incomes above $1 million, not total assets above that amount.  Even in 2011, $1 million in income a year is still rich — in fact, it’s enough to put you in the top 0.3 percent of all American families.
  2. Gordon may be correct to say that some millionaires don’t feel rich (though here, too, much of his “evidence” concerns people with million-dollar assets, not million-dollar incomes).  But in any event, people who don’t feel rich despite making over $1 million a year should consider this: the average Bush tax cut for their income category this year is $136,000, or nearly three times what the average American family makes in an entire year.
  3. In stating that millionaires as a whole don’t pay lower taxes than middle-class Americans, Gordon is attacking a straw man.  As we’ve explained, a significant group of people with incomes over $1 million — those who receive more than a third of their income from capital gains and qualified dividends — pay a smaller share of their incomes in federal income and payroll taxes than large swaths of the middle class.  The Buffett Rule states that no millionaire should pay at below the typical middle-class rate.
  4. Millionaires don’t all share the same political beliefs, Gordon argues.  That’s certainly true — many, like Warren Buffett, believe that they should pay higher taxes to contribute to our government and deficit reduction, while others want Congress to eliminate taxes on their capital gains.  But, it’s not relevant.  This diversity of opinion says nothing about what’s the best policy.
  5. Finally, Gordon argues that a millionaire’s tax would seriously limit investment, and he holds up the Bush tax cuts as evidence that large tax cuts boost jobs and the economy.  But as my colleague Chad Stone has noted (and the graph shows),“job creation and economic growth were significantly stronger in the recovery following the Clinton tax increase [on upper-income Americans] than they were following the 2001 Bush tax cut.  And the Clinton policies produced a balanced budget.”
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Chuck Marr
Vice President for Federal Tax Policy