A fraud has been perpetrated on the American public. For decades, conservative politicians and pundits, mostly Republican, have tried to convince Americans that cutting taxes – especially taxes on wealthy people and large corporations – is a panacea for just about everything that ails the American economy: inflation, poor productivity, inequality, poverty, unemployment, wage stagnation, loss of markets to foreign competitors, and more. Some who preach this really believe it. Others may not believe it but call for tax cuts anyway to pander to their constituents, campaign donors, media audiences, and voters. Mitt Romney, for instance, confessed to his biographer that even though he called for eliminating inheritance tax when he was running for president in 2012, he didn’t really believe that getting rid of the tax was necessary but said so anyway because that’s what he thought voters wanted to hear.Footnote ¹

Regardless of their motives, they all insist that high taxes are the bane of the country’s existence. And millions of Americans believe them. Why? Because conservatives have been very clever in packaging their ideas in ways that many people find convincing. For over forty years if not longer – from the presidency of Ronald Reagan through Joe Biden – conservatives have made five claims over and over to justify cutting taxes in the United States.

1. 1. Taxes in America are too high, especially for the wealthy and large corporations.

2. 2. High taxes hurt the economy.

3. 3. High taxes encourage government waste.

4. 4. High taxes are unfair.

5. 5. High taxes threaten freedom.

This book disputes these claims. It shows that although they occasionally contain small grains of truth, by and large they are wrong. They don’t stand up to the evidence. In short, they are deceptive myths – widely held but terribly misleading beliefs about the virtues of cutting taxes. In fact, the opposite can be true. Societies including the United States can often benefit from higher, not lower, taxes in many ways.

Some of these myths appeal to economic logic. The arguments about taxes being too high and damaging the economy certainly do. But others appeal more to emotionally charged values. Conservative concerns about government waste, for example, build on a long-standing visceral aversion to big government. Concerns about fairness and freedom resonate with people’s feelings about the right values that Americans should live by. As a result, this book is as much about sociology and politics as it is about economics. It explores the gaps between ideas and facts. It is written not only for people interested in what makes an economy work, but also for people interested in the principles by which government and society should operate.

Efforts to cut taxes for the affluent and big business have occurred periodically throughout American history.Footnote ² Occasionally, people used some of the myths discussed in this book to facilitate those efforts. But it wasn’t until the Reagan era that these myths were stitched together with a unifying thread. That thread is called neoliberalism (sometimes known as market fundamentalism), a conservative economic theory that calls not only for cutting taxes and keeping them low thereafter, but also for slashing government spending and rolling back economic regulations. The idea is to unleash market forces, ostensibly for everyone’s benefit, by minimizing the role of government in the economy. As such, the conservative obsession with cutting taxes in recent decades has been part of a much broader multipronged attack on the state. Neoliberalism had been around for a long time but without having much influence on policymaking. Its breakthrough in American politics was the Reagan presidency, after which all five of these myths became an essential part of conservative political rhetoric. According to Columbia University Law School’s Michael Graetz, calls for tax cuts based on these myths became the Republican Party dogma that held its disparate coalitions together for the better part of a half-century.Footnote ³ To my knowledge nobody has scrutinized all five myths as a unified whole. This book does.

Conservative politicians have used these myths to help win elections and seize power. They promise to reduce taxes so that they can garner votes. And when asked to explain why they want to cut taxes they typically answer by trotting out these myths. So do the conservative pundits, think tanks, social media sites, and others who support their campaigns and their efforts to cut taxes once elected. These myths are repeated so often that many people now take them for granted and think that they are just common sense. In doing so, conservative politicians and their minions have pulled the wool over the eyes of millions of Americans. That’s why it’s important to expose these myths for what they are – misleading clichés lacking much empirical support that often benefit the rich and powerful.Footnote ⁴

What follows in this chapter is a brief account of the rise of neoliberalism, which provided an intellectual basis for these five myths and helped elevate them to the forefront in American politics. Then it reviews some of the tax reforms that neoliberalism inspired. Next it takes a closer look at the myths themselves, their power in an age of rising misinformation, and how politicians have used them for over forty years. The chapter concludes with a quick summary of the book’s core arguments and a short note on American exceptionalism and why the cross-national, historical, and other evidence I have mustered is appropriate for evaluating the truthfulness of these myths.

The Rise of Neoliberalism

According to historians Naomi Oreskes and Erik Conway, early glimpses of the myths eventually used to justify low taxes began appearing over a century ago. The National Association of Manufacturers (NAM), a conservative business association founded in 1895, initially spearheaded a movement seeking to minimize the role of government in the economy. It was a staunch opponent of the Progressive Movement in the 1920s and then the New Deal in the 1930s, both of which sought to expand government economic oversight. NAM was a fierce opponent of federal taxation. It claimed that taxation was nothing more than theft and that it constituted a slippery slope leading toward the expansion of government power in ways that threatened Americans’ personal freedom, free enterprise, and the efficiency of the market in ways that ultimately led to totalitarianism.Footnote ⁵ Other powerful business associations and corporations soon joined the crusade against taxation, business regulation, and other forms of government intervention. Their message was clear: Economic, political, and civic freedom were inextricably linked so that a threat to one – most importantly the threat to economic freedom – was a threat to them all.Footnote ⁶

NAM and its sympathizers spent millions of dollars spreading that message across the United States. They sponsored radio programs, television shows, newspaper editorials, magazine stories, comic books, children’s literature, secondary school and university textbooks, Hollywood movies, religious sermons, and books for the public all touting the virtues of free markets and the vices of government intervention. They also gave vast sums of money to colleges and universities to build curricula and hire faculty that favored their arguments. Notably, the University of Chicago became a hotbed of radical free-market thinking championed by several famous economists, including Friedrich Hayek, George Stigler, and Milton Friedman. Early advocates of minimalist government and low taxes also provided financial support to think tanks, lobbyists, and politicians to push their views in Washington. But as Oreskes and Conway explain, the arguments they were peddling were propaganda with little empirical support and driven by the quest for profit, wealth, and economic power. The problem, however, was that their arguments lacked a coherent intellectual framework, which brings us to the rise of neoliberalism.Footnote ⁷

The articulation of neoliberalism began in the late 1940s thanks to an esteemed international group of conservative intellectuals with financial support from some wealthy businessmen and conservative philanthropic foundations.Footnote ⁸ It included such conservative luminaries as the philosopher Karl Popper and economists Hayek, Stigler, Friedman, Frank Knight, Ludwig von Mises, and Lionel Robbins. Hayek, Friedman, and Stigler eventually won Nobel Memorial Prizes in economics. Together they and others formed the Mont Pelerin Society in 1947, a partisan thought collective so named for the Swiss town where they first met.Footnote ⁹ The group insisted that the world needed an intellectual alternative to communism, as practiced in the Soviet Union, and to Keynesianism, an economic theory that was emerging as the guiding light for most advanced capitalist democracies after the Second World War. Both communism and Keynesianism, they worried, were based in different ways on too much state control of the economy, which threatened market competition and individual economic and political freedom. In short, the Mont Pelerin Society was concerned that both democracy and capitalism were at risk owing to the increasingly dangerous intrusion of the state into the economy.Footnote ¹⁰ Although its members recognized that the state was necessary to protect competitive markets and individual freedom by providing certain institutions and legal frameworks, they insisted that the state’s power should be kept to the indispensable minimum.Footnote ¹¹

Hayek, for instance, was emphatic about this in his famous book The Road to Serfdom, in which he argued against a pure laissez-faire philosophy. The question, he asked, was not whether the state should interfere with the economy but how it should do so. For him, state intervention was appropriate only under certain limited circumstances and only when it did not favor or harm particular people or disrupt competition. For example, only when markets failed to provide certain important public goods such as roads, or correct certain economic problems such as pollution, or prevent anticompetitive threats such as monopolies was state intervention warranted. Otherwise, the state should not interfere in the economy. As he put it, “We should make as much use as possible of the spontaneous [market] forces of society, and resort as little as possible to [state] coercion.”Footnote ¹²

A few patrons of the early neoliberal movement were so enthralled with Hayek’s work that they arranged for him to come to the United States from Austria and obtain a faculty appointment at the University of Chicago, although not in the economics department, which refused to have him. They also arranged for The Road to Serfdom to be published in condensed form in Reader’s Digest, read by millions of Americans, but curiously without any mention of the necessary roles for government in the economy that Hayek wrote about in the original version of his book. Thus, they turned the abridged version into a misleading antigovernment polemic. This was another example of how monied interests such as NAM sought to develop and disseminate market fundamentalist ideology. Similarly, conservative economist George Stigler’s translation of Adam Smith’s The Wealth of Nations dropped portions from the original where Smith argued that in some cases government intervention – including progressive taxation – is warranted.Footnote ¹³ Simplifications and misrepresentations of these two foundational conservative texts, erroneously elevating uninhibited free markets to a mythical, God-like status, foreshadowed similar departures from the truth that would come later.

The Mont Pelerin Society’s members eventually played significant roles in the formation and activities of several influential conservative think tanks and policy research organizations in America that have long sung the praises of neoliberalism, such as the Heritage Foundation, the Cato Institute, and the Manhattan Institute. Society members have occupied important policymaking positions in American government. These include, for example, Arthur Burns and Alan Greenspan, former Federal Reserve Board chairs; Martin Feldstein, Paul McCracken, and Herbert Stein, former chairs of the President’s Council of Economic Advisers; Edwin Meese, former US Attorney General; William Simon, former Treasury Secretary; and George Shultz, former Secretary of State and Secretary of Treasury. Other Society members, including academics, educators, journalists, authors, and businesspeople, helped push neoliberalism too. The Society was also influential in other advanced capitalist democracies and eventually in Latin America, East Asia, and Eastern and Central Europe.Footnote ¹⁴

It’s important to understand that neoliberalism was never a monolithic intellectual paradigm. Instead, it provided a smorgasbord of policy options from which policymakers could pick and choose. As a result, it was implemented in different ways in different places during the postwar period.Footnote ¹⁵ When it came to tax reform, some countries were less concerned with cutting taxes than the United States. For instance, in Germany cutting taxes was not a neoliberal priority. Chancellor Helmut Schmidt’s Social Democratic Party pushed for some modest tax cuts in the late 1970s not because they were enamored with neoliberalism but because they thought it would take the issue away from the more conservative political opposition and because other European countries were doing the same. When Schmidt’s successor Helmut Kohl announced regressive tax cuts, the worker’s wing of his Christian Democratic Union party opposed them. So did local governments who stood to lose revenue in Germany’s federalist tax system if those cuts were passed. Kohl’s tax cut strategy didn’t go far.Footnote ¹⁶ In France neoliberalism’s brief heyday was during the late 1980s. Prime Minister Jacques Chirac embraced it but with more success in some areas than in others. French neoliberalism resulted in the privatization of some state enterprises and some economic deregulation. But when Chirac called for large income tax cuts, he failed to get them.Footnote ¹⁷

Things were different in the United States. Small government was the neoliberal goal and conservatives saw cutting taxes as one of the best ways to achieve it. The reasons why require some explanation.

Neoliberalism and Tax Cuts in America

Despite the efforts of NAM, the Mount Pelerin Society, and other free-market acolytes, neoliberalism had little effect on politics and policymaking in the United States until the late 1970s. Before then, most economists and policymakers accepted a modicum of progressive taxation, government spending, and economic regulation – all in moderation. From the end of the Second World War through the early 1970s, Keynesianism was the dominant policymaking paradigm in America. Keynesians assumed that there was a tradeoff between unemployment and inflation – like a seesaw, as one went up the other went down. They also believed that raising and lowering taxes properly could help balance the seesaw, resulting in acceptable levels of both unemployment and inflation. On the one hand, raising taxes would take money out of people’s pockets and reduce the aggregate demand for goods and services in the economy so that manufacturers would cut back on production, lower their prices, and lay off workers. As a result, inflation would decrease but unemployment would increase. On the other hand, lowering taxes would have the opposite effects – people would have more money to spend, demand would pick up, production would increase, workers would return to work, and prices would rise. In short, Keynesians believed that adjusting taxes would help smooth out the ups and downs of the business cycle.Footnote ¹⁸

However, inflation and a sluggish economy in the late 1970s drew all that into question. Keynesianism ran into trouble. In the late 1960s and early 1970s, thanks to bad harvests around the world and deals to sell American grain to the Russians, prices for food began to escalate in the United States. So did prices for raw materials. Making matters worse, the price of oil skyrocketed suddenly in the wake of the 1973 OPEC oil crisis and again in 1979 after the Iranian revolution. Now inflation was mounting and the economy was stagnating, as rising unemployment rates indicated. This was called “stagflation.” The Keynesian seesaw was broken. Unemployment and inflation were rising simultaneously. Keynesianism was discredited and a war of ideas erupted as economists and policymakers scrambled to find a solution to the stagflation riddle.

This provided a political opportunity for conservatives to push a new approach to managing the economy. It was based on neoliberalism and was called supply-side economics. It claimed that three things – excessive government spending, regulation, and taxation – were driving inflation to double-digit heights, undermining investment and, therefore, killing innovation, productivity, job creation, and economic growth. As such, the neoliberal supply-side solution for stagflation was remarkably simple: cut government spending, regulation, and taxes.Footnote ¹⁹

Insofar as taxes were concerned, conservatives argued that the more businesses and investors had to pay the government in taxes, the less money they had to invest in ways that would facilitate economic growth and reduce unemployment. High taxes choked off the supply of investment capital. One reason taxes were too high, they argued, was that the government needed those revenues to help pay for expensive welfare and regulatory programs that conservatives wanted to scale back.Footnote ²⁰

Conservatives were particularly enamored with the neoliberal idea of cutting taxes as explained by economist Arthur Laffer. According to Laffer, if the government cut individual and corporate income tax rates, the revenue lost initially from those cuts would eventually be recovered and even surpassed by new revenues generated later by the phenomenal investment and economic growth that those tax cuts would presumably spark. In other words, cutting taxes would increase rather than decrease government revenue in the long run and, therefore, help reduce government budget deficits and pay down the national debt – two other goals that conservatives also held dearly. And cutting taxes on large corporations and the affluent was most important. After all, they were the ones who did the most investing, so putting money in their pockets through tax cuts would surely stimulate greater investment and economic growth with the benefits trickling down to everyone else. And because they would presumably invest their tax-cut windfall rather than spend it in ways that would increase aggregate demand, the inflationary effects of those tax cuts would be minimal.Footnote ²¹

Of course, Keynesians also accepted that tax cuts were a good idea for stimulating the economy, but only during downturns in the business cycle when unemployment was high and cutting taxes would boost aggregate demand and jumpstart the economy. In contrast, neoliberal supply-siders wanted to keep taxes low all the time to encourage a steady supply of investment capital and reduce the size of government. Moreover, for Keynesians, despite the inflationary risks, tax cuts should target the middle and working classes, not corporations and the affluent, because the middle and working classes were the ones doing the lion’s share of the spending that affected aggregate demand. Put differently, Keynesians saw managing aggregate demand as the government’s chief tax policy priority; neoliberal supply-siders saw stimulating investment as the chief tax policy priority. So, there were fundamental differences in how conservatives such as Laffer and moderates such as the Keynesians would deploy tax cuts.

Jack Kemp, a conservative Republican congressman from upstate New York and former National Football League quarterback, and his Senate colleague William Roth were among the first politicians to buy Laffer’s supply-side argument.Footnote ²² They sponsored the Tax Reduction Act of 1978, which proposed cutting individual income tax rates by a third and cutting corporate income tax rates by 3 percent over three years. As the Congressional Budget Office (CBO) noted in its evaluation of the Kemp–Roth bill, at its core was the supply-side argument that “the existing marginal tax rates have so depressed incentives to work, save, and invest that a one-third cut in tax rates would sharply increase the level of total economic activity, perhaps by enough to make the tax reductions self-financing.” There it was – Laffer’s theory that cutting tax rates would boost investment and economic growth so much that government revenues would increase not decrease in the long run. However, the CBO concluded that “The evidence indicates that this large a response to the tax cuts is most unlikely.”Footnote ²³ In other words, the supply-side argument was nonsense – tax cuts would not be self-financing. The bill died in committee but the idea behind it did not.

It’s worth mentioning that many well-respected economists also thought the Laffer theory was wrong. George Stigler called Laffer a “propagandist” not to be taken seriously; Alan Greenspan said he didn’t know anyone who took the argument seriously; and Herbert Stein, who chaired the Council of Economic Advisors for Presidents Nixon and Ford, called the argument “bizarre.”Footnote ²⁴ When George H. W. Bush ran against Reagan for the Republican Party presidential nomination in 1979 he called Laffer’s idea “voodoo economics.” And Reagan’s Director of the Office of Management and Budget, David Stockman, never believed that tax cuts would pay for themselves, but saw them as a way to inflate budget deficits and, therefore, justify spending cuts to shrink the size of government.

Nevertheless, when Ronald Reagan became president, his 1981 tax cut was modeled after the Kemp–Roth bill. It marked a fiscal turning point for conservatives and launched a decades-long crusade to slash federal taxes.Footnote ²⁵ As sociologist Monica Prasad shows, there is much debate over why Reagan and his advisors embraced tax cuts so adamantly. Some say it was because economists rejected the conventional Keynesian wisdom, which failed to provide a way out of the stagflation dilemma. Others say it was because business interests, faced with increased international competition, could no longer afford high taxes and lobbied for tax reform. Another school of thought is that voters’ antipathy toward high taxes, beginning with state-level revolts in California and Massachusetts against rising property taxes in the late 1970s and early 1980s, encouraged conservative politicians to favor tax cuts at the federal level. Yet others maintain that it was the other way around. Rather than responding to voter preferences, Reagan was responsible for shaping those preferences in the first place by preaching how tax cuts would benefit everyone, and adopted his tax-cutting view believing that it was an effective sales pitch for winning elections.Footnote ²⁶ As Prasad shows, regardless of who is right, Reagan and his conservative congressional allies quickly reduced taxes once he was elected. When he moved into the White House the top marginal tax rate on individual income was 90 percent in some cases but was 33 percent when he left office. For most corporate income, the rate dropped from 46 percent to 34 percent.Footnote ²⁷

But the more important point is that Republicans soon agreed that promising to cut taxes was imperative for winning elections – an imperative that was underscored soon after Reagan left office.Footnote ²⁸ Reagan’s vice president and successor, Republican George H. W. Bush, promised during the presidential debates in 1988 not to raise taxes at all. “Read my lips – No new taxes!” was his campaign motto. Bush won that election but reneged on his promise once in office. He agreed to raise taxes to help control rising government budget deficits. This cost him dearly. Bill Clinton defeated him in the next election, making Bush a one-term president. Since then, Republicans have been convinced that the road to electoral victory is paved with promises of tax cuts.Footnote ²⁹

These promises were effective again in the 1994 midterm elections when Republicans announced the Contract with America, a list of eight pledges for reforming government that they would fulfill if they won a majority in Congress. The Contract was written by Republican Congressman Newt Gingrich, who eventually became Speaker of the House, and Dick Armey, one of his lieutenants, with assistance from the Heritage Foundation. In that historic election, Republicans won nine seats in the Senate and fifty-four seats in the House, regaining control of both chambers of Congress and winning the House for the first time in forty years. One thing stood out on that list of pledges – tax cuts.Footnote ³⁰ At minimum, Congress would not increase taxes without a three-fifths majority vote – a hurdle that would make it very hard to raise taxes at all. But if Gingrich and Armey, both diehard supply-siders, had their way, they would push for deep neoliberal tax cuts.

Neoliberal tax cuts were also the order of the day for the next two Republican administrations. George W. Bush’s 2000 presidential campaign promised that the bulk of his tax cuts would go to the middle and working classes, but once elected things turned out differently when his administration passed tax cuts in 2001 and 2003. Contrary to his campaign promises, the higher an individual’s income was, the greater benefit they received from that legislation.Footnote ³¹ Figure 1.1 shows that thanks to the Bush tax cuts households in the top 1 percent of the income distribution enjoyed a 6.7 percent increase in after-tax income, households in the middle 20 percent got a 2.8 percent increase, and households in the bottom 20 percent received just a 1 percent increase. Figure 1.1 also shows that despite Donald Trump’s campaign promise to slash taxes for everyone, his 2017 tax cuts were just as regressive in their distribution of benefits – that is, skewed in favor of the rich. Corporations also enjoyed a tax-cut windfall. But the broader point is that thanks to conservative pressure for neoliberal reform, tax cuts have been passed into law nine times in the United States since Reagan won the presidency in 1980.Footnote ³²

Figure 1.1 Increase in after-tax personal income owing to Bush and Trump tax cuts

Data: Horton Reference Horton2017; Investopedia 2020.

Since Donald Trump became president in 2016, the Republican Party has undergone a dramatic transformation. Republican politicians in Washington, particularly the “Make America Great Again” Republicans who still take their cues from Donald Trump, are fixated on fighting the culture wars, investigating the alleged abuses of the Biden family, and fretting about the so-called weaponization of the Department of Justice, Internal Revenue Service (IRS), Federal Bureau of Investigation, and House January 6 committee hearings. Republicans these days are also claiming the mantle of the middle and working classes – something that used to be the calling card for liberal Democrats. As Republican Senator Ted Cruz put it, “I think one of the most consequential political shifts of the last decade is that Republicans have become a blue-collar party. We are the party of workingmen and women. We are the party of truck drivers and steelworkers, and we are the party of the railroad union workers.”Footnote ³³ Never mind that Republicans have little evidence that their policies favor these classes more than the wealthy and large corporations. But does any of this mean that Republicans’ interest in cutting taxes has faded? Absolutely not.

It’s true that the Republican Party embodies a weird mixture of inverted class politics and extreme cultural conservatism. But cutting taxes is still a priority. For instance, in the 2023 negotiations over raising the government debt ceiling – the amount of money the federal government is allowed to borrow – Republicans refused to even consider the possibility of raising taxes to get debt under control. They focused entirely on cutting spending, except for defense. The Republican majority in the House also recently adopted new rules making it easier to cut taxes than to raise them.Footnote ³⁴ Going one step further, in 2023, Republican Congressman Buddy Carter introduced the Fair Tax Act, supported by thirty other House Republicans, that would eliminate the federal individual and corporate income taxes, the capital gains tax, payroll taxes on Social Security and Medicare, and estate taxes, replacing them all with a 23 percent national sales tax. Tax experts such as Garrett Watson of the Tax Foundation predicted that this would shift the overall tax burden from the rich and wealthy taxpayers toward low- and middle-income taxpayers – another example of neoliberalism in action. The Republicans also vowed to get rid of the IRS if they got a chance.Footnote ³⁵

In short, conservatives have been calling continuously for tax cuts under the neoliberal banner for a half-century – especially for the rich. But who exactly are these people?

Who Are the Rich?

When I refer to the rich and wealthy, I am referring to those whose household income is in the top 20 percent of the income distribution – those benefiting the most from the Bush and Trump tax cuts reported in Figure 1.1. According to the US Census Bureau in 2022, these were households with at least $153,000 in annual income and often much more.Footnote ³⁶ They included, for example, households with physicians, dentists, airline pilots, business executives, and even some university professors and politicians. Households in the top 1 percent received a minimum income of $652,657. Among others, their members included top-level corporate managers and leaders in finance, investment banking, the law, medicine, and technology. They also included big-time university football and basketball coaches, entertainers in television, Hollywood and the music industry, and professional athletes in baseball, football, basketball, and hockey.Footnote ³⁷ Nearly every household in the top quintile had net worth of at least $1 million in stocks, bonds, real estate, and other assets.Footnote ³⁸ Arguably, if the government is serious about raising more revenue, these are the people it should tax because these are the ones with the most money who can best afford to be taxed.

What’s surprising, and that helps explain why the rich are so resistant to paying higher taxes and favor tax cuts, is that many of them do not consider themselves to be rich at all. A 2023 Ameriprise survey of 580 millionaires in the United States found that most don’t consider themselves to be wealthy: 60 percent said that they are only upper middle class and 31 percent said that they are only middle class. A mere 8 percent said that they are wealthy.Footnote ³⁹ Similarly, a 2022 Gallup poll found that only 2 percent of Americans self-identified as being in the upper class.Footnote ⁴⁰

The difference between people’s objective class position, as measured by their income and wealth, and people’s subjective view of their class position, as reflected in surveys, matters. According to Gallup’s Frank Newport “Americans’ perceptions of where they are in the social and economic hierarchy can have important consequences for their behavior and political actions, as we have seen at many junctures throughout history.”Footnote ⁴¹ For instance, if people believe incorrectly that they are part of the middle class and can’t afford higher taxes when in fact they are much richer and could afford a tax increase, then public pressure for cutting taxes is amplified. It becomes harder to raise revenues for improving roads, bridges, airports, telecommunications, educational, research, and other infrastructures as well as the police, fire, rescue, and other public services that benefit us all.

Getting rid of the IRS or eliminating most taxes as some Republicans want is not likely to happen any time soon. But the conservative obsession with cutting taxes, particularly on the rich and corporations, has not abated. Understanding why brings us back to the five myths conservatives have been using all along to justify cutting taxes.

Five Myths About Taxation

Conservatives have long relied on myths to justify tax cuts, especially for the affluent and big corporations.Footnote ⁴² An early and important example is George Gilder who laid out the neoliberal logic of tax cuts in his 1981 bestseller Wealth and Poverty. Underwritten by the conservative Manhattan Institute, it was a wildly popular book with ten printings that year. It was required reading for top officials in the Reagan administration.Footnote ⁴³ It was a selection of the Book-of-the-Month Club and the Conservative Book Club. It was also serialized in Reader’s Digest and other publications. Parts of it appeared in Harper’s Magazine, Forbes, and The American Spectator. And it was elevated to the status of economic gospel by conservative writers and politicians. What is important for us is that Gilder helped popularize five arguments that conservatives such as Reagan, Gingrich, Armey, the two Bushes, Trump, and a host of others have embraced for decades and that they still use to justify cutting and keeping taxes low today. The first two are myths based on an economic logic and appeal to reason. The rest are myths that approach the issue of taxation from the direction of people’s values and, as a result, tend to be more emotionally charged. But they all echo the basic principles of neoliberalism. And all five have held a privileged place in conservative Republican rhetoric for a half-century.Footnote ⁴⁴

1. 1. Taxes Are Too High: To begin with, Gilder complained that taxes in America were simply too high, especially compared with other advanced capitalist countries. In particular, he argued that the United States had one of the most steeply progressive tax systems in the world – that is, one where the higher your income is, the higher your tax rate is. In his view, this created a host of problems.Footnote ⁴⁵

2. 2. High Taxes Hurt the Economy: Gilder claimed that tax rates were so high, especially on corporations and the wealthy, that savings and ultimately investment rates in the United States were far lower than in other advanced capitalist countries against which the United States competed economically.Footnote ⁴⁶ He also believed that high taxes encouraged exorbitant government spending, which fueled inflation. Moreover, he thought that high taxes destroyed the incentives for workers to work hard. He reasoned that the rewards of higher wages and salaries that came from hard work would be reduced by pushing workers into higher tax brackets. After all, why work hard to make more money if the government will simply take it away from you through higher taxes? And as high taxes reduced the incentives for workers to work hard, their productivity on the job would diminish too. For Gilder, one of the fundamental problems with the American economy was collapsing productivity caused by high taxes on workers as well as insufficient productive investment caused by high taxes on corporations and the rich.Footnote ⁴⁷

3. 3. High Taxes Encourage Government Waste: This third justification for tax cutting appeals to people’s concerns about what sort of government America ought to have. Gilder insisted that high taxes promoted wasteful government spending.Footnote ⁴⁸ This was an argument rooted in Jeffersonian values favoring small government. As a result, it behooved politicians to cut taxes to reduce the amount of revenue government could spend. He believed that the problem stemmed from the fact that government bureaucracies proliferate because enterprising government bureaucrats team up with politicians to expand services and benefits for their constituents, such as lobbyists, campaign donors, other beneficiaries of government largesse, and voters. The implication was that government was riddled with self-interested influence peddling if not outright corruption. He concluded that economic progress depends on the activity of private entrepreneurs not the government. In his words, “As [government] bureaucracy grows … industrial progress declines.”Footnote ⁴⁹

4. 4. High Taxes Are Unfair: This rationale for conservative tax cuts strikes an emotional chord. Gilder maintained that high taxes on the rich constituted an unfair redistribution of income and wealth from those who worked hard and earned it down to those less affluent who did not. He believed that the food stamps, housing subsidies, poverty programs, and other means by which government shifted economic resources from the upper class to the lower classes in the hope of promoting more upward mobility and less inequality were largely ineffective. He said that using high taxes in this way took away earnings from the successful and, therefore, penalized them for being ambitious and productive.Footnote ⁵⁰ But, in a nod to neoliberal supply-side economics, he argued that high taxes on the rich hurt the lower classes too by reducing the revenue that might otherwise be available to pay for the programs from which the lower classes benefited. As he put it, “When [tax] rates are lowered in the top brackets the rich consume less and invest more. Their earnings rise and they pay more [in taxes] in absolute amounts. Thus, the lower and middle classes need pay less to sustain a given level of government services.”Footnote ⁵¹ In short, to help the lower classes government needed to cut the taxes on corporations and the rich and let the benefits trickle down to the rest of society. It was the fair thing to do.

5. 5. High Taxes Threaten Freedom: Finally, like the two previous claims, concerns about individual freedom target people’s values and emotions. Gilder and his compatriots believed that exorbitant tax burdens threatened individual freedom by preventing people from deciding for themselves how their money is spent. Gilder assumed that one of the great strengths of capitalism was allowing entrepreneurs and others to invest their money as they saw fit. Imposing high levels of taxation on them stifled their economic freedom to do what they want, including spending and investing in innovative ways. In his words, “No nation can grow and adapt to change except to the extent that … its productive wealth … can be freely risked in new causes, flexibly applied to new purposes, steadily transformed into new shapes and systems.”Footnote ⁵² In his view, government cannot do that, but private individuals and firms can. To support his point, he noted that such famous and staunchly conservative Mont Pelerin Society economists as Hayek, von Mises, and Friedman all celebrated the economic freedom of choice that capitalism provides if the government does not interfere.

There is some overlap among these myths. In Gilder’s view, for instance, high taxes facilitate wasteful government spending, which undermines investment and hurts the economy. Overlap like this creates a cohesive whole and, as a result, an apparently more powerful and convincing argument. Taken together, conservatives have used these myths to justify “starving the beast,” one of their favorite expressions for shrinking the size of government and limiting its reach into American life by reducing taxes. The irony, of course, is that despite this rhetoric their efforts to cut taxes didn’t starve the beast at all because Republicans have been just as prone as Democrats to borrowing to help finance government spending. For instance, despite promises to the contrary and his claim that the country faced a “national debt crisis,” Donald Trump’s administration added $7.8 trillion to the national debt in just four years – over half of that coming before the once-in-a-lifetime Covid-19 pandemic, even though the economy was booming and unemployment was at historically low levels. Trump’s 2017 tax cut and a lack of serious spending restraint helped budget deficits and the national debt soar. From a fiscal standpoint, there was no sign of smaller government anywhere in sight.Footnote ⁵³

Gilder, Laffer, and other supply-side conservatives were not in line with the mainstream economics profession. Gilder was not even an economist. He was a journalist. And although Laffer had a Stanford PhD in economics and held a tenured faculty position at the University of Southern California, he was at least as interested in engaging politics as he was in doing conventional academic work and held several official and advisory roles in various Republican administrations. Nevertheless, these supply-siders’ view of cutting taxes captured the imagination of conservatives in Washington. In addition to their own writings, it was popularized by the editorial page of the Wall Street Journal and influential conservative think tanks such as the Heritage Foundation. It seeped into the public consciousness and became an often cited and frequently taken-for-granted truth of economics in public discourse.Footnote ⁵⁴ The same has been true of the five myths that they and many other conservatives have used ever since to justify their tax cutting agenda.

Myths in Action

Myths such as these are powerful. Political scientist Murray Edelman argued that in every society people dwell on myths about the state: what it is, what it does, and what it should be. They permeate political life and persist for very long periods of time. They are largely unquestioned and taken as articles of faith.Footnote ⁵⁵ Politicians and others use them as important tools to help frame their arguments for whatever policies they favor.Footnote ⁵⁶ Like all rhetorical frames, their power lies in the fact that they simplify complicated things so that they are more understandable. Sociologist Erving Goffman would add that they help us make sense of the world around us. But in doing so they may also obscure the truth by distorting or overlooking facts and appealing to people’s emotions.Footnote ⁵⁷ That is the case with the five myths up for discussion in this book. We will get to this in later chapters. But for now, what matters is recognizing that conservative politicians have used each of these myths with great effect for decades.

Ronald Reagan was especially fond of these myths, none more so than the unsubstantiated claim that taxes were too high and hurting the economy. As the Republican Party’s standard bearer, Reagan claimed that cutting taxes especially for the rich and corporations was the best way to spur investment that would spark innovation, stimulate the economy, create jobs, and improve the country’s competitiveness in the global economy.Footnote ⁵⁸ Grover Norquist, a Republican with a libertarian streak and a Harvard undergraduate degree, echoed Reagan’s claims. In 1985, Norquist founded Americans for Tax Reform, an organization that opposed all tax increases and advocated reducing the amount of revenue the government collected. Norquist introduced his Taxpayer Protection Pledge and pressured politicians running for office to sign it. The idea was to make them go on record publicly in support of his anti-tax views. Signing the pledge in the name of stimulating investment and economic growth soon became popular among lots of Republican candidates. Eventually, thousands of elected Republican officials in federal and state government signed the pledge including nearly every Republican president, senator, and governor – and even a few Democrats.Footnote ⁵⁹

Pledging to cut taxes to boost the economy seemed to yield electoral benefits. As we saw, for example, George H. W. Bush won the presidency vowing to preserve his predecessor’s legacy by pledging not to raise taxes because doing so would hurt the economy.Footnote ⁶⁰ Newt Gingrich’s Contract with America made the same argument. George W. Bush also pledged to cut taxes to spark economic growth and reduce unemployment.Footnote ⁶¹ Once elected he cut the top tax rate on dividends and capital gains, which as we have seen benefited wealthiest Americans the most.Footnote ⁶² So did Donald Trump in the hope of stimulating investment and economic growth and luring business investment back to the United States that had allegedly fled America’s onerous tax burden by moving abroad.Footnote ⁶³ All of this was classic neoliberal supply-side economics.Footnote ⁶⁴

Conservatives still complain that high taxes, especially on the wealthy and corporations, inevitably crush the economy but that lower taxes stimulate it. Republicans went ballistic after President Joe Biden presented his 2024 budget, which called for hefty tax increases on corporations and the affluent, including a 25 percent tax on anyone’s wealth over $100 million, higher taxes for those earning over $400,000, and rolling back the Trump era tax cuts for high income earners. Senator Charles Grassley, the ranking Republican on the Senate Budget Committee, called the plan “a road map for fiscal ruin.”Footnote ⁶⁵ Republican Representative Dan Meuser concurred that Biden is “trying to kill growth with these [tax] increases.”Footnote ⁶⁶ Meanwhile, Republicans favored a proposal from Russell Vought, one of Donald Trump’s former budget directors, that would cut taxes further and in their view trigger a big rise in economic growth and, therefore, so much additional tax revenue that it would reduce federal budget deficits and debt.Footnote ⁶⁷ Their plan as well as their criticisms of the Biden budget were pulled straight from the Laffer supply-side script.

In addition to claims about damaging the economy, Republicans have argued for decades that high taxes are the root cause of government waste and inefficiency. Reagan railed against the excesses of big government fueled by high taxes. Building on that theme, Gingrich’s Contract with America proclaimed that tax cuts would solve the problems of government waste and corruption. It called for an audit of Congress to root out “waste, fraud or abuse,” and insisted that limiting tax increases, if not slashing taxes further, would help solve these problems. According to that document, this “would be the end of government that is too big, too intrusive, and too easy with the public’s money.”Footnote ⁶⁸ This was full-throated neoliberalism. Republicans also condemned Joe Biden’s tax hikes as another way that Democrats would boost wasteful spending and big government. Republican Senator Rick Scott summed up the Biden plan as a combination of higher taxes, bigger government, and more inflation.Footnote ⁶⁹ House Speaker Republican Kevin McCarthy agreed, arguing that “We must cut wasteful government spending” rather than increase it.Footnote ⁷⁰ Conservative think tanks have also insisted that tax cuts are needed to reduce government waste. A case in point is the Cato Institute, which has backed tax cuts for decades “because rate cuts can reduce the economic waste created by federal income taxes.”Footnote ⁷¹

Claims about the tax system’s unfairness have also been bread and butter for conservatives since Reagan’s time. Reagan charged that it was unfair that the affluent and corporations had to shoulder most of the income tax burden. He also maintained that taxes had to be cut because double-digit inflation was unfairly pushing people into higher tax brackets and eroding their buying power – a phenomenon known as bracket creep.Footnote ⁷² During George W. Bush’s first campaign for the presidency, he pledged to cut everybody’s taxes not only to spark economic growth and reduce unemployment, but also to make the tax system fairer.Footnote ⁷³ More recently, the Cato Institute has argued that income tax rates are grossly unfair. On the one hand, people with higher incomes pay higher tax rates than people with lower incomes. On the other hand, people with the same incomes often pay different tax rates owing to various loopholes in the tax code and tax credits.Footnote ⁷⁴ The issue of fairness also worries many congressional Republicans. Buddy Carter’s 2023 tax cutting plan, mentioned earlier, assumed that the current tax system was terribly unfair and should be replaced with one that treated people more equitably. After all, the bill’s title was the Fair Tax Act.

As for claims about high taxes threatening freedom, conservatives continue to pound that drum too. Reagan held that high taxes were an encroachment on people’s economic freedom to spend their money as they saw fit and, therefore, another justification for steep tax cuts.Footnote ⁷⁵ Norquist’s organization also wanted lower taxes to ensure Americans’ freedom. Its website still says, “The government’s power to control one’s life derives from its power to tax. We believe that power should be minimized.”Footnote ⁷⁶ During the 2022 midterm elections, Doug Mastriano, the Republican nominee for Pennsylvania governor, promised to restore freedom in America by cutting taxes.Footnote ⁷⁷ The Cato Institute warned that having to file income taxes every April reduces Americans’ freedom.Footnote ⁷⁸ And the Heritage Foundation tracks the ebb and flow of freedom around the world each year by publishing a Fiscal Freedom index based on a country’s overall tax burden, which consists of three variables, the first two of which focus on taxes for the rich and corporations: the top marginal tax rates on individual and corporate income and the percentage of gross domestic product (GDP) collected through all direct and indirect taxes. Countries that tax less heavily are labeled freer than countries that tax more heavily.Footnote ⁷⁹ The Cato Institute publishes a similar index. And underscoring the threat that taxation poses to freedom, The Tax Foundation, another conservative Washington think tank generally critical of high taxes and tax increases, marks an annual Tax Freedom Day, typically sometime in April or May, which is the day, according to their calculations, that the average American has earned enough since the beginning of the year to pay all their taxes for that year. This is a not too subtle way to complain about high taxes gradually encroaching on American’s economic freedom. The Tax Foundation also grumbles that over the years Tax Freedom Day has become later in the year, meaning that Americans have been paying more in taxes as a percentage of their income and losing more freedom as a result.Footnote ⁸⁰

So, nearly fifty years after Reagan entered the White House, conservatives still complain that taxes are too high, stymie economic growth, encourage government wastefulness, are unfair, and pose a threat to freedom. Nowhere is this clearer than in the Heritage Foundation’s Project 2025, its presidential transition project anticipating Donald Trump’s reelection to the presidency in 2024. Project 2025 culminated in an 887-page document called Mandate for Leadership: The Conservative Promise – a detailed guide to how a new Trump administration should proceed once in office. Chapter 22 addressed tax policy. It charged that taxes are too high. And it called for steep cuts in individual and corporate taxes to promote investment, work, savings and economic prosperity; to reduce the size of government and get rid of government waste; to make the tax system fairer; and to increase people’s freedom to spend their money as they wish. It called for less tax progressivity, steeper tax cuts for the wealthy, and especially deep tax cuts for corporations because corporate taxes are “the most damaging tax in the U.S. tax system.”Footnote ⁸¹ These are the five neoliberal supply-side tax-cutting claims that we’ve been considering all wrapped up into one blueprint for conservative tax reform.

But the question remains: How much truth is there to these claims? The answer: Not much. That’s why they are myths. The rest of this book explains why.

The Argument

Friedrich Hayek wrote in The Road to Serfdom that a leader uses myths – propaganda – to justify his or her actions. This typically involves what he called “pseudoscientific theory,” that is, fallacious causal arguments. According to Hayek, using myths “has the power to mold [people’s] minds in any direction he [sic] chooses, and even the most intelligent and independent people cannot entirely escape that influence if they are long isolated from all other sources of information.”Footnote ⁸² Hayek wrote these words at the height of the Second World War referring especially to fascism, communism, and other totalitarian forms of government and centralized economic planning, but they still ring true today, especially insofar as people get their news and information from social media sites, cable news channels, and other sources that misrepresent the facts and ignore or denigrate alternative points of view.Footnote ⁸³ Ironically, this book follows Hayek’s lead insofar as it shows that the myths conservatives have used for the last several decades and continue to use today to justify cutting taxes are also often a matter of pseudoscientific theory.

To begin with, Chapter 2 explains that contrary to conservative rhetoric taxes in the United States are not high compared with many other advanced capitalist countries, and many tax rates have been declining since the mid-twentieth century, especially for large corporations and the affluent. Chapter 3 shows that although conservatives insist that high taxes stifle economic performance and prosperity, cross-national and historical data generally do not support this claim. Sometimes the opposite is true. Tax cuts for the rich and corporations can spark investment and economic growth, but that’s more likely if strings are attached that encourage them to invest their tax windfalls rather than spend them on other things. Moreover, under the right circumstances high taxes can finance government spending for things that stimulate rather than undermine innovation, economic growth, international competitiveness, and prosperity. Nor do high taxes necessarily drive capital out of the United States or cause it to disinvest at home as conservatives often claim.

Chapter 4 demonstrates that government spending is not necessarily as wasteful as conservatives assume. They claim that government waste stems from bureaucratic inefficiencies. But large corporations are also bureaucracies subject to inefficiency, and so may be just as wasteful as government. Similarly, as I just mentioned, there is no guarantee that wealthy individuals or anyone else benefiting from steep tax cuts won’t spend those benefits wastefully. Furthermore, even though high taxes and government spending may sometimes be wasteful from a cost efficiency perspective, they may still pay for things that society needs but that markets fail to provide. In other words, the government’s allocative efficiency may offset its cost inefficiency. So, while we can sometimes find examples of wasteful government spending, they alone do not provide convincing evidence to justify cutting taxes for the rich, corporations, or anyone else.

Chapter 5 shows that arguing that high taxes unfairly redistribute economic resources from the rich down to the less affluent who allegedly don’t deserve them ignores that the welfare benefits that taxes pay for often go to working families, children, and others whose need for assistance is not due to their own individual shortcomings but rather circumstances beyond their control. It also ignores that the more affluent often benefit far more than others from a slew of tax breaks and loopholes in the tax code – otherwise known as tax expenditures. This is what some have called the hidden welfare state, which skews the benefits of the tax system in an upward, not downward direction.Footnote ⁸⁴ Put differently, although a few poorer people occasionally try to game the welfare system, the evidence suggests that this is no reason to dramatically cut taxes. In fact, corporations and the rich game the system too.

Chapter 6 turns to the question of freedom. Advocates of cutting taxes argue that the more the government takes away people’s money through taxation, the more it chips away at their freedom to spend that money as they see fit. Of course, the less money you have, the less freedom you have for spending on things you want. However, this argument ignores that freedom to do as you please can have disastrous unintended consequences for individuals and society. And it overlooks that cutting taxes and, therefore, government spending in the name of individual freedom can restrict the freedom of those who are disadvantaged by preventing them from getting the goods and services they need to improve their own lot in life. As the saying goes, you can’t pull yourself up by your bootstraps if you don’t have any boots in the first place.

With all of this in mind, Chapter 7 explains why many Americans believe these five myths even though they are so deeply flawed empirically. The explanation has much to do with mistaken assumptions about human nature and the allegedly predatory character of the state. But it also has a lot to do with money in politics, the nature of the myths themselves, the visibility and invisibility of different forms of taxation, the fundamental nature of American politics today, and the changing media landscape. If Americans understood this, it would help put an end to the myths perpetrated by conservatives claiming that slashing taxes is a necessary key to prosperity and freedom.

American Exceptionalism and Historical Relevance

Conservatives might object to the arguments in this book on methodological grounds. Some may challenge my use of comparisons of the United States with other advanced capitalist countries. Others may dismiss my comparisons from US history. But both approaches are justified. First let’s consider cross-national comparisons.

Conservatives might argue that the United States is exceptional – it’s not like most other countries. It is a world power. It has the largest economy in the advanced capitalist world. And it has exhibited exceptional economic growth in the twenty-first century fueled in part by high levels of military spending paid for by borrowing and running up huge budget deficits. In fact, unlike any other country, deficit spending, especially to pay for military budgets, such as during the Vietnam War, Operation Desert Storm, and the post 9/11 military buildup, has been a hallmark of American fiscal policy. So, conservatives might suggest that comparisons of the United States to other countries are irrelevant because America isn’t like other countries, can’t be like other countries, and shouldn’t aspire to be like other countries. What about this?

Let’s get one thing out of the way right away. Conservatives don’t hesitate to invoke international comparisons when it suits their needs. For instance, the Conservative Political Action Committee (CPAC), lately a bastion for neoliberalism and right-wing extremism, invited Hungary’s autocratic leader, Viktor Orbán, to its annual meeting in 2022, where he delivered a speech decrying LGBTQ rights and lauding his own country’s authoritarian antiwoke policies – a speech that the CPAC audience met with warm applause. The Hoover Institute, a conservative think tank, has praised the conservative economic policies of Augusto Pinochet, Chile’s brutal dictator who came to power in a coup in 1973 and ruled until 1990.Footnote ⁸⁵ In both cases, the idea was that the United States could and should learn from the examples of these other countries.

More to the point, arguing that cross-national comparisons are out of order because the United States is so exceptional ignores the fact that other advanced countries have much in common with the United States. Of course, no two countries are exactly alike. But the advanced countries are all democracies with executive, legislative, and judicial branches. They all have multiple national political parties and national elections on a regular basis. They all have welfare states that include social security and unemployment programs. They all have public educational systems. They all have stock markets and all sorts of government regulation. And contrary to what people may believe, none of them are “socialist” economies. They are all quite capitalist, dominated by private corporations operating on a for-profit basis.

Furthermore, although the United States has often exhibited exceptional economic performance over the years, that hasn’t always been the case. For instance, The Economist recently pointed out that “America remains the world’s richest, most productive and most innovative big economy.”Footnote ⁸⁶ Indeed, between 2013 and 2022, the average annual GDP growth rate of the US economy was 2.1 percent, which was better than several large countries, including Mexico, Britain, Canada, France, Germany, Spain, Italy, and Japan. Still, the US growth rate was not that much better than it was on average in either the Organization for Economic Cooperation and Development (1.8 percent), a group of many of the world’s capitalist economies, or the European Union (1.6 percent) during that decade. And economic growth in the United States was worse than it was for Australia, Poland, Hungary, Chile, South Korea, Ireland, Israel, Sweden, and New Zealand.Footnote ⁸⁷ Again, the United States isn’t always as exceptional as some might think, so ruling out cross-national comparisons because of American exceptionalism is an argument that doesn’t necessarily hold water.

There is another reason why cross-national comparisons are appropriate for our purposes. Conservative claims about how high taxes are, how much they damage the economy, how wasteful government is with tax dollars, how unfair the tax system is, and how taxation threatens freedom are claims that apply to all advanced capitalist economies. The logic of neoliberalism isn’t specific to the United States – it’s a universal argument about all capitalist societies. So, to argue that cross-national comparisons are inappropriate for testing these claims makes neither methodological nor theoretical sense. Ruling out such comparisons makes it difficult to test these claims. That said, in anticipation of conservative objections to cross-national comparisons, some of my arguments also rely on comparisons among the fifty US states.Footnote ⁸⁸

Turning now to historical comparisons, conservatives might argue that history doesn’t matter either and that historical comparisons are just as spurious as cross-national ones. What matters, they might say, is how things are in the United States today, not how they were in the past. After all, things now are much different from what they were even just a decade ago. America shouldn’t seek to relive the past but move forward. We need to think to the future in terms of a vision of a “better” America. There is certainly nothing wrong with dreaming about a better future for the United States. But having at least some idea about whether those dreams, if realized, might turn out to be nightmares requires some historical perspective. So does understanding how we got to where we are today.

Overall, then, there is no reason we can’t benefit from comparing the United States with other countries and seeing how it has changed historically. We can, in fact, learn from other countries and from the past. Indeed, policymakers have done so throughout American history with great success.Footnote ⁸⁹ Denying that cross-national and historical analysis can benefit us is like an ostrich sticking its head in the sand to avoid seeing reality. So, let’s turn to the data to see what that reality is.