Ocasio-Cortez’s 70 Percent Top Tax Rate Is Moderate, Evidence-Based Policy

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This week, Rep. Alexandria Ocasio-Cortez told 60 Minutes she believes the U.S. should consider taxing incomes above $10 million at a 70 percent rate. Understand what this means, up to $10 million would be taxed at the lower tax rates, but income above $10 million would be taxed at a 70 percent rate. Her recommendation makes economic sense and is consistent with the history of US taxation. It should be seriously considered.

In 2011, just after Occupy, we published the research of Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva on our economic project, which determined that the top tax rate for high-income earners should be 83 percent and it should be put in place while closing tax loopholes. They pointed out:

“at the very top of the income ladder, pay increases reflected mostly greed mostly greed or other socially wasteful activities rather than productive work effort. This is why they were able to set marginal tax rates as high as 80 percent in the US and the UK. The Reagan/Thatcher revolution has succeeded in making such top tax rate levels unthinkable since then. But after decades of increasing income concentration that has brought about mediocre growth since the 1970s and a Great Recession triggered by financial sector excesses, a rethinking of the Reagan and Thatcher revolutions is perhaps underway.”

In 2012, when Barack Obama and Mitt Romney were running for president, tax rates were an issue between them. The Congressional Research Service issued a report that also sides with Ocasio-Cortez’s call for a high tax on those earning more than $1 million. The report concluded that tax cuts for the rich don’t seem to be associated with economic growth and instead are linked to a different outcome: greater income inequality in the US. They found:

The top income tax rates have changed considerable since the end of World War II. In 1945, the richest families had to pay a marginal tax rate of more than 90 percent. Today, it is 35 percent. But both real GDP and real per capita GDP were growing more than twice as fast in the 1950s as in the 2000s.

At the same time, the average tax rate paid by the top 0.1 percent of U.S. families fell from about 50 percent to 25 percent in the last 60 years, while their share of income increased from 4.2 percent in 1945 to 12.3 percent in 2007, before falling to 9.2 percent due to the recession.

 

As the chart below shows income inequality coincides with the reduction of progressive taxation.

Ocasio-Cortez’s proposal should be taken seriously as the US has great spending needs. These include renewing and replacing failing infrastructure, transitioning to a clean energy economy, investment in new forms of transportation, ending poverty and homelessness, investing in neglected cities and rural communities and much more.  While the two parties have been willing to go into debt to fund wars and tax cuts for the rich, and Modern Monetary Theory argues we do not need taxes to pay for these programs based on having a fiat currency and the size of our economy, traditional economics shows we could fund the needs of the country and reduce the income divide by putting a progressive tax system back in place.

The United States has been going in the wrong direction on taxes since the Reagan era causing a record wealth divide where now three people — Jeff Bezos, Warren Buffett, and Bill Gates — have the wealth equal to half the population, more than 160 million people. This is inequitable and unjust and results in the country not funding much-needed programs.

  • rgaura

    Its a start, but we really need to tax wealth. Most of the very wealthy don’t work.

  • mwildfire

    Warren Rudman? Who’s Warren Rudman?

  • potshot

    In the last paragraph I think Warren Rudman should be Warren Buffet. I had to look Rudman up in Wikipedia too mwildfire. He was a US senator from New Hampshire.

  • kevinzeese

    LOL –Yes it should be Buffet. I can’t believe I missed that. Rudman is a former senator

  • kevinzeese

    Thanks, changed it!

  • Steven Berge

    Good point. This is a narrative you won’t hear on main stream media. It seems to be a clue who is running things when, besides unprepared food, the only transactions that aren’t taxed are financial transactions such as stock and bond transactions.

  • tsyganka

    I fully agree that wealth must be taxed.

    I have the unpopular view, however, that the so-called work ethic – work per se, work merely for the sake of work, for the ‘dignity’ – is quickly becoming an obsolete concept. AI and robotics are increasingly replacing human beings as workers. Soon we must consider the benefits of a universal basic income. This has been tested on a small scale in other countries and appears to work well.- regardless of whether the recipient was rich, poor, or in between.

    So I don’t mind that the obscenely wealthy don’t work. I DO mind that they nevertheless get vast sums of money while not working while normal citizens go hungry (1 in 6), lack shelter, or can’t pay for medical care. Such inequality is criminal.

  • tsyganka

    I seem to recall a proposal from back in 2016 that a small fee (‘tax’) – less than a penny – be placed on each share of stock that’s traded. The fee would be of little note to the obscenely wealthy, but it would generate immense revenue that could be used on power grid protection, healthcare, infrastructure, education, UBI, etc.

    I haven’t heard much about it since then. It needs to be revived, and I think Ocasio-Cortez could be the one to do it. — G-bus H. Crisp, I love the quick. spirited way she dismisses her detractors!