Thursday, January 17, 2019

Alexandria Ocasio-Cortez’s tax proposal could raise $720 billion over the next 10 years

Taxing high earners at 70 percent used to be considered a moderate, mainstream idea.

Image Credit: Corey Torpie/Courtesy of the Ocasio-Cortez Campaign

Last week, Representative Alexandra Ocasio-Cortez proposed a tax rate of 70 percent on America’s wealthiest. Not surprisingly, the proposal received huge criticism from the GOP. Since then historians, economists, and journalists have jumped to Ocasio-Cortez’s defense to point out that the proposal is not as outlandish as it seems.

Such a high tax rate is not unheard of and higher rates used to be the norm during a large portion of the 20th century. Why was this the case? Because higher tax rates on the wealthy generated huge revenue. As Alexandra Ocasio-Cortez proposes, the revenue from raising taxes on the wealthy could be spent to fund the Green New Deal, a proposal that would implement radical policy in order to eliminate fossil fuels and carbon emissions within the next 12 years.

Prior to the 1980s, when President Ronald Reagan slashed tax rates for the wealthiest, the tax rate for any taxpayer that made more than $216,000 a year was 70 percent. After the wealthiest saw their tax rates go down they began to accumulate a vast, and unequal, majority of the country’s wealth. Since then the wealthiest’s annual pay has skyrocketed, while the median household’s income has barely moved.

Ocasio-Cortez suggests that any taxpayer that makes more than $10 million a year, or roughly about 16,000 Americans, would be taxed at 70 percent, nearly doubling the current tax rate for this bracket of earners.

Representative Steve Scalise (R-LA), House of Representatives Minority Whip, is outraged over the proposal, stating that Democrats are trying to “take away 70% of your income and give it to leftist fantasy programs.”

Alexandria Ocasio-Cortez fired back at this, tweeting: “You’re the GOP Minority Whip. How do you not know how marginal tax rates work? Oh that’s right, almost forgot: GOP works for the corporate CEOs showering themselves in multi-million bonuses; not the actual working people whose wages + healthcare they’re ripping off for profit.”

Although the GOP likes to claim their way of doing things (lower marginal tax rates on the wealthy) helps the economy, but Ocasio-Cortez’s plan has “no basis in research or in evidence”, New York Times columnist Paul Krugman points out that the economic growth rate has declined alongside the fall tax rates on high-income earners:

Further, according to New York Magazine, Ocasio-Cortez’s tax proposal is a “moderate, evidence-based policy.” Eric Levitz of NY Mag writes, “In 1980, taxing incomes above $216,000 (or $658,213 in today’s dollars) at 70 percent was considered a moderate, mainstream idea, even though wage inequality was much less severe, and supply-side economics had yet to be discredited.”

Levitz continues:

One can raise a variety of technocratic quibbles with Ocasio-Cortez’s plan (raising taxes on capital gains might be a more effective way of soaking the super-rich; a confiscatory top marginal rate might prove impotent absent a global war on tax havens). But it would not be extreme in its redistributive implications, relative to our country’s past tax practices, or to other nations’ current ones. And a significant number of highly respected economists have endorsed top tax rates roughly as high as the one floated by the congresswoman, while Piketty has advocated for an 80 percent top rate.

Finally, according to the Washington Post’s Jeff Stein, applying a 70 percent rate to the top .05 percent of income earners in the U.S. could generate an estimated $72 billion a year, or $720 billion over the next decade:

This $720 billion in a decade is not nearly enough to fund Medicare for all, which has been estimated to increase government outlays by about $30 trillion over a decade (while also zeroing out premiums and deductibles paid by Americans).

Still, it could fund a number of other measures. It could come close to funding the entirety of Sanders’s free college tuition plan ($800 billion), fund President Barack Obama’s plan to get close to universal prekindergarten ($75 billion over a decade), forgive more than half the student debt in America ($1.4 trillion), cover Democratic leaders’ plan for boosting teacher pay and school funding ($100 billion), or come close to funding a $1 trillion infrastructure plan.

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