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babylonsister

(170,963 posts)
Fri Jan 4, 2019, 04:37 PM Jan 2019

Alexandria Ocasio-Cortez is floating a 70 percent top tax rate -- here's the research that backs her


Alexandria Ocasio-Cortez is floating a 70 percent top tax rate — here’s the research that backs her up
Some studies indicate she’s aiming too low.
By Matthew Yglesias@[email protected] Jan 4, 2019, 2:00pm EST


In an interview scheduled to air Sunday on 60 Minutes, America’s most widely covered new House member Alexandria Ocasio-Cortez (D-NY) floats the idea of a top marginal income tax rate as high as 70 percent as part of a plan to finance a “Green New Deal” that would aim to drastically curb America’s carbon dioxide emissions.

This is not a formal policy proposal. Indeed, the whole idea of offsetting the budgetary cost of decarbonization with taxes is somewhat at odds with the main currents of thought in the Green New Deal universe, which lean more toward the idea that deficits don’t matter and the costs shouldn’t be paid for at all.

Seventy percent is a lot higher than the current rate and will doubtless fuel the conservative effort to paint AOC as a know-nothing, but the number is in line with one prominent strain of recent economics research and is at least moderately well supported by America’s historical experience.

Top tax rates used to be much higher

Historically, the United States used to have many more tax brackets, and the top marginal tax rates were extremely high. Under Eisenhower, the top earners paid a 91 percent marginal rate, falling to Ocasio-Cortez’s proposed 70 percent under Kennedy and Johnson, before falling to 50 percent after Ronald Reagan’s first big tax cut, and then down to 38 percent after the 1986 tax reform.

One big part of that story is that before 1986 the tax base was considerably narrower. Rich people used to have a lot more loopholes and deductions of which they could avail themselves. The 1986 law closed a lot of those loopholes, but also cut the top rate.

But another part of the story is that there used to be more tax brackets. Right now a single person earning $550,000 a year pays the same marginal rate as a person earning 10 or 50 times as much. Under the old tax code, the top rate was reserved its top rate for the super-duper rich.

Ocasio-Cortez seems to have something like this in mind when she tells Cooper, “Once you get to the tippy-tops, on your $10 millionth dollar, sometimes you see tax rates as high as 60 percent or 70 percent. That doesn’t mean all $10 million dollars are taxed at an extremely high rate. But it means that as you climb up this ladder, you should be contributing more.”

more...

https://www.vox.com/policy-and-politics/2019/1/4/18168431/alexandria-ocasio-cortez-70-percent?fbclid=IwAR20V7F6rpzFXZHAiT2ndBEYAU12W_W-5nA-Elyr-zoH4kSiqynoI0CKHs0
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Alexandria Ocasio-Cortez is floating a 70 percent top tax rate -- here's the research that backs her (Original Post) babylonsister Jan 2019 OP
She is leading the conversation oberliner Jan 2019 #1
Indeed... RHMerriman Jan 2019 #2
Agreed. This should happen. Who cares if the rich go extinct? Joe941 Jan 2019 #3
bullshit GOPer argument Hermit-The-Prog Jan 2019 #7
Well, they were up to 90% under Eisenhower. Vinca Jan 2019 #4
The data are easily available. Igel Jan 2019 #6
Major reason 50s were 'the good old days. Top tax rates 70+%. Infrastruture, etc bobbieinok Jan 2019 #5

RHMerriman

(1,376 posts)
2. Indeed...
Fri Jan 4, 2019, 04:53 PM
Jan 2019

And the historical reality is that DDE asked for, and got, acceptance of a much higher bracket than that during the early years of the Cold War for national defense purposes - which included domestic infrastructure programs like the interstate highway system and major civil science research and education efforts, not just deployed forces and defense R&D.

Good precedent for AOC to raise, actually.

Hermit-The-Prog

(33,039 posts)
7. bullshit GOPer argument
Fri Jan 4, 2019, 06:36 PM
Jan 2019

We've never been in danger of taxing the rich into extinction. That bullshit helped get Rotten Ronnie in power.

The more one extracts from the economy, the more one is dependent upon those public services and structures which make that economy possible. Either re-invest the excess, or get it taxed. The tax code should be structured to keep the country viable. See crumbling infrastructure for evidence that 40 years of reaganomics is deadly.

Vinca

(50,170 posts)
4. Well, they were up to 90% under Eisenhower.
Fri Jan 4, 2019, 04:58 PM
Jan 2019

I can't imagine it would make much difference after you've got a few billion stashed away in a rainy day fund. Most of the uber wealthy have nothing to do with their finances at all except for the spending part.

Igel

(35,197 posts)
6. The data are easily available.
Fri Jan 4, 2019, 06:09 PM
Jan 2019

It goes like this.

In the '50s, the minimum tax rate wasn't zero and the high-end tax rate was very high.

As time went on, the minimum tax rate dropped to zero. A good 40% of households, after rebates and income exclusions pay no federal income tax.

Whenever the upper tax rates change, they have an effect for a couple of year. Increase them, revenues go up. Decrease them, revenues go down. For those income quintiles. However, by 3 years after the change the effect has vanished, and there's been a regression to the mean. Politicians only haggle over the first year or two--"Oh, noes, look, revenues are down, we're all doomed!" or "Oh, hot-diggity, look at how we've increased revenues!" Because by around year 3 neither claim holds.

Over the decades, regardless of top marginal tax rate, the tax from any given quintile has stayed fairly constant. That's what the group considers "fair". Not others--but since when do you bow you head and say 'yes, lord' when I tell you what I think is fair for you? You're not unique in that. Increase taxes more than the various groups think fair, and they will do things to reduce their tax burden. (If you don't think it's a tax burden, feel free to triple your tax "lightness" and pay more. There's a reason that the bottom two quintiles pay almost no income tax. It's because they think it's a burden, too.)

What's funny is that if you decrease the upper quintiles' tax burden, they will do fewer things to shelter their income and avoid taxes. It's just not worth that much hassle to avoid paying taxes, and often they figure that it's only fair to pay. Again, what they think is fair turns out to be fairly constant over the decades, regardless of the top marginal tax rate. This sounds like heresy, contradicting established true doctrine and sound; but it's what the tax data since the early '50s show. (The group that's convinced that what they pay is really an unfair imposition are now the bottom 2 quintiles. Of course, that's not entirely a reasoned characterization, since back in the '50s FICA was so much lower; FICA basically took over when the federal income tax was cut.)

When I was a kid, I remember being bored over holiday dinners as the grown ups talked about tax shelters. They were all working class, but had invested enough savings (savings were a thing back then among the "working poor&quot that they sheltered their investment income. These days the only tax avoidance strategies I hear from people who make far more than my parents' friends did are talking about their tax preparer, deducting this or that. You have to be pretty well off to find tax shelters as an on-going topic of conversation. Some of that is because of IRAs; some is because there's no point in sheltering with low dividend tax rates.

Now, if this old linguistics and chemistry major can know a simple thing like this, with his one undergrad gen-ed econ class, imagine what kinds of expertise somebody with actual coursework, maybe even a degree, in economics would be able to bring to bear? Somebody aware of how Homo economicus works in theory *and* how real people behave in practice.

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