Paul Krugman - Alexandria Ocasio-Cortez tax policy is 'fully in line with serious economic research'

[Quixote1818]

The Economics of Soaking the Rich
What does Alexandria Ocasio-Cortez know about tax policy? A lot.

I have no idea how well Alexandria Ocasio-Cortez will perform as a member of Congress. But her election is already serving a valuable purpose. You see, the mere thought of having a young, articulate, telegenic nonwhite woman serve is driving many on the right mad — and in their madness they’re inadvertently revealing their true selves.

Some of the revelations are cultural: The hysteria over a video of AOC dancing in college says volumes, not about her, but about the hysterics. But in some ways the more important revelations are intellectual: The right’s denunciation of AOC’s “insane” policy ideas serves as a very good reminder of who is actually insane.

The controversy of the moment involves AOC’s advocacy of a tax rate of 70-80 percent on very high incomes, which is obviously crazy, right? I mean, who thinks that makes sense? Only ignorant people like … um, Peter Diamond, Nobel laureate in economics and arguably the world’s leading expert on public finance (although Republicans blocked him from an appointment to the Federal Reserve Board with claims that he was unqualified. Really.) And it’s a policy nobody has every implemented, aside from … the United States, for 35 years after World War II — including the most successful period of economic growth in our history.

More: https://www.nytimes.com/2019/01/05/opinion/alexandria-ocasio-cortez-tax-policy-dance.html

[ms liberty]

1. K&R. n/t

[Truth_teller45]

2. I always listen to what Paul Krugman says.

He's a Pulitzer prize winning economist.

[Quixote1818]

3. Me too, however it also doesn't take a genius to look at history

and see what has worked to built a solid middle class and powerful economy and what has torn it down.

[JI7]

4. and nobel prize in economics

[CTyankee]

6. It used to infuriate me when Joe Scar derided Krugman on his economiic ideas. I would always yell

at the TV "Where's YOUR Nobel Prize, you asswipe?" Hubby could hear me yelling across 3 rooms and would say "Why do you even bother to watch this guy if you hate him so much?"

[Truth_teller45]

12. Haha. I stopped watching Joe and Mika in 2016.

I could not stomach them ripping Hillary for Bill Clinton's indiscretions when Hillary is the only faithful one out of the four of them.

[Qutzupalotl]

5. Watch for Republican sleight of hand...

They’ll say AOC “wants a 70% tax rate,” to make you think she wants to tax everybody at that rate. David Brooks just said it on Friday’s NewsHour.

The high tax rate is for VERY HIGH INCOMES, meaning multimillion $$.

You and I will either see a decrease or good stuff coming from the spending, such as reduced higher ed tuition and/or expanded health coverage.

[CTyankee]

7. I tried that argument on young Republicans who would simply answer "Because I know I'm going

to be rich one day and I don't want to pay such a high tax rate."

[Quixote1818]

8. The other point I always make it that the 70% is only on the money in the top bracket

They pay significantly less on all the income in the lower brackets. It's not like all their income is taxed at 70%.

[JHB]

14. I also like to point out where those brackets were distributed...

My "go-to" year for comparison is 1955, though that had a top rate of 91%, not 70.

In 1955 there were 24 tax brackets, compared to the 6 (then 7) we had more recently (i.e., under Obama. The numbers I have at hand aren't updated for that Lord of the Flies tax bill the Republicans passed under Trump).

That may sound like a lot -- thanks to 50 years of conservatives dragging the Overton window rightward -- but it was pretty typical before 1980. The highest number of brackets was literally a century ago: 56 brackets for 1918-1920. [Remind them of that next time they try to pretend that the number of brackets is the hard part of the tax code. They managed it without computers. Today we can make tee-shirts with enough computing power to handle that part of the math.]

Back to the 1955 brackets: after you adjust for inflation, 16 of those 24 brackets kicked in at taxable income above $250,000. Two thirds!

Eleven of those kicked in at levels above half a million $. The top rate affected taxable income above the equivalent of $13.5 million.

That's why they're so desperate to confuse the issue. There are a lot more people whose incomes don't come anywhere close to that, and without the smokescreen might find tax increases on the hedge fund guys who drove the company where they work into bankruptcy an acceptable and reasonable course of action.

[KelleyKramer]

33. Thank you for posting that

I have a brother in law that I can't wait to tell him about that!

[JHB]

37. Which parts? I can add detail and sources.

I'm nowhere close to an expert on the subject, but back when there was all that fuss during the debate of the Omaha tax reforms, particularly the "Is $250K really 'rich?" guff, I got fed up. I knew taxes had a very different structure back then, went digging to find the numbers, found them, and tried to translate that into terms people could relate too, not just dry numbers.

I mean, Jesus, taxes were more progressive during the Roaring Twenties than they are today. I said above how 11 tax brackets kicked in above the equivalent of $500,000? Now the number is "none", and that's been the case since Reagan. All progressivity in income taxes on very high incomes was eliminated under Reagan and has never been restored. Not by Clinton, not by Obama.

[scarytomcat]

35. and that was the time in our history when the economy ran the best

working people faired better
business grew and created good jobs
everyones life improved, the middle class grew
Reagan started this downward spiral we are in now

[JHB]

38. The system can be structured to help people trying to get ahead...

...or it can be structured to help people who already are.

Sometimes there's a sweet spot where it does both, but usually it's one or the other. It used to be the first way, and since Reagan it's been the second.

[Mariana]

20. Republicans don't understand the concept of marginal rates.

Most of them really do believe that a 70% rate on income over $X means that people who earn that much pay 70% on everything from penny one.

[JHB]

11. Watch? Already in progress. They started in 7 hours before your post.

Link to tweet

Steve Scalise
?Verified account @SteveScalise

Republicans: Let Americans keep more of their own hard-earned money
Democrats: Take away 70% of your income and give it to leftist fantasy programs

Link to tweet

Grover Norquist
?Verified account @GroverNorquist

Slavery is when your owner takes 100% of your production.
Democrat congresswoman Ocasio-Cortez wants 70% (according to CNN)
What is the word for 70% expropriation?

*** And rebuttals are flying too...

To Scalise:

Link to tweet

Glenn Kessler
?Verified account @GlennKesslerWP

Glenn Kessler Retweeted Steve Scalise

Presumably the Minority Whip knows what marginal tax rates are? It's not 70 percent of all income, but 70 percent of any income earned ABOVE $10 million. You may disagree with the policy but a politician has an obligation to describe it correctly.

To Norquist:

Link to tweet

Apparent Steve
? @Steverocks35

Apparent Steve Retweeted Grover Norquist

For a "tax expert" you sure are stupid when it comes to taxes. Congresswoman Ocasio-Cortez called for a 70% tax rate on INCOME OVER $10 MILLION. She doesn't "want 70%." I realize you probably know this and are just being your usual lying grifting self.

[Qutzupalotl]

22. Thanks

but I meant beware, not that it hadn’t started. Of course they’ve been pulling shit just like this for years. It doesn’t help that so many Americans see themselves as “temporarily embarrassed millionaires” and fall prey to their scare tactics. Thanks for the report.

[Quixote1818]

30. Thanks for posting! nt

[scarytomcat]

36. and a green new deal would be the best thing for creating good jobs

we would need workers so bad we would have to throw the gates wide open to immigrants to get it done

[handmade34]

9. Krugman is good

Robert Reich is better: (older but still good)

http://robertreich.org/post/4344201496

[Quixote1818]

31. I agree. Love Reich! I am about as big a fan as one can be. Thanks nt

[matt819]

10. Remember the 1950s?

The time that dso many on the right harken back to as the good old days?

Extremely high marginal tax rates. The growth of the middle class. The creation of the interstate highway system. The beginning of the space program. Even the nascent civil rights movement.

Sure, lots of other factors at play. Lower population. Coming back from WWII. Before the Vietnam war.

But economically it made sense.

[JHB]

15. See my post 14 above for a few numbers on that.

A long way from perfect, but it was a time when the tax code worked for people trying to get ahead, not people who already were.

[roamer65]

13. I agree with her tax policy, with one exception.

If it can be shown through adequate evidence that the money was invested into creating a business and/or jobs in the United States, then the effective tax rate should be about 20 percent.

We need to incentivize job creation within the US.

[TheBlackAdder]

16. RW likes Smith's "Invisible Hand" yet later states capitalism needs a heavily tiered tax system.

.

RWers always seem to forget that part of his book.

Now, I'm not saying you're anywhere near a RWer, but the whole incentivized thing is disproven.


The wealthy are getting more and more, and they are not returning it to the economy. Just look at how only a single digit percentage of Trump's tax cut went to those in the 97 percentile or below.

Adding... the taxes are structured to incentivize offshoring of jobs or job reductions. Koch, Disney and dozens of other major firms offshore their money, dodging US taxes using Earnst & Young and others--shipping their money to Luxembourg to pay less that 1% tax on it. Just search on Koch, Disney & Luxembourg. I took a global economics course last year and the US is viewed as a dying economy, and the wealthy are positioning it in the new markets of Africa and middle Asia.

.

[roamer65]

34. I definitely do agree that they have to be forced to return it to the economy.

But we will also need capital controls to prevent the flight of capital if we institute a 70 percent marginal tax rate. They will try to get it out of the country. I guarantee it.

[TexasBushwhacker]

24. But that's built in

Job creation would be done by the wealthy person's business. Employee salaries, benefits, purchases of equipment for the business etc are all deductible expenses from the gross revenue of the business. That's why reducing the corporate tax rate is so ineffective in raising employee wages and creating jobs. Wages, benefits, etc are ALREADY UNTAXED.

I'm a bookkeeper and I had a Republican boss who hated paying taxes more than ANYTHING. Towards the end of the tear he would have me estimate where we were at in terms of profits for the year, our cash on hand and the taxes we would owe. There were times when our profits would push us into the next tax bracket. How would we fix that? If we had enough cash, he would pay bigger bonuses to ALL the employees, because the way he looked at it, he would rather give the cash to us than the IRS. Lowering the corporate tax rates is a disincentive for companies to "share the wealth".

[Blue_true]

27. Bingo.

The tax reduction does nothing to increase pay or spur investment. To simply stay alive as an ongoing business, companies have to invest in equipment and supplies and set aside money to pay labor as new income is made.

For example, say that you have a growing company, which by definition would need to buy more equipment, supplies to make new product and hire more people.

Companies do that in several ways. If the business is a fast cash flow business, simply delaying quarterly tax set asides until the last month of the quarter generated the money needed to buy more equipment, hire more people and buy supplies to make more product to sell. The risk is a downturn in the business that may cause issues in generating the quarterly tax payment. A second way is to take out shorterm loans against future revenue, which works if the business is healthy and producing a predictable revenue stream. The loan can be used to buy equipment, hire new people and pay all salaries and buy supplies, with all of that producing the revenue to pay off the loan and interest and produce more free cash after taxes. The third method is to use post tax retained earnings (savings) to fund new equipment purchases, hire new people and pay salaries for all workers and buy new supplies to make new product to sell. Typically the third method produces slower growth of the business, but saves on interest and does not expose an owner to tax payment problems. Different business people prefer one over the other.

Now, on the tax cut. Maybe it has a positive impact IF an owner turns the saved money into investment in equipment, labor and materials. It does not look like many companies did that, instead they bought back stock because product demand was not strong enough to have money reinvested in equipment, labor and supplies pay off. One way to generate demand is to pay workers more, that leads to spending by them and it gooses the economy, buying back stock does not do that. Say a company has a gross margin of 60% on sales revenue, that is what healthy companies shoot for as a minimum. The money represented by that 60% has to account for taxes and future investment in equipment, labor, materials, a tax reduction helps IF, as I pointed out, the saved money is invested in things that create more revenue, which is unlikely in an economy that is slowing down.

One thing that will be interesting to watch is the effect of companies being shamed into paying workers higher salaries. Theoretically, the higher pay should have a positive effect on the economy and mutt the negative effect of Trump's blunders. Sad to say, work to have workers paid more may help the very person that would have them paid poorly, some of those workers will credit Trump instead of the people that forced higher salaries to be paid.

[Blue_true]

29. That is the hard kernel.

With big and medium sized companies having a multinational presence, how can we insure that the saved tax money is invested in creating jobs here through hiring, buying American made equipment and tooling and buying American made supplies. What I see in what I am doing is that it is really difficult to buy supplies and even equipment that is made in the USA, our manufacturing and production base has dried up that much, it is easy to find US based distributors, but the equipment and raw materials typically come from China, India or some other country, China in particular has gained a dominant foothold on advanced metering, mixing and filling equipment. A person can still get US made and sourced stainless steel process tanks, but the companies doing those products are small, the big operations are in China.

How do we reverse the trend without being stupid like Trump? One thing that I think would work is for China and India to turn internally for manufacturing growth, but that would require some sacrifice by rich people in those countries (sound familiar?), which does not seem to be happening nor will it happen.

[zentrum]

17. Go OAC!!!

I think Ike taxed upper incomes at 70%---and it worked well.

[Kurt V.]

18. Aatrrrrrgh. krugman. i calll ops.

he tries

[PaulX2]

19. Tax Increased Wealth They Don't Earn Income

Making a point.

Tax increased net worth over $3 million 70%.

And don't let anyone offshore their tax liabilities.

[SunSeeker]

21. K & R

[erronis]

23. There are so many ways that those with $$$ can hide more from taxation.

It's only the wage earners that support the tax base, at least currently.

We need a wealth tax and controls on how money moves into and out of the country.

[TexasBushwhacker]

25. We also need to subject investment income beyond a certain amount

to Social Security and Medicare taxes. Why should a trust fund kid who lives on stock dividends never have to put a dime into SS or Medicare? Or the hedge fund manager or the CEO who takes a $1 salary and gets paid only in stock? The fact that none of these people will need SS or Medicare because they are rich isn't the point. SS and Medicare taxes are the cost we pay for living in a society that takes care of its most vulnerable individuals.

[underpants]

26. Great article

[Joe941]

28. I agree. Tax the rich heavily!

[Hermit-The-Prog]

32. about time

Reaganomics is foolhardy. It's time we stopped repeating that failed experiment.