“Call me a radical,” Alexandria Ocasio-Cortez tells Anderson Cooper in an interview airing on Sunday’s 60 Minutes. Actually, Ocasio-Cortez’ ideas for fundraisers sound more like the typical Democratic Party dogma — soak the rich. Unfortunately for the freshman Congresswoman, her numbers add up even more poorly than the usual application of that policy:
Few rookie members of Congress have put such bold ideas on the national agenda and stirred up as much controversy as Alexandria Ocasio-Cortez who supports a #GreenNewDeal and says, “only radicals have changed this country.” https://t.co/2EBVY5OWLh pic.twitter.com/KihXYpC6eS
— 60 Minutes (@60Minutes) January 4, 2019
Ocasio-Cortez’s “Green New Deal” aims to eliminate carbon emissions within 12 years. Speaking about the ambitious goal, Ocasio-Cortez says, “It’s going to require a lot of rapid change that we don’t even conceive as possible right now. What is the problem with trying to push our technological capacities to the furthest extent possible?”
To pay for the plan, Ocasio-Cortez floated the idea of tax rates as high as 70 percent on the ultra-rich.
“You know, you look at our tax rates back in the ’60s and when you have a progressive tax rate system, your tax rate, you know, let’s say, from zero to $75,000 may be ten percent or 15 percent, et cetera.” Ocasio-Cortez said. “But once you get to, like, the tippy tops, on your 10 millionth dollar, sometimes you see tax rates as high as 60 or 70 percent. That doesn’t mean all $10 million are taxed at an extremely high rate, but it means that as you climb up this ladder you should be contributing more.”
“I think that it only has ever been radicals that have changed this country,” Ocasio-Cortez says. “Abraham Lincoln made the radical decision to sign the Emancipation Proclamation. Franklin Delano Roosevelt made the radical decision to embark on establishing programs like Social Security. That is radical.”
When asked if she considers herself to be a radical, Ocasio-Cortez says, “You know, if that’s what radical means, call me a radical.”
Ocasio-Cortez wants to return to the confiscatory tax rates of the 1950s and early 1960s, which she explicitly mentions in her argument. Perhaps she doesn’t know that those were repealed by Democratic president John F. Kennedy, but it’s more clear that she doesn’t understand why. Not only did it fail to get the revenue derived, it actually acted to hold back economic growth and resulting tax revenue.
The Tax Foundation did an enlightening analysis in 2017 of the impact of the 91% top bracket, when other Democrats hailed it as a Golden Era of Taxation. All it did was shift income into shelters while targeting very few households:
- The 91 percent bracket of 1950 only applied to households with income over $200,000 (or about $2 million in today’s dollars). Only a small number of taxpayers would have had enough income to fall into the top bracket – fewer than 10,000 households, according to an article in The Wall Street Journal. Many households in the top 1 percent in the 1950s probably did not fall into the 91 percent bracket to begin with.
- Even among households that did fall into the 91 percent bracket, the majority of their income was not necessarily subject to that top bracket. After all, the 91 percent bracket only applied to income above $200,000, not to every single dollar earned by households.
- Finally, it is very likely that the existence of a 91 percent bracket led to significant tax avoidance and lower reported income. There are many studies that show that, as marginal tax rates rise, income reported by taxpayers goes down. As a result, the existence of the 91 percent bracket did not necessarily lead to significantly higher revenue collections from the top 1 percent.
In fact, the effective tax rate on the top 1% of households today is almost as high as it was in the 1950s. At the same time, the Wall Street Journal reported in 2012, the tax burden on lower income households has significantly dropped:
In contrast, the share of taxes paid by the bottom two-thirds of taxpayers has fallen dramatically over the same period. In 1958, these Americans accounted for 41.3% of adjusted gross income and paid 29% of all federal taxes. By 2010, their share of adjusted gross income had fallen to 22.5%. But their share of taxes paid fell far more dramatically—to 6.7%. The 77% decline represents the single biggest difference in the way the tax burden is shared in this country since the late 1950s.
The changes came about not so much by movements in rates but by the addition of tax credits for the poor and the elimination of exemptions for the wealthy. In 1958, even the lowest-tier filers, which included everyone making up to $5,000 annually, were subjected to an effective 20% rate. Today, almost half of all tax filers have no income-tax liability whatsoever, and many “taxpayers” actually get a net refund from the government. Those nostalgic for 1950s-era “tax fairness” should bear this in mind.
If the tax burden on the 1% remained roughly the same while lowering tax rates later, what happened to the money? It went into productive investment rather than tax shelters, allowing for lower tax burdens on others as well as economic growth that raised the standard of living:
Tax shelters were widespread, and not just for the superrich. The working wealthy—including doctors, lawyers, business owners and executives—were versed in the art of creating losses to lower their tax exposure.
For instance, a doctor who earned $50,000 through his medical practice could reduce his taxable income to zero with $50,000 in paper losses or depreciation from property he owned through a real-estate investment partnership. Huge numbers of professionals signed up for all kinds of money-losing schemes. Today, a corresponding doctor earning $500,000 can deduct a maximum of $3,000 from his taxable income, no matter how large the loss.
Those 1950s gambits lowered tax liabilities but dissuaded individuals from engaging in the more beneficial activities of increasing their incomes and expanding their businesses. As a result, they were a net drag on the economy. When Ronald Reagan finally lowered rates in the 1980s, he did so in exchange for scrapping uneconomical deductions. When business owners stopped trying to figure out how to lose money, the economy boomed.
With all this in mind, it becomes very clear that the soak-the-rich brackets might only be lucrative in tax revenue for a year or two. After that, top earners will start sheltering income as they did in the past, pulling out of productive ventures to show offsetting losses. That will rob the country of investment capital necessary to produce the innovations on which Ocasio-Cortez’ Green New Deal relies, as well as the revenues necessary to fund it. Rather than empower lower-income workers, it will rob them of opportunities for advancement and make them more reliant on government subsidies — and likely increase their overall tax burden as well.
But even in the first couple of years, assuming the government gets its hands on 70% of all income earned over $10 million, how many households would get taxed at that level? The 99th percentile of individual income in 2017 started at just over $300,000 in a University of Minnesota analysis, which would include roughly two million individuals. There simply wouldn’t be enough people and enough money earned over the $10 million mark to fund even the first year, let alone the two-decade run of Ocasio-Cortez’ Green New Deal. It would, however, drag the economy and stunt the creation of new jobs.
One could describe that as radical, but ill-advised and self-destructive work better. That’s not an Emancipation Proclamation, but a recipe for full subservience to the elite who run this system.