WaPo: Ocasio-Cortez tax would pay for ... 2.2% of Medicare for All

Thanks to Rep. Steve Scalise (R-LA), a whole lot of people read my initial analysis of Alexandria Ocasio-Cortez’ soak-the-rich tax proposal. Some came away confused as to my point, and perhaps Scalise’s as well, when it comes to proposals such as these. The problem isn’t that the policy would “take away 70% of your income” to fund “leftist fantasy programs,” as Scalise quipped offhandedly in tweeting out my post. It’s that the tax itself is a leftist fantasy program, especially as a pay-for to support Ocasio-Cortez’ Green New Deal.

My earlier analysis argued that such taxes would produce a ridiculously small revenue stream for an agenda that’s likely to cost $40 trillion or more in its first decade, the majority of which would be the Medicare for All proposal included in Ocasio-Cortez’ agenda. The Washington Post fact-checkers followed up and produced some hard data on her tax proposal:

In 2016, the latest year for which government data is available, approximately 16,000 Americans earned more than $10 million each. These are not in fact “the 1 percent” many on the left like to talk about — they are a much smaller slice, fewer than 0.05 percent of all U.S. households.

It’s difficult to estimate precisely how much more in taxes the government could wring from this ultra-elite. Collectively, their total taxable income amounted to $405 billion in 2016, and they paid about $121 billion in federal income taxes. They also face state and local taxes, which raise their overall tax burdens.

As she noted to “60 Minutes,” Ocasio-Cortez’s idea for a 70 percent tax rate on those earning more than $10 million would only kick in beyond the first $10 million in income. So, this new tax rate would do nothing to add to the amount of federal revenue on the first $160 billion (16,000 people multiplied by $10 million) in taxes this group paid.

But that leaves about $244 billion in taxable income for those earning more than $10 million a year. If this entire pool was taxed at 70 percent instead of the 39.6 percent they paid in 2016, the federal government would bring in an additional $72 billion annually — or close to $720 billion over 10 years, according to Mazur.

The projected costs for just the Medicare for All piece run around $32 trillion over the first ten years, with the Mercatus Center on the Right and the Urban Institute on the Left roughly arriving at the same figure. The math on this is quite simple — $720 billion comes to just 2.25% of what the additional cost in Medicare for All in the first decade. In fact, the pool of income left to be taxed in that $10M+ bracket at any marginal rate would only pay for 7.6% of Medicare for All. This tax wouldn’t pay for any of Ocasio-Cortez’ grand green-agenda schemes, let alone all of them.

This is one reason why soak-the-rich tax schemes like Ocasio-Cortez’ are truly leftist fantasy programs in and of themselves, but that’s not the only reason why. Static tax analysis is another fantasy played by people on the Left, especially when it comes to soak-the-rich schemes. All of the above assumes that (a) single-payer health care costs won’t accelerate, and (b) income-generating behavior won’t change when this tax gets imposed. The Post’s analysis also points out these faulty assumptions:

The real number is probably smaller than that, because wealthy Americans would probably find ways around paying this much-higher tax.

“You’d certainly see some people under that system change their behavior to avoid the higher rate, which could significantly impact how much revenue it generates,” Mazur said, adding that the effect would be hard to estimate. (The exercise also assumes capital gains would be taxed at this much higher rate.)

And what would those behavior changes do to the economy? It would force producers to shelter income and capital in money-losing operations for tax purposes, or invest overseas and shelter income outside of the US. We know this because that’s what happened with 70% and 91% top marginal tax rates in the post-WWII period (as I pointed out in the first post), until John F. Kennedy rolled some of them back and Ronald Reagan dialed them down even further. That flood of capital sparked significant and long-term economic growth in both instances; forcing capital out of the economy would have the opposite effect, reducing revenues even more and choking off job creation and expansion. We might gain $72 billion the first year, before people fully change their behavior, but revenue would drop off sharply after that. Within a short period of time, the change in overall revenue would likely become negative rather than positive.

What would happen then? Take it away, Charles C. W. Cooke:

It is easy to see why this idea might be popular in a democracy. Almost nobody earns ten million dollars per year, which makes this a perfect “do this to them, not me!” policy that incurs no obvious costs on the majority and might ostensibly bring them some benefits. It’s much less easy, however, to see why the proposal is being entertained seriously, or why its defenders are rushing to insist that it’s not in any sense “extreme.” There is a reason that other nations in the Anglosphere do not have anything close to such a tax — even as they spend in a way that would appeal to Ocasio-Cortez — and that is that it doesn’t really do much good. Most people who make tens of millions of dollars rarely derive the lion’s share of their money from traditional income — and, should such a bracket be added to the books, the few who do would quickly restructure. Indeed, the top tax rates in comparable Anglosphere countries such as Britain, Canada, Australia, and New Zealand are 45 percent, 33 percent (federal), 45 percent, and thirty-three percent respectively. There is no 70 percent rate in any of those countries –on millionaires, on billionaires or otherwise. Hell, there is no 50 percent rate, either.

This is not to say that there is no difference between the way that those nations operate and the United States operates. On the contrary: Unlike the United States, those nations do have much higher taxes — on their middle classes.

Why? Well, because that’s where the money is. …

Naturally, it is tough to tell people that they’ll have to hand over more of their money if they want what you’re telling them they should have. In fact, it’s probably politically suicidal. But if the Democrats want what they want, they’re eventually going to have to do it. It is not a good sign that even the “rebels” can’t bring themselves to try.

That’s why it’s important to make this as clear as possible before passing Medicare for All, let alone the entire Green New Deal. After that, it’s impossible to keep from pulling vast sums of money from the middle classes and eroding the standard of living in the US. Don’t say you weren’t warned.

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