The AOC effect: 70% marginal tax rate dissected

A high level of energy can spur growth or destroy:

Progressive House Democrat Alexandria Ocasio-Cortez called for a sharp tax hike on the highest incomes in order to fund a massive “Green New Deal” plan that would phase out fossil fuels by 2030, as she tries to push the political debate to the left.

“It’s ambitious,” the New York Representative told 60 Minutes in an interview scheduled to air Sunday. “It’s going to require a lot of rapid change that we don’t even conceive as possible right now.”

Several of my more intelligent (than me) friends have been explaining why this is a good idea, using frequent references back to when the tax rate for the wealthy was even higher than she's proposing. And those arguments are intellectually sound. But here's the thing: After some of the nasty battles we've fought within the party over the last several years, it's become apparent that many Democrats simply do not understand the ideological makeup of American voters. We haven't had a "landslide" Presidential election in numerous cycles, and for all practical purposes, our country is split 50-50. To say that's a "delicate balance" is a vast understatement. I'll continue below the fold, for brevity's sake:

Probably the most important factor to keep in mind is the impossibility of enacting such a huge increase in taxes for the wealthy. Republicans have an even larger majority in the U.S. Senate now, and there's no way in hell Donald Trump would sign a five percent increase in marginal taxes, much less almost doubling it. We wouldn't have a ghost of a chance to do that until after the 2020 Election, and if that plan is part of the platform, that ghost might be dead on arrival. And before you say, "But Steve, ghosts are already dead," my answer is, "Exactly."

Understand, I have no problem with a marginal tax rate of 70%, or even 90%, for that matter. But I do have a problem with recklessly gambling away the modest majority we achieved in the U.S. House. Because Alexandria was part of the wave that gave us that majority, you might be tempted to translate her positions as a mandate from x percent of voters. But there are 435 Representatives in that body, meaning she was elected by about 1/8 of 1% of the country's voters. It may be less than that, but I have a standing rule to not do math on the weekends, so...

Here's some of that intellectually sound support of her idea I referenced:

When Ronald Reagan took office, affluent Americans paid a 70 percent tax rate on all income above $216,000. In the decades since, our country’s highest earners have seen their annual pay skyrocket, while the median household’s has barely budged. As a result, America’s 160,000 richest families now lay claim to 90 percent of its wealth. Studies suggest that this kind of inequality erodes social trust, abets plutocracy, and depresses economic growth. Politicians from both major parties routinely suggest that they see inequality as a major problem.

The case for trickle-down economics — which is to say, the idea that high top-marginal tax rates hurt economic growth — is much weaker now than it was in 1980. The U.S. saw faster GDP and productivity growth in the decades before Reagan’s tax cuts, than it did in the decades after. And during that latter era, the American economy grew at roughly the same rate as peer nations with higher top tax rates. A separate premise of the trickle-down theory held that raising taxes on the rich eventually costs the government revenue by discouraging work. The latest economic research suggests that this is true — but only if you raise the top tax rate higher than (approximately) 70 percent.

Meanwhile, French economist Thomas Piketty has demonstrated that high tax rates reduce pre-tax inequality – ostensibly, by discouraging rent-seeking among top executives, whose compensation is often determined less by productivity than a combination of social mores and their own audacity: CEOs are less likely to extract an extra $5 million from their companies (instead of allowing their firms to invest that sum in other purposes) if they know that Uncle Sam will collect 70 percent of their bonus. Thus, there is now some reason to believe that confiscatory top rates can reduce wage inequality, while producing some gains in economic efficiency.

And don't forget, our infrastructure needs right now are on par with what they were in the middle of the 20th Century. And a massive investment in the renewable energy sector will greatly help reduce carbon emissions in our country, and make our power grid more resilient and less prone to brownouts and terrorism.

But (IMO) none of that really matters, because it is spoken in a language that half of our nation doesn't speak. The language of science. You can shove volumes of scientific and economic data into their faces, but one 30-second ad by the Tax Foundation will undermine every bit of that.

Tags: 

Comments

I welcome dissenting opinions

We're in early days now, and there will be numerous debates about this and other issues. So have at it.

At this point, it's just talk

When discussing proposals like this, I think it's important to keep in mind that, at this point, it's just talk. There's been absolutely no groundwork put in place to move something like this forward.

I go back to my own experience in LGBT rights. The gay community spent decades, since the early 70s, staging protests, doing education, forming political alliances, and shifting public attention to get to the point we are now. We have legalized same sex marriage, discussions of transgender rights, and hope on LGBT rights in the workplace. But, most importantly, we have a general population in the US where a majority is supportive of LGBTs.

I certainly support this and several other proposals from progressives. However, I'm not seeing a concerted effort to do the legwork and the boots on the ground to get the public behind these ideas.

It's not going to magically happen with some campaign rhetoric in a couple of election cycles with one or two prominent candidates - you have to get a broader slate of candidates on board with your ideas.

That's what happened with the Equal Rights Amendment in the 70s - it was pushed too fast before there was widespread public support for the idea. It was too easy for opponents to raise unfounded fears about what would happen if it passed or demonize political figures that pushed it.

The groundwork is designed to not only gain support of the public, but to help the public see the counter-arguments and fear-mongering of opponents for what it is - bullshit.

Yeah, there's a lot of work to do

before this is even possible. And it's really hard work, too, because educating the voting populace in a vacuum would be challenging as hell on its own. But with constant propaganda and pseudo-science from the right, just keeping voters from getting stupider is a grueling task.

This demonstrates what I'm talking about

NY Magazine has an interesting analysis of her tax rate proposal, noting that it's far more conservative than the 70% tax rate we had just before Reagan took office and that the voodoo "trickle-down" economics used to justify cutting it have been thoroughly debunked.

"All this said, it is conceivable that Kraushaar is correct; advocating for a 70 percent top tax rate could plausibly have political downsides for Democrats. But when journalists respond to Ocasio-Cortez’s proposal by declaring it self-evidently extreme and unpopular — instead of explaining who would be affected by the policy, and what effects economists believe it would have — they are creating such downsides, not neutrally reporting on them."

Progressives haven't laid the groundwork that would lead mainstream media outlets to question the conservative "trickle down" justifications for why it wouldn't work or see these conservative objections as the discredited bullshit it is, not supported by any sane economist or analyst.

Conservatives have well-funded think tanks devoted to cranking out bogus research, op-eds, talking heads, and policy wonks to defend their views. Progressives don't have that kind of noise-making machinery. Yet.