The mere suggestion of a 70-percent tax rate reeks of radicalism in our culture that still discusses taxes on Reagan’s supply-side terms and digests new information in 280-character increments. This amounts to elites and private citizens dismissing such a suggestion as just another ephemeral musing on Twitter by the wide-eyed freshman congresswoman, Alexandria Ocasio-Cortez. Eyes glaze over when tax brackets come up, and many revert to an American conventional wisdom that says lower taxes are always better. Twitter trolls and elected officials, which are not mutually exclusive, take advantage of this and sound the alarm that AOC wants to turn America into Venezuela. Voters deserve more credit than that, and this Hill-HarrisX survey suggests that tired and simplistic naysaying no longer moves the needle. So, we ought to be honest about such a proposal, cut through bad-faith attacks, and agree or disagree with it on merit.
Despite the assertions of conservatives on Twitter, AOC does not think Uncle Sam deserves 70 percent of our incomes. Before wading into the details of this proposal, we should rewind to the 1950s to acknowledge its precedent. Some, albeit for different reasons, might say that this was when America was great.
In 1953, the newly-sworn-in President Dwight D. Eisenhower slashed the top marginal tax rate from 92 percent to… 91 percent. This top rate applied only to incomes above $200,000, which is about $1.7 million in today’s dollars. Of course, this does not mean high-earners only kept 9 percent of their incomes. In fact, the average person in the top bracket paid just 42 percent of their total income in taxes. Why? Because that 91 percent only applied to their 200,001th dollar and beyond. (1,700,001th dollar today) All income below that was taxed at lower rates. Additionally, America was poorer and more equal back then, so such a tax was less impactful. As of 2017 the average one-percenter – a more exclusive club than the top bracket – paid about 34 percent of their total income. Though that 91-percent rate was high, it was necessary for the government to fund the programs that emerged under the wartime leadership of President Franklin D. Roosevelt. In fact, the top rate peaked at 94 percent in 1944. Through the 1970s, the top marginal rate never dipped below 70. All of this is to say that there is a precedent for AOC’s proposal, and it occurred during one of the greatest economic expansions in history.
Now, let’s examine the present-day proposal.
AOC wants to go back to the days of higher marginal rates, but her target is more acute. The 70-percent rate she proposed would affect only people making over $10 million, or about 16,000 Americans. This is not the top 1 percent; this is the top 0.05 percent or less – and it would only affect their 10,000,001th dollar and above. More so than in the 1950s, a tax on such a narrow segment of the population can materially increase the government’s ability to enact new programs and initiatives. Ocasio-Cortez’s suggestion, it is estimated, would raise government revenue by about $720 billion over the next decade. Of course, this number would be subject to extreme variance due to the knack wealthy people have for dodging taxes.
Nonetheless, this proposal could fund, or nearly fund, proposals like universal prekindergarten, tuition-free public college, and infrastructure, among others. AOC’s proposal is just one of many ways to make the richest Americans pay more in taxes. Reasonable people can disagree on appropriate tax rates, but all citizens should understand what higher marginal tax rates are not: a slippery slope to becoming the next Venezuela.