From In These Times: A flight of prominent academics, including Nobel laureate Peter Diamond, whom Krugman describes as “arguably the world’s leading expert on public finance,” have concurred that a top tax rate of over 70 percent would be entirely reasonable. “Some put it higher,” Krugman noted. “Christina Romer, top macroeconomist and former head of President Obama’s Council of Economic Advisers, estimates [the optimal rate for the top tax bracket] at more than 80 percent.”
America indeed long had tax rates on the rich that reached the levels Ocasio-Cortez proposed or higher, while the nation experienced massive economic expansion. In fact, she understated the rates from the past: For two decades after World War II, until 1964, the marginal tax rate on the highest bracket hovered around 91 percent.
For a married couple in 1960, that applied to income earned above $400,000, the equivalent of approximately $3 million today. Yet this was the period in which the United States economy boomed most dramatically, when college students could reliably expect both a new car and a home mortgage after graduation. The annual growth rate in GDP reached levels as high as 7 and 8 percent.
There are also international precedents to suggest that taxing the super-rich yields substantial public benefits. Sweden has taxes on high incomes comparable to Ocasio-Cortez’s 70 percent proposal, with current rates of economic growth and labor-force participation greater than in the United States. Before Margaret Thatcher’s Tory government cut taxes on the wealthy in the 1980s, the United Kingdom long maintained top rates in excess of 75 percent, with additional surcharges on investment income.
While, like in the United States, inequality has soared in Britain in recent decades (the tax rate on income earned above £150,000, or about $200,000, is now 45 percent) its history of higher rates was part of the broader arsenal of social-democratic policies aimed at making the country a more fair and just place for its residents. These include public hospitals accessible to all, just as primary and secondary schools are in the United States. They also include at least 28 days of guaranteed paid vacation for all workers.
In contrast, there is no economic consensus on the upside of cutting top tax rates. The historical evidence is unambiguous: Over the past 40 years, slashing taxes on the rich has had no discernable positive effect on investment or innovation. On the contrary, both have slowed.
“Right now the main economic puzzle in macroeconomics is that corporate profits are very, very high,” says Marshall Steinbaum, an economist and Research Director at the Roosevelt Institute. “At the same time, corporate investment and innovation [are] at all-time lows. Productivity growth is stagnant.” Despite repeatedly implementing the tax policy prescribed by right-wing thinkers, the United States has failed to reap the supposed benefits.
Part of the Republican counterattack on Ocasio-Cortez has involved attempting to scare the public with the idea that, under her plan, everybody’s income will be taxed at the same, higher level. But, as Ocasio-Cortez herself has repeatedly explained, that’s not how marginal rates work. Even for someone making $12 million per year, the 70 percent tax would only kick in on the last $2 million. Your first $10 million would be taxed at lower rates.
The idea of applying such a levy on the extreme income of the wealthy is also very popular. A recent Hill-HarrisX survey shows that 59 percent of registered voters support Ocasio-Cortez’s proposal of raising the top marginal tax rate to 70 percent—with 45 percent of Republican voters saying they favor the concept.
Toward a more equal society
Higher taxes on the rich could go a long way towards creating higher-quality public schools, free higher education, universal healthcare and a Green New Deal. According to the Washington Post, Ocasio-Cortez’s hike on the top tax bracket could generate $72 billion per year in revenue.
Some progressives—notably advocates of Modern Monetary Theory, a brand popularized by the economists Stephanie Kelton and L. Randall Wray—dispute the necessity of such funding. They argue the government need not be preoccupied with raising taxes, as it can comfortably borrow to stimulate the economy and make socially productive investments. But a higher tax on top earners is not just about generating revenue. Rather, taxes on the ultra-wealthy can be seen as goods in their own right, as tools for fighting runaway income inequality.
There is a surfeit of reasons for proactively combating inequality. Though economists debate the reasons for the effect, there is widespread consensus that increasing inequality contributes to slower growth in the economy.
Inequality fuels negative public health outcomes, and, among psychologists, it is now considered a causal factor in aggregate rates of mental illnesses and personality disorders. It also fuels social distrust. Asked whether “most people can be trusted,” 60 to 65 percent in more equal countries agree, compared to 20 percent in more unequal societies. And a billionaire class risks turning democracy into oligarchy.
In this context, proposals for higher taxes on the super-rich—even those that would use the tax code to create a de facto maximum income—might have socially beneficial consequences that have little to do with government revenue.
For one, raising taxes on the rich can help to lessen their disproportionate political power. Curtailing incomes over $10 million per year will help curb the ability of the rich to buy influence through campaign contributions, dark money issue campaigns, lobbying, and nonprofits aimed at undermining unions, attacking environmental regulations, or promoting further tax cuts.
High marginal rates can also change labor relations, altering business incentives and shifting bargaining dynamics in American workplaces. “We know the things that rich people do in order to be rich come at the expense of everybody else,” Steinbaum argues. He imagines a situation in which the tax code effectively capped the earnings of multi-millionaires: “In a labor-bargaining context,” Steinbaum says, “if the boss’s marginal tax rate is 100 percent, he’s going to care less about outsourcing labor, about squeezing workers, about doing everything that bosses do in order to squeeze a marginal dollar out of their workforce, or out of their supply chain, or out of any other economic stakeholder they deal with. So the point of the tax policy is to equalize bargaining power throughout the economy.”
While higher income taxes would help to address inequality, abolishing the ultra-rich altogether would require measures to address the vast concentrations of wealth that have already amassed.
“Ideally, we should be taxing wealth as well as income,” says J.W. Mason, an economist at John Jay College. “We do tax the wealth of middle class people—in the form of property taxes on people’s homes—but we don’t tax the wealth of the rich, which is more likely to be in a portfolio of financial assets. If you are super-rich, although you might pay taxes on capital gains or inheritance, you don’t pay any taxes on your financial assets simply by virtue of owing them,” Mason explains.
In contrast, he says, “France has a wealth tax that has existed since the French Revolution”—and indeed Emmanuel Macron’s move to cut it was one of the factors that fueled the recent Yellow Vest protests.
“Concentration of wealth may be even more problematic than the concentration of income, in terms of the political power it gives you and what it does to perpetuate inequality from generation to generation,” Mason contends.
Ultimately, finding an optimal tax rate for the super-rich is a moral and political issue as much as an economic one. In a country where the influence of the billionaire class is posing an increasing challenge to democracy, Ocasio-Cortez’s proposal for restoring the kind of taxes that existed through America’s postwar boom should be seen as but a sensible starting point on the path to more far-reaching change.
Mark Engler is a writer based in Philadelphia and an editorial board member at Dissent. His latest book, written with Paul Engler, is entitled, This Is An Uprising: How Nonviolent Revolt Is Shaping the Twenty-first Century (Nation Books). He can be reached via the website: http://www.DemocracyUprising.com. Andrew Elrod is a graduate student in history at the University of California, Santa Barbara.
1. A policy to break up the enormous, unearned assets of super-rich families
“It is a win-win idea for the American people, an idea no conventional politician would have the guts to put forward.” —Donald Trump, proposing a one-time tax on wealth in 1999
Can’t we just raise the income tax?
As bad as income inequality is in the U.S., wealth inequality is worse. The top 1% now own more wealth than the bottom 90 percent combined. Three families with multigenerational wealth—the Waltons, the Kochs and the Marses—have a combined fortune of $365.7 billion, more than 5 million times the median wealth of U.S. families.
Increasing the income tax on the top brackets is good policy, but it doesn’t tackle the immense dynastic wealth handed down from the ultrarich to their descendants.
Don’t we already have an estate tax?
Yes, but it’s full of exemptions and loopholes that have benefited people like Sheldon Adelson and Donald Trump. The Right has steadily chipped away at its effectiveness, painting it as a “death tax” on families who have just lost loved ones. Trump nearly succeeded in axing it entirely in the 2018 tax bill, and the final version passed by the GOP will reduce taxation on wealthy estates by an estimated $83 billion over the next decade. One alternative is simply to extend the federal income tax to include large inheritances. Dozens of developed countries, including Japan, the U.K. and France, tax wealth in this manner. While we’re at it, we could also tax the wealth before the rich die. An additional 1 percent wealth tax on households with more than $20 million in assets would bring in an estimated $1.9 trillion in revenue over the next decade, according to the Institute for Policy Studies.
What could we do with all that money?
Full lead pipe replacement, universal housing, student debt cancellation, oh my! Since concentrated wealth also translates to outsized political power—look at the Koch brothers—breaking up these fortunes gets us closer to a system of government where “don’t make the rich people mad” is no longer the driving principle.
Is this actually possible?
Not with that attitude! Consider this: Beginning in the 1890s, reformers used taxes to expropriate the fortunes of the Gilded Age. Marginal tax rates on the rich rose as high as 94 percent in 1944, resulting in a steady deconcentration of wealth up until the 1980s—followed by a rapid shift back in the other direction with the advent of Reaganomics and neoliberal economic policy. In the aftermath of the 2008 financial crisis—and thanks to Occupy, Bernie and a renewed movement for democratic socialism—there’s real momentum to take on the billionaires once again.
This is part of “The Big Idea,” a monthly series offering brief introductions to progressive theories, policies, tools and strategies that can help us envision a world beyond capitalism. For past In These Times coverage of wealth tax in action, see, Just Taxing the 1 Percent as Much as We Tax the Poor Would Yield Billions for Cash-Strapped States, The GOP Tax Bill Is Everything That’s Wrong With Our Democracy,
Despite what the New York Times would have you believe, Americans have said over and over that they want the wealthy to pay more.
Actually, Americans do want to “soak the rich.”
The New York Times has a post by Neil Irwin headlined “Why Americans Don’t Want to Soak the Rich.” Irwin suggests a couple of different answers to this question, depending on your ideological point of view:
If you’re conservative, a compelling answer might be this: Americans are seeking less redistribution because they have come to their senses. … If you’re a liberal, the answer might be more like this: Americans have been hoodwinked by conservative politicians and media outlets, and have come to view redistribution as a dirty word because they don’t recognize the ways it benefits them.
I would suggest a third answer, though: Americans do want to “soak the rich.”
There’s something of a sleight-of-hand here, as Irwin asserts that
Americans’ views on whether the government should work to redistribute income—to tax the rich, for example, and funnel the proceeds to the poor and working class—have, depending on which survey answers you look at, either been little changed, or shifted toward greater skepticism about redistribution.
He doesn’t cite any examples of these surveys showing either little change or greater skepticism, but when I look at polling over time on taxing the wealthy, what’s striking to me is how consistently popular it is. Gallup has asked 17 times since 1992 whether upper-income people pay too much, too little or their fair share of federal taxes, and every time a majority has said they pay too little. Only twice–in 2010 and 2011–have less than 60 percent said they thought the rich were not paying enough federal taxes.
The same series of Gallup polls found people saying that lower-income and middle-income people were paying either their fair share or too much in taxes. Corporations, like the wealthy, were seen as paying too little, by an even wider margin—only twice in 11 repetitions of the question did less than 66 percent say corporate taxes were not high enough.
And the Gallup results are no outlier. An AP/GfK poll from February found 68 percent saying that wealthy households pay too little in federal taxes. Politifact cited a handful of polls, with findings that range from 59 percent to 72 percent, in support of Paul Krugman’s claim that “large majorities support higher, not lower, taxes on the wealthy.”
And it’s not just taxes on the wealthy; on the relatively rare occasions when they’re asked to pick a side in the class conflict, the American people generally choose the left side of the field:
- “The income gap between wealthy Americans and those who are less well off”: 51 percent called it “a major problem,” while 15 percent said it was “not a problem” (ABC News/Washington Post, 1/12-15/15)
- “The economic system in this country unfairly favors powerful interests”: 62 percent agree (Pew, 2/18/15)
- “Should the government do more to reduce the gap between the rich and the poor in this country?”: 55 percent say yes (CBS News, 1/9-12/15)
- “The government should work to substantially reduce the income gap between the rich and the poor”: 66 percent agree (CNN/ORC, 1/31-2/2/14)
- “Do you feel that the distribution of money and wealth in this country is fair, or do you feel that the money and wealth in this country should be more evenly distributed among more people?”: 62 percent called for more redistribution (CBS News, 1/17-21/14)
- “How much, if anything, should the government do to reduce the gap between the rich and everyone else?”: 69 percent said “a lot” or “some”; 26 percent said “not much” or “nothing at all” (Pew, 1/15-19/14)
So how does Irwin get away with claiming there is “flat or declining support for redistribution”? Part of it, as I said, is by not citing any actual polls; if he did, I suspect that even those that show “declining support” would still be indicating a high level of support, undermining the whole point of the column.
Another trick is to segue from (unnamed) polls to politicians’ platforms—as if both are equally valid methods of gauging public opinion: “It’s not just public opinion polls, either. It shows up in the actual policies espoused by candidates for office and enacted by Congress.”
A more on-point topic for a column would be, “Why Politicians Don’t Soak the Rich—Even Though Voters Want Them To?” Clearly, the billions of dollars that flow to candidates from the wealthy are a major factor. But I wouldn’t underestimate the role of hoodwinking by corporate media outlets—especially those owned by billionaires who have no desire to be soaked.
Jim Naureckas is the editor of FAIR.org, the media criticism website. James Weinstein gave him his first job in journalism, when he hired him in 1987 to write about the Iran/Contra Scandal for In These Times.