Alexandria Ocasio-Cortez and neutralizing the Trump tropes
Alexandria Ocasio-Cortez, the best known of the new freshman class in Congress in the House of Representatives, recently gave a short lesson in tax policy to Republicans.
AOC, as she is increasingly referred to, on television proposed an increase in the marginal income tax rate as part of the Green New Deal she and other Democrats are promoting. One thing she suggested to pay for its costs (if there are any) is a new marginal tax of up to 70 percent on the very rich.
Right now she doesn’t have a tax plan, it was just among some ideas in response to a question asked. However, Republicans seem frightened, or maybe obsessed by her youth and progressive stance, and House Republican Whip Steve Scalise, Louisiana, was grave and warned her proposal would mean the tax collector would “take away 70 percent of your income.”
The response to Scalise is no, no, and you are not even close. She said, “marginal tax,” not total tax.
He probably understood, but thought maybe we didn’t, and so he could spin what she say and kill the idea politically. If he truly didn’t understand, and for all others who didn’t, consider what a marginal tax is.
Flat taxes and marginal taxes
First, there’s the flat tax. It is the kind of tax Republicans have often championed. Under a flat tax everyone pays the same percentage rate of their income. Some people think that’s fair. I don’t think so, but a flat tax is least very simple.
With a marginal tax you have tax brackets, at least two of them and usually more. These brackets refer to level of income. For example, the two brackets could be zero to $50,000 and more than $50,000. That would be a very simple marginal tax.
Progressive and regressive taxes
If the tax rate in percent goes up from bracket to bracket as the income received rises, the marginal tax is called a progressive tax. If the rate goes down as income rises, it is a regressive tax. There are not many regressive taxes, at least on the surface. Regressive taxes are almost always seen as unfair. They don’t raise much money either.
The new Republican income tax is progressive
Currently, we are paying a new income tax. It passed in 2018 — the “big” Republican tax cut. In it, there are seven brackets of income. The lowest is 10 percent on an individual’s taxable income up to $9700. The highest bracket is a 37 percent marginal rate on taxable incomes over $510,300. The brackets are different for married people.
How about adding one very high tax bracket?
AOC was hardly making a formal proposal, but still, a 70 percent marginal rate bracket added to our new tax for those above $10-million might look pretty high. Evaluating its addition is partly a matter of opinion, but think about it this way. Isn’t the first dollar, or the first $10,000, or first $100,000 you make, dearer to you than money you make of top it?
Most people quickly say yes, although one student in a class I taught said in defense of the very rich that they react to giving up money differently than most people. They are more motivated by it. Is there any evidence for that?
AOC said that by the time a person has made $10-million in a year, they would hardly notice a 70 percent tax increment on their income above that, at least compared to what the average American taxpayer would notice.
A progressive tax’s justification is that the value a person gives to each additional dollar earned declines. For example, if a person who has an income of $20,000 could make $50,000 instead, their life would change for the better; but if a person who makes $10-million or more was able add the same amount — another $30,000 — they might not even notice. Therefore, it’s easy to conclude that if we need more tax revenue and want to be fair about it, tax the income of the rich at higher rates. How much more? That is hard to say.
How high should a superrich person’s marginal tax be?
There is no certain answer to this. Based on recent experience opponents of a high marginal tax will predict catastrophe. They will act like the idea comes from Socialist Planet 14 in the Galaxy of Ugh.
Contrary to their protest, America has actual experience with marginal income tax rates, we have to look no farther than our American past.
From 1951 through 1963 the top marginal personal income tax rate for U.S. personal income taxes was 91 percent or above (92 percent for a couple years). This was during the Eisenhower (Republican) and Kennedy (Democrat) administrations. Despite a few recessions, the 1950s were a time of post-World War II prosperity, and the 1960s had a very strong economy. I lived then. I know, and I can testify I never saw a homeless person until the 1980s.
When Democrat John F. Kennedy took office in 1961 the economy began to stagnate. He proposed a tax cut. The Republicans objected and southern Democrats objected. Yes . . . Republicans! President Lyndon Johnson, using the swell of patriotic support after Kennedy’s assassination, was able to push through his predecessor’s proposed tax cut (the Revenue Act of 1964). It reduced the top marginal rate down to 70 percent. That’s the same figure as OAC’s off-the-cuff proposal.
Maybe the marginal tax rate is not that important
Because the United States had a marginal rate of 70 percent and even 92 percent in the usually prosperous past, AOC’s proposal might not have been as radical as thought. In fact, if it was implemented by itself, a 70 percent rate might not raise as much money as many people expect.
The reason is this. When we look beyond the many people today who are run-of-the-mill millionaires with a million dollars or more in wealth, we find that the really big fortunes did not originate from ordinary income. Billionaire class wealth doesn’t come from income. The wealth of billionaires is derived from dividends, capital gains, and business income.
Interestingly, it’s these big three things that Republicans cut last year in their tax cut. They didn’t bother much with marginal tax rates on ordinary income.
So, if we need large new tax revenues, or if we want to begin redistributing American wealth downward so we won’t be the most unequal country on the planet, the new Republican tax cuts have to be revised, redone, eliminated.
Tax cuts for the rich do no good except for the rich
I don’t favor tax cuts for the rich. It is not because I hate the very wealthy. It’s not a matter of jealously. It is because that kind of tax cut accomplishes little economic good beyond pleasing that rich person, and it harms those with less.
Living paycheck to paycheck versus money to save and invest
A recent study reports that currently 78 percent of Americans just scrape by from paycheck to paycheck. We see it right now with the panic of government workers not getting their paycheck. Like most people, they have few savings for emergencies. The income they receive is spent quickly. The utility (the value) of any new income they receive is so great that little of it is saved for emergencies.
Large tax cuts are usually passed by Congress to stimulate the economy in recession, and, of course, for other reasons too, such as campaign donors desiring tax cuts for themselves.
If tax cuts are targeted to go to the lower classes, the economy will quickly be stimulated because almost all of the cuts end up as increased demand for easy-to-make goods and services. This demand swiftly employs the slack resources and restores the lagging economy.
On the other hand, tax cuts for the rich will be partly saved. The rest is spent on investments and on greater personal consumption.
Savings are critical for new investment and to grow the economy, but private investments are not made with an eye to creating jobs. Jobs are often a happy by-product of private investment, but they are slow to materialize, they might not even happen, and they are simply not part of the private calculus that a person undertakes before making an investment. People invest to make money, not because jobs might be created.
This is why the policy of tax cuts for the rich are derisively called “trickle-down economics” when they are justified as done to create or improve jobs.
It’s important to notice the recent Republican tax cut didn’t have economic stimulation as a supposed justification. The reason given for it was just that it would create more private investment and that would grow the economy.
Was there really more investment? Has the economy grown any faster?
It’s time for new ideas
After four decades of specious reasons for shoveling more money to the rich, maybe it’s time to consider new ideas. Fortunately, along comes Alexandria Ocasio-Cortez who tells us she’s a democratic socialist.
For Republicans, the horror, the horror! For the rest of us, what is democratic socialism, and why are those people who are ruining the country and our biological home, so opposed at the mere mention of the word, and other words too? Talk about political correctness?!
It is hard to get people to discuss new ideas like a better economic system than the current highly unequal surveillance capitalism. This is why AOC is important. She presents new ideas, and the media wants to cover her.
She is the anti-Trump — a woman, young, idealistic, photogenic, brown. That’s why the media wants to cover her, and that is why Trump is going to hate her.
The media feel that they have to cover Trump endlessly even as they dislike him. Trump knows they have to cover him even as he calls them, our most respected media, “enemies of the people.” Trump is nothing without the media. Love him or hate him, Trump’s tropes fill our heads from the constant coverage.
People like AOC are desperately needed for different and optimistic ideas. Of course, many more like her will be necessary if we are to save ourselves.
Dr. Ralph Maughan of Pocatello is a professor emeritus of political science at Idaho State University. He retired after teaching there for 36 years, specializing in voting, public opinion and natural resource politics. He has written three outdoor guides, including “Hiking Idaho” with his wife Jackie Johnson Maughan. He is currently on the Western Watersheds Project Board of Directors.