Political celebrity, like many kinds of power, can be used for good or ill. Alexandria Ocasio-Cortez, the most high-profile new member of the new Congress, is succeeding at using her celebrity to promote policy ideas that have often been ignored, not because the ideas themselves are so new and unusual but because she’s using her platform to raise them.
In the latest example of her success in doing this, Ocasio-Cortez was interviewed on “60 Minutes” and managed to get people talking about the possibility of 70 percent marginal tax rates on the wealthiest Americans.
Naturally, just suggesting increasing tax rates at the top sends Republicans to the fainting couch, since the single most fundamental idea to which their party is devoted at this point in history is that the wealthy should pay as little in taxes as possible. But why shouldn't we discuss it?
After all, the tax cut Republicans passed at the end of 2017 has clearly been a failure. They all confidently predicted that despite the fact that it showered hundreds of billions of dollars on corporations and the wealthy, the real benefits would quickly trickle down to ordinary people, which was a ludicrous fantasy from the beginning.
Instead, all of the predictions Democrats made about it at the time have come true. Republicans said the tax cut would generate so much economic activity that revenue would soar and the deficit would shrink. In fact, the deficit has ballooned; it is projected to exceed $1 trillion this year. Republicans said corporations would pass their windfall on to workers; Democrats predicted that corporations would use the money for stock buybacks, boosting share prices to benefit wealthy investors. The Democrats were right.
By now, we can say with confidence that the foundational principle of Republican tax policy — that cutting taxes for the wealthy brings economic nirvana and raising taxes for the wealthy brings economic doom — is utterly and completely wrong. It’s not even worth debating anymore. The entire history of U.S. economic policy shows it to be false, from the failure of recent Republican tax cuts to the fact that we had much higher top marginal rates at some of our periods of strongest economic growth. In the 1950s and 1960s, through the postwar boom, the top rate was as high as 91 percent and never fell below 70 percent.
But knowing that Republicans are wrong about taxes doesn't tell us what we should do about them. And the truth is that Democrats don't talk enough about this issue, beyond criticizing Republican proposals, for one important reason: Unlike Republicans, they don't think that tweaking the tax code has transformative effects on the economy.
Once you understand that that’s true, however, you can stop worrying about whether making the wealthy pay more would plunge us into some kind of economic calamity. As Paul Krugman argues, “when taxing the rich, all we should care about is how much revenue we raise.” That’s because you can increase taxes on the wealthy, especially the super wealthy, without harming them in any appreciable way or changing their economic decisions. It’s not as though a Wall Street banker making $30 million a year would have to alter his lifestyle if he had to pay an extra million in taxes next year. So “the optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.” Finding that optimal top marginal rate is a technical question, but economists that Krugman cites put it at over 70 percent.
Republicans find that analysis appalling, because for them, the top marginal rate is a deeply moral issue. Setting the rate that high would be simply wrong, not because it means Jamie Dimon would decide to forgo the car elevator when he builds his third vacation home if his taxes were higher (he probably wouldn’t), but because it just is. Wealth is a sign of virtue, and taxing those who have proved their virtue by being rich is abhorrent.
Most Americans agree that taxes have a moral component, but for them, the question is one of fairness. And it has long been true that what bothers Americans most about the tax system is the feeling that corporations and the wealthy don’t pay their fair share. So Republicans shouldn’t have been surprised that their tax cut turned out to be unpopular, given that it took what the public sees as the biggest problem in the tax code and made it even worse.
What could we do to make the system fairer and raise more revenue at the same time? There are a number of things Democrats might propose, such as treating all income the same instead of taxing wage income (money you work for) at a higher rate than investment income (money you make when your money makes you more money). But perhaps the simplest is to raise more revenue by increasing the number of tax brackets at the top, with the highest marginal rates much higher than they are now.
This is also something Republicans recoil at. They always push for "simplifying" the tax code by reducing the number of brackets, when in fact the number of brackets is the least complicated thing about the code. But why should it be that someone making $550,000 a year pays the same marginal rate as someone making $55 million a year?
What Ocasio-Cortez is suggesting, and many liberals support, is setting a series of higher tax rates at the top end of the scale. You could keep the existing brackets, which top out at 37 percent for those making more than $510,300. But then you could add new brackets, say 50 percent for income over $1 million, 60 percent for income over $5 million and 70 percent for income over $10 million.
Republicans are already saying "Liberals want the government to take 70 percent of your money!" This is not because they are actually unclear on how marginal tax rates work, but because they understand that the only way to convince people that the rich shouldn't pay more is to fool them into thinking that raising taxes on the rich hurts the rest of us.
Fortunately, that’s one claim the public has never really bought. And because the Democrats running for president are in the process of formulating the policy ideas that they’ll be presenting to voters, this would be a perfect time for them to start laying out exactly how they’d like to raise taxes on the rich. Believe me, it’s the last discussion Republicans want to have.