[Some studies indicate she’s aiming too low.]



 Matthew Yglesias 
 January 4, 2019

	* [https://portside.org/node/19064/printable/print]

 _ Some studies indicate she’s aiming too low. _ 

 Rep. Alexandria Ocasio-Cortez (D-NY), Win McNamee/Getty Images 


In an interview scheduled to air Sunday on _60 Minutes_
America’s most widely covered new House member Alexandria
[https://www.vox.com/2019/1/4/18167175/alexandria-ocasio-cortez-sandy-yorktown-high-school] (D-NY)
floats the idea of a top marginal income tax rate as high as 70
percent as part of a plan to finance a “Green New Deal”
[https://www.vox.com/energy-and-environment/2018/12/21/18144138/green-new-deal-alexandria-ocasio-cortez] that
would aim to drastically curb America’s carbon dioxide emissions.

This is not a formal policy proposal. Indeed, the whole idea of
offsetting the budgetary cost of decarbonization with taxes is
somewhat at odds with the main currents of thought in the Green New
Deal universe, which lean more toward the idea that deficits don’t
matter and the costs shouldn’t be paid for at all.

Seventy percent is a lot higher than the current rate and will
doubtless fuel the conservative effort to paint AOC as a know-nothing,
but the number is in line with one prominent strain of recent
economics research and is at least moderately well supported by
America’s historical experience.

Top tax rates used to be much higher

Historically, the United States used to have many more tax brackets
and the top marginal tax rates were extremely high. Under Eisenhower,
the top earners paid a 91 percent marginal rate, falling to
Ocasio-Cortez’s proposed 70 percent under Kennedy and Johnson,
before falling to 50 percent after Ronald Reagan’s first big tax
cut, and then down to 38 percent after the 1986 tax reform.

One big part of that story is that before 1986 the tax base was
considerably narrower. Rich people used to have a lot more loopholes
and deductions of which they could avail themselves. The 1986 law
closed a lot of those loopholes, but also cut the top rate.

But another part of the story is that there used to be more tax
brackets. Right now a single person earning $550,000 a year pays the
same marginal rate as a person earning 10 or 50 times as much. Under
the old tax code, the top rate was reserved its top rate for the
super-duper rich.

Ocasio-Cortez seems to have something like this in mind when she tells
Cooper, “Once you get to the tippy-tops, on your $10 millionth
dollar, sometimes you see tax rates as high as 60 percent or 70
percent. That doesn’t mean all $10 million dollars are taxed at an
extremely high rate. But it means that as you climb up this ladder,
you should be contributing more.”

In other words, she’s not saying that everyone who pays the current
top rate should see their taxes raised to 60 or 70 percent. Rather, a
small number of ultra-rich people should pay at that rate. This is
obviously a controversial proposition that will strike some as unfair
and others as counterproductive to the economy. But it’s pretty much
in line with the cutting-edge work of progressive-minded tax

The empirical and theoretical case for higher taxes

MIT’s Peter Diamond and Berkeley’s Emmanuel Saez relaunched this
debate with a landmark 2012 paper
[https://eml.berkeley.edu//~saez/diamond-saezJEP11opttax.pdf] that
argued for a 73 percent top income tax rate in the United States.

This conclusion relies on two subsidiary points. One is the notion
that for the very rich, the subjective value of an extra dollar is
essentially $0. In other words, while a poor person’s life may get a
lot better if he gets a little bit of extra money, someone like Mark
Zuckerberg isn’t going to care at all.

It follows that regardless of how much money we think the government
should spend, we should be squeezing the richest people as much as
possible to keep taxes lower on the less wealthy who will miss the
money more. They then do empirical calculations that lead them to
estimate that a rate of 73 percent or so would maximize revenue —
higher than that and taxation becomes counterproductive because people
work less.

In a separate paper that Saez wrote with Thomas Piketty and Stefanie
[https://eml.berkeley.edu/~saez/piketty-saez-stantchevaAEJ14.pdf], the
authors argue for an even higher rate on somewhat different grounds.

Their argument is that, empirically, CEO pay and pretax inequality is
higher in countries with lower top marginal tax rates. In lower tax
countries, they believe, CEOs work really hard to maximize their own
pay whereas in higher tax countries they accept lesser compensation,
which leaves more money left over for other people.

An even more aggressive 2016 paper from Benjamin Lockwood, Charles
Nathanson, and Glen Weyl
[https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1324424] argues
that confiscatory taxation would be good for the economy because it
would discourage talented people from entering lucrative lines of
work. In a world of low taxes, they show, talented people have strong
incentives to work in legal or financial professions rather than be
teachers or research scientists. But the social reward to having
really good traders or corporate lawyers is either low or negative,
whereas the social reward to having excellent teachers and scientists
is high.

So while Ocasio-Cortez’s proposal is certainly extreme relative to
the policy status quo — and unquestionably something many economists
would denounce as economically ruinous — it’s actually moderate
compared to what Saez, Piketty, and Stantcheva, or Lockwood,
Nathanson, and Weyl call for since she’s sticking with the
“mere” goal of raising revenue.

The Green New Deal is supposed to rely on deficit spending

A separate question from all of this tax policy is whether a super
high tax rate could raise enough money to finance a Green New Deal.
That, in turn, depends in part on what exactly you think such a deal
should entail.

Despite the hype around the concept
it is currently very far from being a concrete set of policy proposals
to which one could attach a price tag.

One reason is many of the greatest enthusiasts for the Green New Deal
explicitly don’t want the spending to be “paid for” at all. They
frame the concept as a “New Deal” specifically to draw an analogy
to FDR’s famous economic recovery program, which didn’t rely on
new taxes to fund itself. As Stephanie Kelton, Andres Bernal, and
Greg Carlock write

The federal government can spend money on public priorities without
raising revenue, and it won’t wreck the nation’s economy to do so.
That may sound radical
but it’s not. It’s how the U.S. economy has been functioning for
nearly half a century. That’s the power of the public purse.

As a monopoly
[http://www.academia.edu/979534/Monopoly_Money_The_State_as_a_Price_Setter] supplier
of U.S. currency with full financial sovereignty
[https://www.youtube.com/watch?v=xZ_1yw5bePo], the federal government
is not
[https://patrioticmillionaires.org/2018/01/24/reframe-the-debate/] like
a household or even a business. When Congress authorizes spending, it
sets off a sequence of actions. Federal agencies, such as the
Department of Defense or Department of Energy, enter into contracts
and begin spending. As the checks go out, the government’s bank ―
the Federal Reserve ― clears the payments by crediting the
seller’s bank account with digital dollars. In other words, Congress
can pass any budget it chooses, and our government already pays for
everything by creating new money.

This is precisely how we paid for the first New Deal
[https://www.youtube.com/watch?v=d5C7LUcKzWM&app=desktop]. The
government didn’t go out and collect money ― by taxing and
borrowing ― because the economy had collapsed and no one had any
money (except the oligarchs). The government hired millions of people
across various New Deal programs and paid them with a massive infusion
of new spending that Congress authorized in the budget. FDR didn’t
need to “find the money,” he needed to find the votes. We can do
the same for a Green New Deal.

This is, of course, more or less how Republicans approach their own
budget priorities. When Ronald Reagan wanted to increase military
spending and cut taxes, he didn’t “pay for it” — he just did
it. George W. Bush did the same and then Donald Trump did the same
again. Whether or not it’s true that these rounds of tax cuts
spurred enough economic growth to make everyone better off on net, the
proponents of these policies _believed_ they were important to
unleashing economic growth and so they went ahead and did it.

By the same token, the official Green New Deal position is that
drastically curbing climate change is critically important and
everyone will be better off if we do it, so we should go do it rather
than arguing about the budget.

Most practical politicians in the Democratic Party are uncomfortable
with that line of argument. Bernie Sanders’s 2016 campaign website
had a whole “How Bernie Pays for His Proposals”
[https://berniesanders.com/issues/how-bernie-pays-for-his-proposals/] section
specifically pairing each proposed new program with a proposed
offsetting tax increase — thus demonstrating the seriousness of his
ideas and thinking. Ocasio-Cortez, somewhat similarly, seems to want
to make the case that her ideas represent rigorous budgetary thinking
and thus proposes a tax-based offset.

Regardless, however, the 70 percent figure isn’t just a random
number a young House member plucked from thin air — it represents
cutting-edge empirical research on how to maximize federal revenue.

_Matthew Yglesias co-founded Vox.com with Ezra Klein and Melissa Bell
back in the spring of 2014. He's currently a senior correspondent
focused on politics and economic policy, and co-hosts The Weeds
podcast twice a week on Tuesdays and Fridays. Before launching Vox, he
was the author of the Moneybag column for Slate and before that he
wrote and blogged for Think Progress, The Atlantic, TPM, and The
American Prospect. Yglesias is the author of two books, most recently
"The Rent Is Too Damn High" about the policy origins of the middle
class housing affordability crisis in America. Yglesias was born and
raised in New York City, but has lived in Washington DC since
graduating college in 2003._

	* [https://portside.org/node/19064/printable/print]







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