Saturday, January 5, 2019

On Taxing the Rich

Alexandria Ocasio-Cortez, the freshest Democrat to hit the White House, is making headlines for mimicking the dance sequence from The Breakfast Club back in college, and wanting to raise marginal tax rates to 70%. Unfortunately people care a bit too much about her dance moves, and headlines are missing the word "marginal" in tax discussions. People reading about a tax increase to 70% are going to flip out, justifiably. But raising the marginal tax rate is a well-grounded idea.

Paul Krugman explained in today's New York Times:
The controversy of the moment involves AOC’s advocacy of a tax rate of 70-80 percent on very high incomes, which is obviously crazy, right? I mean, who thinks that makes sense? Only ignorant people like … um, Peter Diamond, Nobel laureate in economics and arguably the world’s leading expert on public finance (although Republicans blocked him from an appointment to the Federal Reserve Board with claims that he was unqualified. Really.) And it’s a policy nobody has every implemented, aside from … the United States, for 35 years after World War II — including the most successful period of economic growth in our history. To be more specific, Diamond, in work with Emmanuel Saez — one of our leading experts on inequality — estimated the optimal top tax rate to be 73 percent. Some put it higher: Christina Romer, top macroeconomist and former head of President Obama’s Council of Economic Advisers, estimates it at more than 80 percent. . . . A policy that makes the rich a bit poorer will affect only a handful of people, and will barely affect their life satisfaction, since they will still be able to buy whatever they want.
In 1953 in the US, the marginal tax rate was 92% on income over $400,000 (it was 84% in Canada), but $400,000 would be about $3.5 million in today’s money. So, if we want our economy to be very strong, anything people made over a few million dollars, should go almost entirely to the government. That would lower the incentive to make huge amounts of money, and CEOs might pay their employees more rather than take such high paycheques. When the highest tax bracket is raised, then the government has more money for education, health care, infrastructure, job creation, and climate change mitigation.

It's possible that a few billionaires will leave, but not enough to stop the benefits to society. Consider it's not just CEOs who make over $3.5 million in a year, but many people in film production and some top athletes. They're not all going to pull a Gérald Depardieu.



4 comments:

Marg said...

Do I dare as a lowly taxpayer complain of being treated like a working or not serf by each and every obese corporation, that has not really, in real growth terms; done a sweat-drop of real innovation or work-to-grow, in the last decade (since, oh, I don't know (tongue-in-cheek the year of corporate fraud in the global extreme, being 2008....

Followed by manic trade agreement mania, to vacuum as much taxpayer monies as possible through Chapter 11 clauses in every trade agreement (see bilaterals.org). Still directed to usurp domestic small-to-medium business negotiations to collapse the small benefit of governmental contracts to domestic interests (who are the best qualified --) so corporations can vacuum any and all competition from same...

Or each and every --post-election corporate-compromised politician---globally playing step-and-fetch for all banks by inserting bank bailout/bail-in clauses to offset cowardice in reversing hedge fund owners having 'preferred creditor status' along with a tax rate of 15%--while air-headed with 823 trillion in o/s derivative contracts which are scaring the IMF to sleepless nights unless proper and rational deleveraging is done pronto to ease any obvious potential disaster akin to the 2008-fraud-con.....

Still waiting to see if more asinine corporations are posed to refuse cash transactions...as some are in the US...Only in the US ---they say--thank God.

Marie Snyder said...

Unfortunately, it happens in Canada too, and it's legal!

Dustin Vinland Jarl said...

Marie, you are a public school teacher and hence technically a government official. So when you are calling for all that money to go almost entirely to the governments of the United States and Canada, what you are effectively calling for is for all that money to go almost entirely to the Maries of the United States and Canada.

Marie Snyder said...

@Dustin, I don't think you understand how it works. It's not a scheme for teachers to get rich. Watch Robert Reich's "Inequality for All" or read Piketty's "Capital in the 21st Century." When the marginal tax rate was at its peak is when the economy flourished for everybody. The money doesn't go to the government and stay in their coffers. In a fair democracy, it's distributed so nobody is living in a tent and getting food from a food bank. And when more people have the basics covered and a little left over, they spend the extra money. It goes straight back into the economy.