As many historians, economists, and informed citizens were forced to point out in the wake of the freak-out over a proposal by Rep. Alexandria Ocasio-Cortez to raise the current tax rate on the very wealthiest Americans to 70 percent, such a rate is not at all unprecedented and higher rates were the norm for a large portion of last century.
And one of the reasons that much higher rates were once very popular was because they were able to generate lots of revenue that was then put to good use. And, since most people are not extremely rich, there was popular support for such progressive taxation.
What Ocasio-Cortez is actually suggesting, said economist and New York Times columnist Paul Krugman, is “what top public finance economists have been saying for some time” and “not at all outlandish.”
So while the newly-seat New York Democrat embraced the idea that “radical” ideas might be needed to help pay for essential policies like the Green New Deal or Medicare for All, many of her allies pointed out that there’s nothing necessarily radical about much higher tax rates on the rich and powerful.
“The top tax rate was above 90 percent during the 1950s, and while it has slowly descended,” noted the Washington Post‘s Jeff Stein on Saturday, “it remained as high as 50 percent for much of President Ronald Reagan’s tenure in the 1980s.”
After talking with several economic experts from across the political spectrum, Stein’s reporting found that the 70 percent rate—if applied to the top .05 percent of income earners in the U.S. today—could generate an estimated $72 billion a year, or $720 over ten years. From the reporting:
This $720 billion in a decade is not nearly enough to fund Medicare for all, which has been estimated to increase government outlays by about $30 trillion over a decade (while also zeroing out premiums and deductibles paid by Americans).
Still, it could fund a number of other measures. It could come close to funding the entirety of Sanders’s free college tuition plan ($800 billion), fund President Barack Obama’s plan to get close to universal prekindergarten ($75 billion over a decade), forgive more than half the student debt in America ($1.4 trillion), cover Democratic leaders’ plan for boosting teacher pay and school funding ($100 billion), or come close to funding a $1 trillion infrastructure plan.
As Stein details in his reporting, as you increase the top rate or broaden the number of people you include in that upper-most bracket, of course the revenue rises as well. Using different scenarios, he explains that “a 1 percent wealth tax on the wealthiest 1 percent of households above $10 million could raise about $200 billion a year, or $2 trillion over 10 years.” Separately, “a 0.5 percent wealth tax on the top 1 percent could raise at most $3 trillion over 10 years.”
Edward Wolff, a tax expert at New York University, put it this way to the Post: “You can get a hell of a lot of a money from taxing the 1 percent.”
According to Krugman, while the GOP continue to claim the lower marginal tax rates on the wealthy help the economy, that claim has “no basis in research or in evidence.” Meanwhile, he noted in a tweeted, the economic growth rate has declined alongside the falling tax rates on high-income earners:
Here’s the top marginal rate versus the 10-year growth rate in per capita GDP (right axis) since WWII (using 10-year to smooth out business cycle). No relationship, or if anything positive 3/ pic.twitter.com/i9nwG8O6HG
— Paul Krugman (@paulkrugman) January 5, 2019
“So even as [Republicans] dunk on AOC as stupid or ignorant,” Krugman concluded, “she’s talking sense based on reputable economic research, while the whole GOP is talking nonsense from charlatans and cranks.”