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Friday, November 22, 2019
HomePolicyThe Adverse Consequences of a 70-Percent Top Tax Rate on Households

The Adverse Consequences of a 70-Percent Top Tax Rate on Households

Alexandria Ocasio-Cortez during a widely criticized viral interview with PBS (Public Broadcasting Station). (Photo: Screenshot)
Alexandria Ocasio-Cortez during a widely criticized viral interview with PBS (Public Broadcasting Station). (Photo: Screenshot)
Alexandria Ocasio-Cortez during a widely criticized viral interview with PBS (Public Broadcasting Station). (Photo: Screenshot)

It’s not quite as bad as Matt Yglesias, who wants a top tax rate of 90 percent, a rate that Crazy Bernie also likes. But Congresswoman Alexandria Ocasio-Cortez, D-N.Y., is not bashful about wanting to use the coercive power of government to take much larger shares of what others have earned.

And she doesn’t want to take “just” half, which would be bad enough. She wants to go ever further, endorsing a top tax rate on household income of 70 percent.

Those of you with a lot of gray hair may recall that’s the type of punitive tax regime we had in the 1970s (Does anybody want a return to the economic misery we suffered during the Nixon and Carter years?).

So it’s very disturbing to think we may get an encore performance.

Here are some excerpts from a Politico report.

Rep. Alexandria Ocasio-Cortez (D-N.Y.) is floating an income tax rate as high as 60 to 70 percent on the highest-earning Americans… Ocasio-Cortez said a dramatic increase in taxes could support her “Green New Deal” goal of eliminating the use of fossil fuels within 12 years… “There’s an element where yeah, people are going to have to start paying their fair share in taxes.” …When Cooper pointed out such a tax plan would be a “radical” move, Ocasio-Cortez embraced the label… “I think that it only has ever been radicals that have changed this country,” Ocasio-Cortez said. “Yeah, if that’s what radical means, call me a radical.”

There are many arguments to make against this type of class-warfare policy, but I’ll focus on two main points.

First, this approach isn’t practical, even from a left-wing perspective. Simply stated, upper-income taxpayers have considerable control over the timing, level, and composition of their income, and they can take very simple — and completely legal — steps to protect their money as tax rates increase.

This is one of the reasons why higher tax rates don’t translate into higher tax revenue.

If you don’t believe me, check out the IRS data on what happened in the 1980s when Reagan dropped the top tax rate from 70 percent to 28 percent. Revenues from those making more than $200,000 quintupled.

Taxes Paid on Income Over $200 thousand, 1980 - 1988. (Source: Internal Revenue Service/IRS)
Taxes Paid on Income Over $200 thousand, 1980 – 1988. (Source: Internal Revenue Service/IRS)

Ms. Ocasio-Cortez wants to run that experiment in reverse. That won’t end well — assuming, of course, that her goal is collecting more revenue, which may not be the case.

Second, higher tax rates on the rich will have negative consequences for the rest of us. This is because there is a lot of very rigorous research that tell us:

And this is just a partial list.

And I didn’t even include the potential costs of out-migration, which doubtlessly would be significant since Ms. Ocasio-Cortez would impose the developed world’s most punitive tax regime on the United States.

I’ll close by recycling this video on the harmful impact of punitive tax rates.

Written by
Contributing Economist

Daniel J. Mitchell is a Senior Fellow at the Cato Institute, and a top expert on tax reform and supply-side tax policy. Mitchell’s articles can be found in such publications as the Wall Street Journal, the New York Times, Investor’s Business Daily, and the Washington Times. He is the author of "The Flat Tax: Freedom, Fairness, Jobs, and Growth," and co-author of "Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It."

Latest comments

  • Avatar

    This is a great article. The video shared is a good refresher as to why we should never vote democrat if you want economic prosperity for yourself, family, city, state and country.

    Unfortunately that’s why the democrats keep calling others and allow the influx of those who’d rather beg for scraps, take cradle to the grave welfare, than work.
    As they’ve been brainwashed into believing Capitalism is RACIST! “The man always keeps you down” they say “Minorities aren’t equipped to compete” those statements crush people’s ambitions.
    They won’t try to achieve because they believe they can’t; staying dependent on those that promise them anything and voting for even the most incompetent like ocasio cortez!
    All while the democrats they trust tax the rich , keep jobs out of American’s hands due to the tax burden, crushing regulations etc. Ensuring the next generations of minority voting bloc will never prosper, keeping the cycle going.

  • Avatar

    Why a 70% tax? 80%? I think we should have a 100% tax on income. Then the government can determine what individual and family needs are,and provide for those needs. Never mind the fact that every single culture that tried to do that resulted in BOTH impoverishment and imprisonment of their citizenry. Never mind that in the 20th century 284 MILLION people were executed by their own government because they did not agree. Never mind that modern experiments with absolute socialism (such as Venezula, Cuba,and North Korea) have resulted in such poverty that their armies eat grass and are infected with worms.

    If we would just agree that a 100% tax would benefit the elite, then our problems would be murdered.

  • Avatar

    She’ll only want people who earn $1 or more than her to pay higher taxes.

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