By Priyanka Sarkhel (‘20)
Alexandria Ocasio-Cortez is a self-declared Democratic socialist, and one of her primary points for running for House Representative in her district was income inequality.
The Bronx is the poorest borough in New York, and when Ocasio-Cortez was growing up, her parents were very unsatisfied with the schooling she received.
Ocasio-Cortez recalls the difference she felt after moving to a wealthier and better-funded borough as one of her first experiences of the effects of income inequality.
From Senator Bernie Sanders to actor Mark Ruffalo, Ocasio-Cortez has received high praise for her boldness, for her bringing attention to the voices of those suffering from the massive income gap, and for her progressive platform. Some of her key points for reform include nationwide Medicare, universal job guarantee, and immigration reform.
One thing that recently caused people on both sides of the political spectrum to turn their heads is her proposed 70% tax bracket on those earning over $10 million.
Ocasio-Cortez debuted her plan on CBS’ 60 Minutes, in which she said, “As you climb up this ladder, you should be contributing more.”
Increasing the tax bracket to 70% would fund a “Green New Deal,” where the main objective is to invest in renewable energy. An outline of this bill was proposed on February 7 by the freshman Congresswoman and Senator Ed Markey (D-Mass.).
Funding the “Green New Deal” would require increased revenue for the government, and this is where Ocasio-Cortez’s tax plan comes into play. Her proposal is not new because tax brackets for the wealthy were as high as 70%-90% during the 1950s and 1960s under the presidencies of Harry S. Truman, Dwight D. Eisenhower, and John F. Kennedy.
A common misconception among the general public is that Ocasio-Cortez is suggesting a flat tax rate that would affect the entirety of the country. That is not true.
Misleading statements like the one Rep. Steve Scalise (R-Louisiana) tweeted on January 5, “Republicans: Let Americans keep more of their hard earned money. Democrats: Take away 70% of your income and give it to leftist fantasy programs,” further feed into this misunderstanding regarding Ocasio-Cortez’s plan.
Ocasio-Cortez is referring to marginal tax rates, which according to a CBS news article is “a progressive tax system that’s the basis of the U.S. tax code. It works by taxing the lowest amount of income at the lowest tax rate, and then increasing it gradually as a person’s income rises.” Essentially, those with higher incomes are taxed at a higher rate than those with lower incomes.
But how do marginal tax rates work? According to an article from investopedia.com, these are the rates for tax-paying individuals, married couples, and heads of households:
From the aforementioned article, “under the new plan [President Trump’s tax plan], if an individual taxpayer earned $150,000 in income, they would owe the following income taxes, as shown below:
10% Bracket: ($9,525 - $0) x 10% = $952.50
12% Bracket: ($38,700 - $9,525) x 12% = $3,501.00
22% Bracket: ($82,500 - $38,700) x 22% = $9,636.00
24% Bracket: ($150,000 - $82,500) x 24% = $16,200.00
32% Bracket: Not applicable
35% Bracket: Not applicable
37% Bracket: Not applicable
If these are added up, the entire tax liability for this individual would be $30,289.50. Though the actual marginal tax rate brackets remain constant regardless of a person's filing status, the dollar ranges at which income is taxed at each rate can change depending on whether the filer is a single person, married joint filer or head of household filer.”
This would affect the roughly 16,000 wealthiest Americans, which is about 0.05% of the country’s population.
On the side of the supporters, Ocasio-Cortez’s plan will strive to prevent some of the impacts of exploitive capitalism. Vanessa Williamson, senior fellow in governance studies at the Brookings Institution, said, “... where top tax rates are higher, the income distribution is more egalitarian – not just post-tax, but even before taxes are taken out. That’s because progressive taxes blunt the incentives for wealthy people to overpay one another and exploit the less privileged. For instance, contemporary CEOs are often financially rewarded for what is in essence good luck: changes in market conditions that have nothing to do with their individual performance. High tax rates discourage these CEO windfalls, leaving more money available for companies to invest productively. That means higher marginal tax rates make the economy fairer and more productive — and have no negative effect on growth, no matter what billionaires at the World Economic Forum prefer to believe.”
An analysis done by Jeff Stein and other tax experts from The Washington Post found that Ocasio-Cortez’s tax plan could potentially increase government revenue to $720 billion per decade.
Those on the opposing side, including Democrats, believe that Ocasio-Cortez’s tax plan is not necessary, and that there is a difference between attempting to increase revenue and taking money from the wealthy simply because they are wealthy.
In an article from thehill.com, Rep. Bill Pascrell (D-NJ), a member of the tax writing Ways and Means Panel, said “I thought it was comical. You can have reasonable taxation, and then you can send signals that we’re just going to go after people who have a few dollars.”
Other Democrats think that it would be better to focus on the root of the problem, which some consider tax evasion by the wealthy, both by legal and illegal means, in order to increase revenue.
In the aforementioned article, Rep. Ro Khanna (D-Calif.), the first vice chairman of the Congressional Progressive Caucus said, “My view is one that there are better ways of getting to the revenue [than a 70-percent tax on high incomes].”
Khanna believes that removing tax cuts on the wealthy, taxing corporations on foreign earnings, and reducing U.S. military involvement internationally could make up for lost revenue that Ocasio-Cortez seeks to gain from taxing the wealthy at her proposed tax bracket.
In an interview conducted by Nilay Patel with The Verge, Microsoft founder Bill Gates said that he would not oppose progressive taxes on the wealthy, but that proposing increased high income tax brackets are not going to solve the issue of increasing revenue. He explained that “people who are wealthy have a rounding error of ordinary income. They have income that just is the value of their stock, which if they don’t sell it, it doesn’t show up as income at all, or if it shows up, it shows over in the capital gains side. So the ability of hedge fund people, various people — they aren’t paying that ordinary income rate.” Gates also called attention to the fact that the top 400 earners in America are only paying a 20% tax rate because of how they accumulate their money. “It has nothing to do with the 39.6 percent marginal ordinary income rate. So it’s a misfocus. If you focus on that, you’re missing the picture.”
In subtle reference to Ocasio-Cortez’s tax plan, Gates mentioned that certain proposals from newer politicians were “so extreme” that he could not support them as these sort of proposals would give the wealthy incentive to stash their money in offshore accounts, essentially hiding it from the government, it would be counterproductive if the goal is to increase revenue.
Representative Ocasio-Cortez has good intentions. Her “Green New Deal” is an effort to invest completely in renewable energy, which means changing America’s form of energy generation from coal and natural gas to solar, hydroelectric, wind, and geothermal.
The Deal also plans to fund more towards the smart grid, an improved electrical grid that is more reliable and efficient due to better use of technology, towards better public transportation, guaranteed job, leave, and retirement, and protection for the land of indigenous people. An article from CNN outlines the plan in a more detailed manner.
However, there are many factors that have to be considered before jumping to high tax brackets on the wealthy and transitioning from non-renewable to renewable resources. For instance, it’s important to consider how much the economy depends on the natural gas and coal mining industries, not to mention how many people rely on coal mining jobs for an income.
It is significant to take into account the fact that creating jobs requires funding education, and the only way to ensure the security of those who rely on coal mining and oil drilling businesses for income is to make sure that their schooling is improved and that jobs are created in their communities.
In this polarized political climate, making decisions about creating new tax policies requires a lot more discussion and negotiation, especially considering the complexity behind tax plans and all of the factors associated with it.