Alexandria Ocasio-Cortez's Tax Plan
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