Recently, some of the billionaire class in the US have been publicly displaying apoplectic fits over comments by the freshman Democratic Party star NY Rep. Alexandra Ocasio Cortez (AOC), as she has been touting the possibility of a 70% marginal tax rate for US citizens earning an income / revenues of over $10 million dollars.
Over several past posts, based on the source, EPI (Economic Policy Institute), I’ve been detailing how US average workers fared much better from WWII to 1973 when corporations’ productivity increased by 94% but workers’ incomes rose by 91%. Post 1973, as corporate productivity increased by 77%, the average workers’ pay increased by less than 13%.
That economic inequality characterizes the American economy is not a shock to average working Americans. Study after study demonstrates that the USA has more wealth concentration than most other developed nations.
As per 10/16/17 On the Economy Blog By Federal Reserve Bank of St. Louis), “Income inequality in the U.S. is large, despite the U.S. having one of the highest levels of income per capita. Specifically, the Gini coefficient of the U.S. was 40.46 in 2010, very close to the average Gini coefficient of African countries.”
“In contrast, Nordic countries —such as Finland and Sweden—have a similar income per capita as that in the U.S., but much lower Gini coefficients.”
“The lower inequality in these countries could be explained by a tax system that redistributes income across countries and includes generous transfers like social security, health insurance and unemployment benefits. In fact, poorly designed tax systems, tax evasion and tax avoidance are part of the reason why Latin American countries have the largest Gini coefficients.”
The gap between incomes of the top 1 percent and bottom 99 percent are growing
Average income of the top 1%
Average income of the bottom 99%
|District of Columbia||$1,858,878||$61,102|
These entitled rich folks are acting as if this high a marginal tax rate is unheard in US history.
As per the 11/15/15 Politifact report, “Let’s review what the marginal tax rate means. It’s the tax rate that’s applied to the last dollar earned. The U.S. tax system is based on brackets. The top marginal tax rate applies to the highest bracket. Income is taxed at higher rates as more is earned.”
“We turned to the Tax Foundation’s federal income tax rates history, which documents figures going all the way back to 1913, when the income tax began with the ratification of the 16th Amendment.”
“During the eight years of the Eisenhower presidency, from 1953 to 1961, the top marginal rate was 91 percent. (It was 92 percent the year he came into office.)”
“What does it mean, though? For the duration of Eisenhower’s presidency, that rate affected individuals making $200,000 or more per year or couples making $400,000 and above per year.”
“In 2015 dollars, that’s roughly $1.7 million for an individual and $3.4 million for a couple.”
“The tax brackets are adjusted for inflation, but are exceptionally lower than in Eisenhower’s day. The top rate in 2015 is 39.6 percent, applied to single people making $413,200 or more per year, or married couples filing jointly making $464,850 or more annually. If we went back to 1954, single people making the equivalent of $413,200 would be in a 72 percent tax bracket, while a couple making $464,850 would end up in a 75 percent bracket.”
“What’s the highest income tax bracket ever put in place? In 1944-45, during World War II, couples making more than $200,000 faced an all-time high of 94 percent.”
In short, the top marginal tax rate applies to the highest bracket. Income is taxed at higher rates as more is earned. Those wealthy individuals who are showing signs of panic need to know that in comparison to past years when income inequality was less of an issue, it can be said that the plan as advertised by AOC to impose a marginal tax rate of 70% on income over 10 million dollars, is a bargain.
As per TPC Tax Policy Center data as of 18th of January 2019:
On January 7, 2019, Matthew Yglesias of VOX penned the following report, “Alexandria Ocasio-Cortez is floating a 70 percent top tax tate- here’s the research that backs her up”
“Some studies indicate she’s aiming too low.”
“In an interview that aired Sunday on 60 Minutes, America’s most widely covered new House member Alexandria Ocasio-Cortez (D-NY) floated the idea of a top marginal income tax rate as high as 70 percent as part of a plan to finance a “Green New Deal” that would aim to drastically curb America’s carbon dioxide emissions.”
“Seventy percent is a lot higher than the current rate and will doubtless fuel the conservative effort to paint AOC as a know-nothing, but the number is in line with one prominent strain of recent economics research and is at least moderately well supported by America’s historical experience.”
Top tax rates used to be much higher
“Historically, the US used to have many more tax brackets, and the top marginal tax rates were extremely high. Under Eisenhower, the top earners paid a 91 percent marginal rate, falling to Ocasio-Cortez’s proposed 70 percent under Kennedy and Johnson, before falling to 50 percent after Ronald Reagan’s first big tax cut, and then down to 38 percent after the 1986 tax reform.”
“One big part of that story is that before 1986 the tax base was considerably narrower. Rich people used to have a lot more loopholes and deductions of which they could avail themselves. The 1986 law closed a lot of those loopholes, but also cut the top rate.”
“But another part of the story is that there used to be more tax brackets. Right now a single person earning $550,000 a year pays the same marginal rate as a person earning 10 or 50 times as much. Under the old tax code, the top rate was reserved its top rate for the super-duper rich.”
“Ocasio-Cortez seems to have something like this in mind when she tells Cooper, “Once you get to the tippy-tops, on your $10 millionth dollar, sometimes you see tax rates as high as 60 percent or 70 percent. That doesn’t mean all $10 million dollars are taxed at an extremely high rate. But it means that as you climb up this ladder, you should be contributing more.”
“In other words, she’s not saying that everyone who pays the current top rate should see their taxes raised to 60 or 70 percent. Rather, a small number of ultra-rich people should pay at that rate. This is obviously a controversial proposition that will strike some as unfair and others as counterproductive to the economy. But it’s pretty much in line with the cutting-edge work of progressive-minded tax economists.”
Link to entire report: vox.com