Democrats and taxes on rich people

Short version: after decades of being cowed we are finally having prominent Democrats unafraid to say America’s wealthiest need to pay more in taxes.  Given our ongoing deficits, there’s a very good argument that middle-class Americans need to pay more in taxes, too, certainly if we want to fund better health care and a more robust safety net, but, for now, not even many Democrats are willing to go there.  That said, I’ll take it as a good start the Democrats are finally pushing back forcefully on the tax debate and I think, therefore, gradually changing the political dynamics on taxes.

No, I don’t think we’ll get AOC’s 70% top marginal rate (nor do I believe that is necessarily the optimal top rate, though there’s definitely a good case for raising top marginal rates), nor do I think we’ll get Elizabeth Warren’s wealth tax (as much sense as it makes).  Oh, and yeah, we should almost surely raise the capital gains tax rate.   But, here’s the thing, Democrats are talking about raising tax revenue in largely sensible ways, regardless of what Howard Schulz and other rich billionaires (and their massively disproportionate political influence think).

I really liked this take on AOC from Shadi Hamid in the Atlantic, “Ocasio-Cortez Understands Politics Better Than Her Critics: A 70 percent marginal tax rate might not be realistic—but that doesn’t matter.”

Most Americans—myself included—probably don’t have a well-thought-out position on whether a 70 percent marginal tax rate is a good idea. But it probably doesn’t matter whether it is, or whether it would “work.” To argue that “workability” is secondary might sound odd to many Democrats, particularly party leaders and experts who have long prided themselves on being a party of pragmatic problem-solvers. This, though, could be the most important contribution so far of Representative Alexandria Ocasio-Cortez and the new crop of progressive politicians—the realization that the technical merits of a particular policy aren’t the most relevant consideration. For these new Democrats, the purpose of politics (and elections) is quite different…

As I recently argued in American Affairs, even the better educated don’t primarily vote based on policy. In fact, higher levels of education can increase polarization. [emphases mine] (In other contexts, such as the Middle East, the advent of universal education and higher college attendance fueled ideological divides.) As the political scientist Lilliana Mason notes, “Political knowledge tends to increase the effects of identity as more knowledgeable people have more informational ammunition to counter argue any stories they don’t like.”

People’s politics tend to determine their policy preferences, and not the other way around. In one example from the 1960s, as Christopher Achens and Larry Bartels write in Democracy for Realists, even southerners who supported racial integration left the Democratic Party. Once they became Republican, they then adjusted their views on race and affirmative action to fit more comfortably with their new partisan identity. Put another way, if a person with no prior partisan attachments decides to become a Republican, he is likely to become pro-life. If that same person, with the same genetics and life experience, decides to become a Democrat, he is likely to become pro-choice.

Ocasio-Cortez and other progressives appear to understand instinctually what this growing body of research on voter preferences suggests. And its implications are potentially far-reaching. Once you accept that voters are rationally irrational, you can’t help but change how you understand political competition..

This focus on shifting the contours of the national debate is sometimes referred to as expanding the “Overton window.” It is altogether possible that Ocasio-Cortez doesn’t think that a 70 percent marginal tax rate is realistic in our lifetime—she might not even think it’s the best option from a narrow, technocratic perspective of economic performance—but it doesn’t need to be. As the Open Markets Institute’s Matt Stoller notes, “One thing that [Ocasio-Cortez] has shown is that political leadership matters. Just proposing a 70 percent marginal tax rate has restructured a debate over taxes. Obama’s presidency was defined by self-imposed limits.”..

Today, in a way that hasn’t been true for decades, more Americans are at least aware of something that might otherwise have been ignored as either overly wonky or, well, crazy. The 70 percent figure proposed by Ocasio-Cortez was a subject of debate—and derision—at Davos. But by joking about it, billionaires and aspiring billionaires, in effect, helped legitimate it. After all, if the richest people in the world are worried about it, it might just be a good idea…

I don’t feel strongly about a 70 percent marginal tax rate, but I don’t need to. I might even conclude that it simply “feels” too high. But that just means that if and when a Democratic candidate for president proposes a 50 percent tax rate on income that’s more than $10 million, I’ll be impressed with how “moderate,” reasonable, and sensible it sounds.

As you know, I’m a bit of a policy wonk and think it is really important that we get the details right.  And I think we would want to be very thoughtful about exactly how we would go about raising top marginal rates or implementing a wealth tax, etc.  But, without people like AOC pushing on this, regardless of the details, we’ll never even get a chance to worry about the details.  So, yeah, sure, 70% may well be too high.  But, overall, I love what AOC is doing.

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About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

3 Responses to Democrats and taxes on rich people

  1. R. Jenrette says:

    How about bringing back the estate tax? You can make a case that a person who earns very big bucks creating a new industry or inventing a device that everyone wants to buy should enjoy his/her wealth and earned it.
    But what is the case that his children and other relatives should inherit all of the estate? Some of those large estates need to pay taxes.
    After all, how will social and financial inequality ever be addressed if the extremely wealthy don’t give some of it up, one way or another? At least some of that wealth was gained by friendly tax breaks and loopholes courtesy of obligated politicians and political parties.
    The size of a taxable estate can easily be set so that 98% of citizens are not affected by such a tax.

    • itchy says:

      “How about bringing back the estate tax?”

      Yes.

      “After all, how will social and financial inequality ever be addressed if the extremely wealthy don’t give some of it up, one way or another?”

      In this case, the extremely wealthy who earned it are dead. They’ve already given it all up.

      There is no reason whatsoever that those who didn’t earn it should lay claim to it. This is one of the ironies of fiscal conservatives harping on the death tax while simultaneously maligning “takers who ask for handouts.”

      Inheritance is nothing more than a handout to someone who didn’t earn it.

  2. ragnarsbhut says:

    Every dollar gets subjected to multiple layers of taxation. It is surprising that it has much value at all.

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