Alexandria Ocasio-Cortez’s Tax Hike Idea Is Not About Soaking the Rich

By Emmanuel Saez and Gabriel Zucman
New York Times

Mr. Saez and Mr. Zucman are economics professors at the University of California, Berkeley.

Alexandria Ocasio-Cortez has kick-started a much-needed debate about taxes. But the debate, so far, has been misplaced. It’s obvious that the affluent – who’ve seen their earnings boom since 1980 while their taxes fell – can contribute more to the public coffers. And given the revenue needs of the country, it is necessary.

But that’s not the fundamental reason higher top marginal income tax rates are desirable. Their root justification is not about collecting revenue. It is about regulating inequality and the market economy. It is also about safeguarding democracy against oligarchy.

It has always been about that. Look at the history of the United States. From 1930 to 1980, the top marginal income tax rate averaged 78 percent; it exceeded 90 percent from 1951 to 1963. What’s important to realize is that these rates applied to extraordinarily high incomes only, the equivalent of more than several million dollars today. Only the ultrarich were subjected to them. In 1960, for example, the top marginal tax rate of 91 percent started biting above a threshold that was nearly 100 times the average national income per adult, the equivalent of $6.7 million in annual income today. The merely rich – the high-earning professionals, the medium-size company executives, people with incomes in the hundreds of thousands in today’s dollars – were taxed at marginal rates in a range of 25 percent to 50 percent, in line with what’s typical nowadays (for instance, in states like California and New York, including state income taxes).

That few people faced the 90 percent top tax rates was not a bug; it was the feature that caused sky-high incomes to largely disappear. The point of high top marginal income tax rates is to constrain the immoderate, and especially unmerited, accumulation of riches. From the 1930s to the 1980s, the United States came as close as any democratic country ever did to imposing a legal maximum income. The inequality of pretax income shrank dramatically.

The view that excessive income concentration corrodes the social contract has deep roots in America ? a country founded, in part, in reaction against the highly unequal, aristocratic Europe of the 18th century. Sharply progressive taxation is an American invention: The United States was the first country in the world, in 1917 – four years after the creation of the income tax – to impose tax rates as high as 67 percent on the highest incomes. When Representative Ocasio-Cortez proposes a 70 percent rate for incomes above $10 million, she is reconnecting with this American tradition. She?s reviving an ethos that Ronald Reagan successfully repressed, but that prevailed during most of the 20th century.

And she?s doing so at a time when there is an emergency. For just as we have a climate crisis, we have an inequality crisis. Over more than a generation, the lower half of income distribution has been shut out from economic growth: Its income per adult was $16,000 in 1980 (adjusted for inflation), and it still is around $16,000 today. At the same time, the income of a tiny minority has skyrocketed. For the highest 0.1 percent of earners, incomes have grown more than 300 percent; for the top 0.01 percent, incomes have grown by as much as 450 percent. And for the tippy-top 0.001 percent – the 2,300 richest Americans – incomes have grown by more than 600 percent.

Just as the point of taxing carbon is not to raise revenue but to reduce carbon emissions, high tax rates for sky-high incomes do not aim at funding Medicare for All. They aim at preventing an oligarchic drift that, if left unaddressed, will continue undermining the social compact and risk killing democracy.

Of course, there are many policies – from the enforcement of antitrust laws to a broader access to education; from the regulation of intellectual property to better corporate governance – that can contribute to curbing inequality in the years to come. And government transfers, whether in the form of income support for families or public health insurance, have a critical role to play.