70% marginal tax rates aren’t nuts

the-taxman-108671It was interesting watching the entire conservative pundit class have a screaming meltdown over Alexandria Ocasio-Cortez’s proposal of a marginal tax rate of 70% on income over $10 million. The general theme was that this is a wild, unheard of idea that would destroy the American economy.

Which is pretty stupid. It’s certainly fair to debate the merits and likely results of the proposal, but it’s not crazy or unprecedented.

From 1951 to 1963, the top marginal tax rates in the US were over 90%. From 1964 to 1980 they were over 70%. During that time, real growth in the US GDP was higher than it was now. Oh, and that was more of less the birth of a large, comfortable American middle class. Not bad times.

I’m not suggesting a simple cause and effect here, but you cannot look at historical data and conclude that high taxes on the highest earning Americans reduces economic growth (unless you are a Republican and believe history began twelve minutes ago).

Another argument is that high taxes will kill innovation, if innovation is measured in terms of start-up activity. This is a weak argument. It defines innovation is a weird and narrow way – start a company to sell juicers that connect to the internet, and you’re an innovator! Research hospital with government funding developing cancer treatments, not innovator! This only makes sense if you live in the self-referential bubble of Silicon Valley.

Ocasio-Cortez’s proposal is popular with Americans. Apparently many people in this country are more clear on what “marginal tax rate” means that most of the GOP congressional delegation, and think that if their choice was to make $70K or make $20 million but have to give $7 million back to the government, they’d take the latter option.

So argue about whether Ocasio-Cortez is right or wrong, about whether there have been fundamental economic changes that make it a bad idea, whether we’re actually investing enough in infrastructure, education, and research in the US, or any other aspect of this. But if you think this means that she’s a naive, out of touch legislator, I think you are going to be in for a surprise.

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