Increase Top Marginal Tax Rates

Click here for an article in The New York Times by Emmanuel Saez and Gabriel Zucman entitled "Alexandria Ocasio-Cortez’s Tax Hike Idea Is Not About Soaking the Rich." Here are a few points from the article:

From 1930 to 1980, the top marginal income tax rate in the U.S. averaged 78%; it exceeded 90% from 1951 to 1963. These rates applied to extraordinarily high incomes only. In 1960, the top marginal tax rate of 91% started at what today would be $6.7 million a year. For incomes in the hundreds of thousands (in today’s dollars) marginal rates were 25% to 50%.

The income per adult of the lowest 50% was $16,000 in 1980 (adjusted for inflation), and it still is around $16,000 today. At the same time, 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.

A common objection to elevated top marginal income tax rates is that they hurt economic growth. Consider the examples of Japan and Russia.

The United States grew more strongly — and much more equitably — from 1946 to 1980 than it has ever since. But maybe in those years the United States, as the hegemon of the post-World War II decades, could afford “bad” tax policy? The United States occupied Japan after the war, imposed democracy and a top marginal tax rate of 85% on it (in the U.S., the rate was 86% in 1947). The goal was to prevent the formation of a new oligarchy. In 1982, the top rate in Japan was still 75%. Yet between 1950 and 1982, Japan grew at one of the fastest rates ever recorded, one of the most striking economic success stories of all time.

When Communism fell, Russia was also a poor country, with income and life expectancy well below that of Western economies. Russians got fast privatization and a top tax rate of 30 percent — again modeled on what was prevailing in the United States at the time (31 percent in 1991). That rate was replaced in 2001 by an even lower flat rate of 13 percent. That shock therapy created a new oligarchy, led to negative income growth for the bottom half of the population, fostered a general discontent with democracy and produced a drift toward authoritarianism.

Democracy or plutocracy?