In my mind’s eye, former Wisconsin Republican Gov. Scott Walker was chuckling softly and flexing his fingers Tuesday morning as he prepared to hit send on a tweet mocking a tax proposal recently floated by newly elected Democratic U.S. Rep. Alexandria Ocasio-Cortez of New York.
In an interview that aired Jan. 6 on CBS' “60 Minutes,” Ocasio-Cortez floated the idea of federal income “tax rates as high as 60 or 70 percent” when asked what she thought a “fair-share” rate would look like for wealthier Americans.
This touched off a flurry of indignation, scorn and contempt from the right, a flurry to which Walker added with this salvo on Twitter:
“Explaining tax rates before Reagan to 5th graders: ‘Imagine if you did chores for your grandma and she gave you $10. When you got home, your parents took $7 from you.’ The students said: ‘That’s not fair!' Even 5th graders get it.”
It’s perfectly possible that fifth-graders would be fooled by this kind of sophistry. What do they know? If a former governor who was at one time thought to be presidential timber tells them that prior to the term of Republican President Ronald Reagan (1981-89) the federal government took 70 percent of what a person earned, well, he wouldn’t lie, would he?
Well, kiddies, he would. And he did.
In 1980, a fifth-grader whose allowance was less than $44 a week would have owed no tax at all on the 10-spot grammy paid for doing chores. And he or she would have had to have a weekly stipend of more than $2,000 a week before the 70 percent rate kicked in on that extra $10.
In between there were more than a dozen income thresholds – call them “brackets” – above which each additional dollar earned was taxed at a slightly higher rate.
The spunky, defiant Ocasio-Cortez, widely known as “AOC,” her initials and her Twitter handle, explained it well on “60 Minutes” – “Your tax rate, let’s say from zero to $75,000, may be 10 percent or 15 percent,” she said. “But once you get to the tippy-top – on your 10 millionth dollar – sometimes you see tax rates as high as 60 or 70 percent. That doesn’t mean all $10 million 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, if, under her hypothetical scenario, you make $10 million, you’re not paying a 70 percent tax on all $10 million, as Walker told the fifth-graders in his anecdote. You’re simply paying 70 percent on every dollar of taxable income above $10 million. All the other money you’ve earned is taxed at a combination of the lower rates.
Los Angeles Times columnist Michael Hiltzik did the math and noted that if we added the 70 percent bracket Ocasio-Cortez proposed to today’s brackets, which top out at 37 percent, “a taxpayer with income of, say, $11 million would have an overall tax rate not of 70 percent, but about 39.5 percent.”
Radical? Outrageous? Setting aside philosophical arguments about morality and taxation, no. It was simply ordinary for half of the last century. The top marginal federal income tax rate (the rate paid by the highest earners) rose to 63 percent in 1932, spiked at 92 percent in 1953 and didn’t fall to pre-1932 levels until 1982.
Somehow the country and the wealthy not only survived, but thrived, even though, in 1980, the top rate kicked in at earnings over $108,000 (that’s roughly $350,000 in 2018 dollars), not $10 million. Indeed, these were the decades of health for the middle class to which many of those who say they want to “make America great again” refer.
Ocasio-Cortez dunked on Walker three hours later Tuesday in a tweet of her own in which she used the Spanish word for grandmother:
“Explaining marginal taxes to a far-right former Governor: Imagine if you did chores for abuela & she gave you $10. When you got home, you got to keep it, because it’s only $10. Then we taxed the billionaire in town because he’s making tons of money underpaying the townspeople.”
Steeply progressive taxation makes a society and an economy better and stronger. Fifth-graders may not get this, but most economists and most adults do.
A poll taken last weekend by The Hill-HarrisX found 59 percent support for taking income over $10 million at 70 percent. A 2017 Reuters-Ipsos poll found 76 percent of respondents agreeing with the proposition that “the wealthiest Americans should pay higher tax rates,” with 53 percent expressing strong agreement.
In Illinois, where newly elected Gov. J.B. Pritzker has promised to work to overturn the state constitutional ban on graduated state income tax rates, 76 percent of respondents to a Paul Simon Public Policy Institute poll expressed support for an extra 3-percent tax on income over $1 million, and 72 percent gave a thumbs-up to the idea of graduated income taxes.
Conservatives who have pushed down top marginal tax rates and expressed nonchalance about the subsequent massive growth in the wage gap have so far kept such initiatives at bay. They’ve done this in part by branding high marginal rates as socialism, and in part by peddling the falsehood – to children, no less! – that the rates apply to every dollar earned.
They are meeting their match with the fiery Alexandria Ocasio-Cortez.