Let’s hope the pendulum of populism does not swing so far to the left that top marginal income tax rates of 70 or 90 percent become politically feasible nationwide.
Doomed big-government policies pushed by bleeding-heart liberals usually at least have a veneer of good intentions. But nothing of the sort can be said of the monstrous rates, designed to bleed the rich, that are being pushed by Rep. Alexandria Ocasio-Cortez, D-N.Y., and likely 2020 Democratic candidate Julian Castro. They have no merit, only ill intent. Their naked belief is that the rich have done something wrong and must be punished severely.
The vast majority of high-earners earned their wealth because they provided value to others. Whether it’s celebrities, entrepreneurs, or venture capitalists, all had to operate in our market economy, where only the government has the power to force us to pay for what we do not want. Every other recipient of our hard earned incomes must convince us to give them money voluntarily.
To be sure, some lobbyists and other participants have commandeered undeserved riches through rent-seeking regulations. But it isn’t safe to impose an exorbitant tax rate on them, either, because they will easily rig that in their favor too.
After the 2017 GOP tax reform law, for example, capped the state and local tax deduction at $10,000, voters in wealthy congressional districts punished the GOP and sent Democrats to Washington for the 116th Congress. The special tax break was overwhelmingly and unfairly beneficial to the rich, without any corresponding benefit for anyone else. Their reward now comes courtesy of Rep. Nita Lowey, D-N.Y., who took it upon herself to introduce a bill restoring the full deduction as soon as she could.
That partly explains why soak-the-rich tax rates don’t increase revenues. The rich and well-connected are better than anyone at obtaining special tax deductions and credits and at taking advantage of rules to shift their income into less-taxed streams or locales.
As the Tax Foundation’s Nicole Kaeding wrote in a Washington Examiner op-ed, “Without a complete overhaul to the taxation of capital gains, wealthy investors would move to limit their capital gains realizations to avoid this absurdly high rate. In reality, very little money would be raised by the proposal.” With the corporate income tax rate now cut to 21 percent (thanks to the 2017 tax reform law), individuals might also find ways to shift their individual income into corporate income, as they commonly did prior to former President Ronald Reagan’s tax reforms.
Democrats running in 2020 will certainly repeat the canard that the rich aren’t paying their fair share, hoping that no one will push them to define what “fair” means. As of 2013, the most recently available data from the Congressional Budget Office, the highest 20 percent of income-earners earned about 38 percent of the nation’s income but paid 44 percent of federal taxes. Every lower-earning income group paid less in their share of taxes than their share of before-tax income.
We’re not arguing here that the rich should be taxed less or that anyone else should pay more. But the data does show that those who say the rich don’t pay their fair share have a warped definition of the phrase.
Democrats find the rich convenient scapegoats every almost every problem, even ones that were clearly created by Democratic policies. Increasingly they want to soak them dry, pretending that doing so will be sufficient to finance their pet causes such as green cronyism, abortion, political activism by unions, etc. Their attacks elevate envy to the level of an ideal. They would rather see the poor poorer, so long as the rich were made poorer too.
Responsible governing involves prioritizing scarce resources rather than taking from one group to give to another. Instead of attacking people who already pay almost half of federal taxes, seek broadly shared sacrifices and be good stewards of taxpayer dollars. Workers labored hard for the share of their money sent to Washington. Congress should work just as hard to make sure they don’t have to send more.
