The last few days on Twitter have been dominated by debates about the “Tucker Carlson manifesto,” a cri de coeur about how the conservative movement has failed the working class voters that put Donald Trump over the top in 2016. Almost simultaneously, freshly minted Rep. Alexandria Ocasio-Cortez, D-N.Y., called for a top personal income tax rate of 70 percent, nearly double what it is today and the highest level since before the Reagan administration.
What do these two strange bedfellows have in common, besides a shocking ignorance of tax policy?
Much of Carlson’s manifesto is correct. Too many pockets of conservatism are just as elitist and Acela corridor as their liberal counterparts (like Ocasio-Cortez). We don’t often have well thought-out solutions for working class families and tend to view the world from the perspective of the college graduate and the entrepreneur, not the high school dropout and the line worker. The socialism of Ocasio-Cortez (known as “AOC” on Twitter) is well known, even if her personal story doesn’t quite line up. They are two peas in a populist pod, rhetorically at least.
[Related: Julian Castro cites 90 percent tax on rich in defending Alexandria Ocasio-Cortez on tax hikes]
What they also have in common is they got tax policy very wrong. Let’s start with Tucker Carlson.
In his monologue, Carlson said we tax capital at half the rate we tax labor.
Presumably, Carlson is concerned about middle class workers. Thanks to the Tax Cuts and Jobs Act lowering tax rates across the board, marginal tax rates on middle class wages haven’t been lower in living memory. On the margin, a middle class family making less than $100,000 per year faces a top federal income tax rate of 12 percent or less. It hasn’t been that low in living memory.
Meanwhile, capital gains and dividends (which did not see a rate cut in TCJA) face taxation at double that middle class wage rate — nearly 24 percent. That doesn’t even account for the fact that this is a second or third bite at the tax apple.
So Carlson got this take 180 degrees wrong: Capital taxes are actually taxed at double the marginal tax rate of middle class wages, not the other way around as he claimed.
Carlson also doesn’t seem to know the difference between average effective tax rates and marginal tax rates (something AOC recently accused House Republican Whip Steve Scalise of, as well). Elsewhere in his manifesto, Carlson correctly points out that Mitt Romney faced an effective federal income tax rate of 14 percent in his latest disclosed tax return. What this means is that Romney paid 14 percent of his income in federal income tax.
Carlson negatively contrasts this figure with what he claims is a 40 percent marginal tax rate on upper-middle class wage earners.
Two huge problems there.
The first and biggest issue is that Carlson is comparing an apple and an orange. The average effective rate is taxes divided by income — Romney’s 14 percent.
The marginal tax rate is the tax rate on the last dollar earned. You and I could have a 30 percent marginal tax rate based on our tax bracket, but only pay 20 percent of our income in taxes (our average effective rate). They aren’t the same thing.
Furthermore, Carlson has an odd definition of “upper middle class.” In order to pay a wage tax rate on the margin anywhere near 40 percent, a taxpayer would have to be in the top bracket: $600,000 and above for a married couple.
So what can middle-class families expect to pay in their average effective tax rate, the real comparison to Romney’s 14 percent average effective rate? Thanks to the rate cuts and doubled standard deduction and child credit of TCJA, not much.
A median income family of four earns about $80,000 according to the Census Bureau. Under the new tax law, this family faces an average tax rate of just 3 percent — far less than Romney’s 14 percent. That’s down from 6 percent pre-TCJA, so the tax law cut the median income family of four’s average effective federal income tax rate in half.
Ocasio-Cortez wants to raise the top marginal income tax rate from 37 percent today all the way to 70 percent. What does this mean? If that tax rate kicks in at $1 million, the next dollar earned will see a tax of $0.70. So will every further dollar earned. That doesn’t count the payroll tax or state income tax, incidentally. Doing that easily means a marginal tax rate well into the 80-90 percent range. No one is going to work only to turn it all over to the government, and AOC’s sky-high tax rate as a result won’t collect nearly any new tax dollars for her “Green New Deal.”
Does that mean Republicans are Mitt Romney plutarchs in our tax policy? Not if the Tax Cuts and Jobs Act is any guide.
The Trump-GOP Congress tax cut didn’t just reduce taxes for middle-class families, though it did that in spades. It also did some things Carlson and AOC should presumably approve of: take away tax benefits for gold-plated charity CEOs; tax huge college endowments like Harvard’s; slap an exit tax on companies shipping jobs and capital overseas; tax all the money big corporations like Apple stuffed in foreign bank accounts tax-free; impose a global minimum tax on companies doing business in tax havens; end the implicit blue state subsidy of unlimited high income write-offs for state and local taxes; and stop sweetheart deals for business entertainment expenses and college football tickets.
To sum it up: Middle-class workers pay a much lower marginal tax rate than Carlson claims and a far lower average effective tax rate than he claims. Whether measured on the margin or on average, we have a highly progressive tax system where the wealthy pay a lot more than the middle class. Creating a 70 percent bracket will raise no new tax revenue because no one is stupid enough to earn money at that tax rate.
Ryan Ellis (@RyanLEllis) is president of the Center for a Free Economy.
