Im sure the Rich know exactly what has happened in our country over the last 4 decades and many like Warren Buffet have honestly spoken up on the unfairness of it all.
There has been a Grand Theft of wealth from the Labor economy to the Corporate economy. Stagnant wages and layoffs has transfered into dividends and capital gains for investors..
Its no surprise there is a flat line for real wage growth, as the Dow Jones shoots for Moon. 1974 was the last peak in real wages and the Dow Jones breaks records at 27,000.
Coupled with this is the "no new taxes" brainwashing that leaves anybody with disposal income more valuable as shoppers than taxpayers.
The missing Government leadership and oversight is missing-in-action, as most of them chase corporate dollars for who knows what in their next election.
2
@One Nurse
A healthy society sees value in both the individual and the society as a whole.
Corporate wealth sees more Profit when we emphasize satisfying the individual over society as a whole. As in 'shop til you drop'!
I don't need some 29 year-old who has never started a business, made payroll, created something that didn't exist before, took the chance, made the investment, and suffered the many setbacks before the idea was a success to tell me how I should or shouldn't spend my money. Taxing it is the same as saying how I should spend it.
I also do not need an academic who has never started a business, made payroll, created something that didn't exist before, took the chance, made the investment, and suffered the many setbacks before the idea was a success to tell me how I should or shouldn't spend my money. Taxing it is the same as saying how I should spend it.
Both of these folks are sad examples of the "let me tell you what is best for you" paternalistic, liberal ideology that we should all be very afraid of.
28
@Scott
I don't understand your point. Is it that you don't believe that there should be taxes at all (and therefore no government as well, as without taxation there can be no government). Or is it that you don't believe that the government should be a democratic one where people who disagree with you about taxation and government policy should have a voice?
10
@Scott: The academic in question “created” the column you are commenting about. He also “created” many books and articles and papers dedicated to helping create a better society. The impact of his work was so great he received the highest award available in his field: awarded by an international foundation dedicated to creating a better world.
In some situations he has had people work for him.
He’s taken on risk too. There are lots of people who chose an academic career who end up barely eking out a living. Despite hard work, intelligence, it also takes luck to become a successful academic in today’s world.
Your in the trenches working all day, he’s up in the garage balloon observing the landscape. Obviously he doesn’t see what you see but likewise you don’t see what he sees either. So you would be wise to listen to him. You just have to hope that he’s honest and altruistic. (If you are not, that can make doing that hard, because we all project.)
11
But you do need someone to remind you that environmental crisis is real and it's not going to fix itself. And she doesn't have to create or run a business to under the progressive tax rate of 70% on the wealthy. If they can't afford that rate, they need to learn to budget their money. Ppl being taxed on tens of millions per per year will definitely be fine financially after those taxes.
3
Public spending on public infrastructure and social investments (think GI Bill, or jobs programs for retraining, or education) create the highest growth and are the true best "stimulus programs" the government can perform.
2
Multiple commenters refer to the "much kigher taxes of the 1950s"--Not true. Though marginal tax rates on very high incomes (of that day) existed--few except Elvis, maybe) paid them. Oil and gas depletion allowances, real estate depreciation, tax shelters sold widely in both areas, and many others. Also much easier to use offshore accounts then and/or conduct business in cash.
Note--Elvis always said that he would not use a tax shelter to shield his millions of income. That pledge was news worth because most other high earners did rely on "loopholes" to avoid taxes. Always citing Judge Learned Hand, "No one owes more taxes than the laws require."
Apparently the very rich are buying up great tracts and multiple mountains of the west. Are we headed for the ancient aristocracy and serf, landed gentry and indentured servant society? It looks that way in the west. It seems that a fair and more equal society is not natural to humans. It is all about power and wealth and always has been. Equality has to be fought for and wrestled away from the robber barons. An Eternal struggle. As climate change progresses and land gets more fragile and good land more scarce, the struggle intensifies. The only way to ease this struggle is to reduce the earth's population. Eventually this will happen when climate change will put intense pressure on both rich and poor. Clean water and air are equally necessary all around. Storm, climate and wlldfire affects everyone. Resource wars can overwhelm with impunity both rich and poor. Climate change may be a leveler.
3
Ten million dollars in risk-free Treasuries provides over $450k per year in passive income on average, and over $385k most years. That's a risk-free return. Capital doesn't need to work for it. What labor would call a basic income. Anyway, municipal bonds provide a similar return but tax-free. A 70% tax rate on every dollar above $10 million in annual income - more than the median household makes in a lifetime - would send passive investment to tax-free municipal bonds. That would allow local governnents to cut taxes without cutting necessary investment in education and infrastructure.
1
I would actually love to see her tax returns. Bartenders make most of their money in tips...that are supposed to be reported to the IRS. Hmmm...
All in favor of bringing back progressive pre-Reagan income tax brackets but I question the ballyhooed "we had these income tax brackets and the greatest period of prosperity in history. "
That was a strange period where America was the only industrial power left standing after WWII, Europe and Japan (the only other industrial countries) were destroyed and rebuilding. So if you wanted to buy manufactured goods you pretty much had to buy from America for a time -we had a natural monopoly.
Nowadays a turn-key factory can be started in most countries.
1
When the highest tax rate was 91%, the entire tax code was radically different. The deprecaiton and investment credit rules allowed an effective rate of much less.
The chart ends in 2017, what has happened since. We are just now coming out of the effects of the Great Recession.
It is the bright hard working people that create jobs and pay taxes.
Don't disenincentivize them.
2
I am old enough to remember when the top tax rates were over 70%. What happened is the same as corporate taxation - nobody pays the stated rate. The rich have lawyers and pay for political campaigns, so there were always loopholes to avoid having the government take the majority of your income.
It is hard to believe, but just before the Reagan tax cuts, Sears (the Walmart of yesteryear) had a tax avoidance desk, just beyond the tool department. It sold investments in oil pipelines and such.
Warren's plan to tax vast accumulated wealth is more reasonable, but what we need most is a mechanism to empower labor. In the 1950's and 60's, when productivity went up, workers received a share of the profits. Now, all gains go to the shareholders. It's not surprising that a consumer economy did better when consumers had more to spend.
2
It matters a lot to the applicability of the Diamond argument where the top marginal rate cuts in, and it is important to note that the 73% optimal rate includes indirect taxes, so it is not the same as the headline rate. Perhaps of interest is that in the UK, with an upper rate of 45% and VAT of 20% and with many tax reliefs eliminated progressively, the rate on the rich is probably not too far below 73%. But the rich, in the UK example, have incomes starting from about $200,000, nowhere near the top 1% even in the UK. What Diamond shows is that very high and progressive rates of income tax are maximising, provided they are designed to deal with the marginal income of the top 1% rather than mis-designed in a way that creates ultra-high marginal rates lower down the distribution.
Another critical aspect of soaking the rich, is the trustee. We don't have that complex and overshadowed trustee system back in the New Deal period. But now, look at all the rich folks. Their assets and benefits are essentially intact regardless of the policy. I am not talking about policy changes that led a CEO who earned 2 million a year now earn 1 million; I am talking about folks who already had 100 million in their family trustee.
Mr. Krugman, i would have a simple question to your logic. Do you believe the "Rich/Wealth" should pay more to subscribe to NYTimes.com? If not why would this be any different than the federal budget?
The fact that you think all of the opposition to her policy ideas comes down to the fact that she's 'nonwhite" shows how racist you are, Paul.
1
Can we just stop talking and start taxing already?
I was born into the promise of the New Deal and the Great Society but before I hit kindergarten, three of the champions of those policies were shot dead. Then I grew up watching Boomers, Silents, Republicans, business leaders, spineless Democrats, and America as a whole take what was left of those promises, rip them to shreds, and grind the pieces into the dirt. And that was before I could even vote in my first election.
Now I’m at midlife living in a shadow of the country I knew as a child with Republicans and evangelicals consorting with the Russian enemy to add salt to my civic wounds. I want to see the America my newborn eyes saw. I want to live in the America of fair economics that Boomers got to experience as kids with good schools and cheap colleges before they voted it all away to give tax cuts to the rich. I want to experience the America that invested in education for all, science for the future, better infrastructure for society, and quality health care for the elderly and the less fortunate.
I want that America back, minus all the stupid racist, sexist, homophobic religious baggage, and to be able to actually experience it fully before I close my eyes a final time in death.
43
@left coast finch
what's most impressive, is how all the "liberals" (actually obedient serfs of Wall St and the GOP) work non-stop to protect the status quo.
EXAMPLE:
THE GOP HAVE CONSISTENTLY SAID that we need a 100% Estate Tax rate, b/c the Rich WORKED for their money.
No one can be BORN rich, says the GOP.
I agree!
Weird the Dems are covering up this fatal fact, along with a ziliion other examples of the Dems working to keep the GOP out of jail etc.
1
@E Wang
The GOP are staunchly against estate taxes. If you do quick google, you can find articles on the subject - and actual bills, both proposed and already passed, by the GOP that reduce or seek to entirely repeal the estate tax. The GOP detests the estate tax and have, for years, run on a platform that includes completely abolishing it.
They are not, in any way shape or form, proponents of a 100% estate tax.
4
@E Wang
Thanks, man, for showing us exactly what the article was talking about, because there is actually zero support for what you just said there.
1
Can we just stop talking and start taxing already?
I was born into the promise of the New Deal and the Great Society but before I hit kindergarten, three of the champions of those policies were shot dead. Then I grew up watching Boomers, Silents, Republicans, business leaders, spineless Democrats, and America as a whole take what was left of those promises, rip them to shreds, and grind the pieces into the dirt. And that was before I could even vote in my first election.
Now I’m at midlife living in a shadow of the country I knew as a child with Republicans and evangelicals consorting with the Russian enemy to add salt to my civic wounds. I want to see the America my newborn eyes saw. I want to live in the America of fair economics that Boomers got to experience as kids with good schools and cheap colleges before they voted it all away to give tax cuts to the rich. I want to experience the America that invested in education for all, science for the future, better infrastructure for society, and quality health care for the elderly and the less fortunate. I want my America back and to be able to actually experience it fully before I close my eyes a final time in death.
Let’s not forget that the person earning the $1000 has a right to his or her own property and an equal expectation of fairness in tax policy as everyone else. The notion of designing tax policy only to get the maximum tax revenue from the “rich” with no respect for the “rich” person’s right to property is a tyranny of the majority, or, more accurately, politicians pandering to the majority.
2
@PaulKrugman Here let me pick this apart 2:
'... The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.'
- With that line of reasoning, we should just tax them 100%. Right?
'So AOC, far from showing her craziness, is fully in line with serious economic research...'
- I don't think she's crazy at all. Also, I do agree that the tax code needs an overhaul. But... we all know that neo-liberals tend to dislike white males, so coming from her it's hard to say she has America's best interest in mind. Instead, it just seems like a convenient way for her to encourage policy that caters to the racism and misandry promoted by neo-liberals.
'graph'
- I think you're really insulting your NPC fan-base with this one. Again, I'm not a Nobel winning economist, but I know that economic effects tend to lag policy changes often by several years. The graph should start in 1945 if you want to be intellectually honest.
When you show so much outward hostility toward a certain group, it reduces the effectiveness of your message. Some people will just write you off as a hater. Is that what you're going for? It's a shame, because overhauling the tax code would be a good thing. But when you're just catering to your fan-base and fanning the flames of discord, you lose people like me who would normally support you. Maybe next time be a bit more objective and leave the hatred at home.
Most of the comments here show little understanding of how our tax system really works. It’s true that very few people paid tax at the 91% marginal rate back in 1954; it’s because very few people had ordinary income in excess of about $400,000 annually (equivalent to about $3.5 million today) so they never made it to that bracket. Not because there were so many tax shelters back in those days; believe me there are plenty of places to hide money even today. A more important misunderstanding is that people who have really big incomes don’t receive very much of it as ordinary income. It’s mostly capital gain and dividends, which are taxed at a much lower rate than ordinary income. There are two things to say about this. First of all, how can you justify taxing income on work at a higher rate than income, in effect, based on other people working for you? Seems to be no problem for our Congress. Second, in very rich families, most capital gain is never realized during the owner’s lifetime but rather passed on at death, tax-free, to the owner’s heirs. In other words, even when marginal rates on ordinary income are very high, the effective tax burden on actual rich people is lower than for many middle-class workers. This has been true for many years and it probably will continue, since the basic fact of taxation is that rich people understand it but most other people don’t.
4
Dr. Krugman has a PhD and a Nobel, so OF COURSE he knows more than me and most other regular people. But his Diminishing Marginal Utility argument is fatally flawed in many respects, including a rather simplistic one:
$1,000 confiscated from a multi-millionaire or billionaire does NOT result in $1,000 being gifted to someone in the poverty zone. For that to happen, there would have to be just as many rich people being taken FROM as there are less fortunate being given TO. And even THAT's assuming the government didn't take its share.
No, $1,000 confiscated from the small pool of evil rich (channeling AOC here - that's not my feeling towards those people), would be spread out among the much larger pool of poor people. Maybe (check me on my math, Doc) 1 rich person benefiting 1,000 poor folks? 2,000? 10,000?
So even if one were to buy DMU theory (and many Nobel laureates, ahem, do not) the "proper" utility function would consider $1,000 in diminishing utility for the rich person in comparison to $1 for each poor person he or she funded.
So, Dr. Krugman, what's the math say then?
The real problem with Krugman's argument as well as that of all socialists is that it requires the initiatory use of force which is always immoral.
Why not tax at 73% and offer a huge tax breaks for people who actually do create new jobs or open new factories or create new industries? You could easily argue that if they do what they're supposed to do with their money, their taxes could be even lower than they are now after the crazy Trump-McConnell-Ryan-Collins legislation.
1
We already have those tax benefits for investors; they’re called capital gains and step-up basis at death. If an entrepreneur makes it big, he or she doesn’t need any additional tax benefits.
1
The GOP always controls the the dialogue by misrepresenting the what honest writing is. When the title of this piece calls for soaking the rich it provides the GOP with reason to attack it negatively. The GOP or "conservatives" are masters at taking one word out of many to grind it down against the truth. We have yet to learn to counter that. We tend to think that we are dealing with honest dialogue when communicating our message and that is a mistake. The GOP (conservatives) always use the shortest path by simplifying it for their base. What the title should read is. Why the wealthy should pay their fair share of taxes. Because the fact is they do not pay their fair share. See the forest for the trees people. As much as we hate to, we need to communicate at a fourth grade level to get our messaging to get through to conservatives. Sad but true.
3
@Nery O.
The 1% pay 40% of the income taxes. How is that not their fair share?
1
"Paul Krugman ... He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography."
As Trump would point out correctly -- that prize is just from a bunch of fake foreigners. The GOP knows more than a sack of Nobel Prize winners. Yep they do. Aren't we lucky?
Kruman's analysis is oversimplified and misleading.
First - He ignores the fact that during the period of extremely high marginal rates there were tons of loopholes and almost nobody paid the marginal rate.
Second - He ignores the role of the growth of credit in diving the expansion (rather than tax rates). I'm not surprised since he is well know for his position that "debt doesn't matter."
It would be interesting to see the results of a much better designed analysis looking at growth versus both realized tax rates and credit expansion across multiple countries to get a better understanding of this issue.
Here is a little perspective on how much money the wealthy have. According to Wikipedia's "List of Americans by Net Worth" Jeff Bezos is the wealthiest American with $116 billion ($116,000,000,000.00).
If he were to invest 100% of his money in the lowly U.S. 10 Year Treasury Bond at the current rate of 2.74%, he would earn 3 billion 68 million dollars a year ($3,068,800,000.00). In order for him to consume every dollar he earned in interest from the Treasury bonds (forget about actually spending any of the his principal), he would have to spend 8 million 407 thousand 671 dollars EVERY DAY ($8,407,671.00) for eternity.
And, Mr. Bezoz would never spend any of his current worth of $116 billion.
How much money does one person need?
3
@Brian Hughes
You realize he doesn't have all that wealth in cash right? He can lose a billion dollars in a day depending on what Amazon's stock does. BTW with his impending divorce he's going to be 70 billion poorer.
1
We need a better perspective of how much money the top 0.01% have.
Reality Dollars if money was time
1 million seconds = 11.5 days
1 billion seconds = 31.7 years
1 trillion seconds = 316.9 centuries
1 quadrillion seconds = 316,887 centuries
1
I thought that an extra 1000 dollars for low and middle income earners were "crumbs?"
Somehow, I don't feel that I have a dog in this fight.
The budget, deficit, the National Debt...these figures are total abstractions to me... like how many miles to Mars?
The most effective way to grow the middle class? Following the laws of DMU.
Diminishing marginal utility is the common-sense notion that an extra dollar is worth a lot less in satisfaction to people with very high incomes than to those with low incomes. Give a family with an annual income of $20,000 an extra $1,000 and it will make a big difference to their lives. Give a guy who makes $1 million an extra thousand and he’ll barely notice it.
During the 50's, 60's & 70's the top fed tax rate stayed over 70%, the result created the largest middle class in US history. Since the 80's the top fed tax rate stayed below 40%, while the middle class shrunk decade after decade with ever increasing debt & deficits. How long can this debt/economic bubble - fueled by low taxes & interest rates - be sustained?
1
@kckrause
No one paid that much and regardless of the tax rates the government averages 18% of GDP.
Knowing about tax policy is one thing.
Explaining it is a different story.
AOC has not been able to eloquently sell her ideas to the common person (the majority), and to put it in a 29yo's speak, she's catching an L for it. How was it said again?
"you campaign in poetry, and govern in prose".
AOC's prose has a purple hue, and this has been just over 1 week. Let's see how this will work.
Economics!? At those kinds of tax rates it's more about Morality. Just because you can get away with theft doesn't make it right.
To suggest that the government should confiscate more than half of what Margaret Thatcher so eloquently called "other people's money" is disgusting, even to a working man like me.
In a sovereign fiat money system, $ exists because the govt says so. So, the $ supply has to be regulated to minimize the inherent inflationary nature of otherwise valueless currency. Taxation is one of the ways this is accomplished. But ppl don’t care as much about their tax burden as much as they care about retaining (or expanding) their net income (NI) and purchasing power (PP).
So, imagine an economy with a $ supply of $1000, but the govt wants to fund a project that costs an add’l $100. It can’t just print the $100, or inflation rises and the value of the $ drops, forcing it to print more $$, worsening the problem. Instead, it gives the economy an extra $100 via govt debt, loaned out to people via banks, creating an economy of $1100, but before people go “Woot!!” and buy all the stuffs they want, which incites inflation, the govt taxes it to get the $100 back they want to spend on their thingy. The result: ppl's NI and PP remains the same; no inflation. Yay!
What AOC is proposing (and why she’s frustratingly naive) is that she wants to tax ppl to get the extra $100, but w/o equally expanding the economy, and thus the money supply. In her scenario, ppl would end up with less NI. This is a huge incentive problem b/c ppl change their behavior to retain their NI and PP. As a result, instead of $100, her tax rate will maybe garner $30, forcing more taxation, and so on. Taxation without equivalent economic expansion, ultimately (though not immediately) lowers tax revenue.
1
The Rich have been soaking the Poor for decades now - and they don’t even need the money.
They even have a percentage of those they soak agreeing with the Rich that it’s a good idea. Heck, some of the Poor are now equally convinced the Rich should do more of it - at least to other Poor people. It’s all part of that wonderful myth of trickledown economics... where if the Rich get enough money from the Poor, they’ll start making the Poor rich!
It’s never happened yet, but that doesn’t stop Republicans from pushing it - or the gullible believing in it.
By now, soaking the Rich just looks like fair trade. It’s time for a bit of equity!
1
@GWBear
If it's wrong for me to put a gun to your head and take your money why is ok for the government to do the same?
As usual, the mindset is to overcompensate for problems that took a long time to evolve to the present. Although personally and directly negatively impacted by the the ultra wealthy, I don't believe in Robin Hood or disincentivize the wealthiest Americans who achieved their wealth through phenomenal accomplishments which have impacted society in virtually every field. Brilliant minds who have marshaled their gifts through mind-boggling commitment as well as geniuses whose impact on society is immeasurable should not be punished; these people are not piggy banks for the angry and jealous. They're not all saints. Perhaps they are greedy too and want what they can't have and that's the extent of their indignation. What if that "have not" happens to win huge multi-multimillion dollar lottery feel? Would they prefer to decide to whom or where their new-found, life changing windfall goes? Perhaps they would be philanthropic and choose to donate all the money to other causes and people. But I think they'd like to decide. And I doubt they'd like to give the IRS 90%
On the other hand like most of us I am alarmed and nauseated by the nauseated by the insane pay gap and wealth gap. The greedy CEOs and high powered executives: it's not a novel question to wonder how they can.
This cry for 90% taxation of the wealthy looks like identity politics: all wealthy people are not villains wholly lacking in virtue. Of course they must pay but not in a virtual burning at the stake.
1
AOC is a threat to the establishment weather Republican or Democrats, neither wants to give up the power they have and all they want is to continue doing what they have always done.
Now the Democrats are trying to reign in AOC. Bernie is right and we do need a revolution.
@Virgil
Demagogue
a political leader who seeks support by appealing to the desires and prejudices of ordinary people rather than by using rational argument.
AOC to a tee.
I would like to go have a cup of coffee with Krugman and talk about this...I look at this graph he posted and what jumps out at me is that growth *does* increase as the top rate is cut (see mid-60s and early 80s), and that increase is sustained over a number of years in each of the two cases. And also, sure, it is evident that our growth rate now is relatively low, but given what happened in earlier cycles, it is not clear that a lowered top rate is the culprit. I wonder what would happen if the top rate were cut again? I'm not at all talking about fairness (I definitely think our tax policies favor the rich way too much), but rather what I see in his data.
All people hate paying taxes but most of us cannot do any thing about it however when the rich were taxed up to 90% they did everything that could benefit them and one thing that did it treat your employees much better a it a hard fact people who do not live Paycheck to paycheck are simply more productive better workers and jut as the grand Architecture they put in the office building again to make the employees proud to work there. and even did crazy things like the Vanderbilt did who built a 47 mile race track/toll road when there were no races used it for a few year and the donated for a huge tax write of the the state of NY they also the rich build huge mansions and got the tax write off then donated then they donated it to collages. but they stated manipulating the tax code so now Pay and benefits have gone way down making less protected employees once again living pay check to paycheck contently living in fear of something bad going to happen and new office building are just plain and dull
@magnusfl sorry but I don't understand what you've said in your comment. I mean I literally don't understand what looks like an interesting point of view.
Interesting...however, the chart suggests the only factor that influences the growth rate of real GDP is the tax rate. Really?!? It makes for a simplistic and pithy defense of AOC but Krugman knows it is a lot more complicated than that He is a fine economist but he lets his political inclinations taint his economic reasoning.
Funny how the fat cats come out of the woodwork at the thought of having to get a smaller yacht or one less vacation home.
There are exceptions of course, decent human beings like Bill Gates or Warren Buffet.
Remember, your life is like a vapor, "that appeareth for a little time and then vanisheth away."
2
Thank you for defending AOC, Dr. Krugman. She is definitely a bright spot in our moribund Congress.
We need more people like you and AOC speaking truth to the hucksters that run our Nation and the willingly ignorant citizens that support those hucksters.
MB
3
@Michael Bain
AOC is a demagogue.
a political leader who seeks support by appealing to the desires and prejudices of ordinary people rather than by using rational argument.
It is astonishing that people are even discussing this. “The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.” This may be a criterion from the playbook of a medieval third-world kingdom. In civilized countries where everybody should be equal under the law, it is hard to understand how taxing people at different rates is even constitutional. At some times, Jews were taxed at four times higher rates than others because they had money and the state wanted to “maximize revenue”. No decent person has a favourable opinion of that historical fact, but current politicians elected by the majority to fleece a minority is the same thing. If history taught us anything, it is that people do not like to be fleeced. So if anybody does not understand what will happen when the rates are increased to the “optimal level”, just ask France. Or Rolling Stones’ Mick Jagger why the band did not stay in the UK and paid the “optimal” tax rate.
1
I am surprised about how many people with the wearwithal to earn high enough incomes to complain about a progressive tax system fail to understand how they actually work. If I were lucky enough to generate $1 million in income for what I do, reaching a 70% tax bracket does not mean that the whole million is taxed at that rate. A good portion of it would be taxed at the lower rates in the system.
Thus I would not voluntarily choose to make less income, as there would be no gain in doing so. That being said, I might choose to work fewer hours when the marginal utility of the extra money becomes smaller than the value of my free time. Perhaps, then, the system allows for someone new to take up these left over hours and earn the pay at at lower tax rate.
Share, share, that’s fair.
5
@Steve Yeah, LeBron can skip a few games and I can take his place.
These economists don’t learn. Extortion through the marginal tax is the cause of obscene compensation packages. Raise rates to 70 or 80% and managers will simply increase their pay to get the same take home pay. Guess what, when rates come down to earth they will simply keep the same gross pay and become much richer. That is what happen after the Reagan tax cutin the 1980s.
The conclusions based on the graph are completely misleading. The economic growth increase is clearly associate with the DROP in tax rate from 90% to 70%. Then again we see an increase in economic growth in the early 1980's, with yes again a DROP in tax rate. Stop pulling the wool over peoples eyes. I don't think the author is unusually smart but he is smart enough to see the truth in the data he as presented.
Soaking?
This is about accounting for the externalities of gaming the system by billionaires and multi-millionaires.
They are attempting to enclose the entire productive economy behind a wall they are building.
Soon they'll be offering to "bail out" or potholed highways, or crumbling infrastructure, our unsustainable health care system (which is actually one of the leading KILLERS of U.S. citizens), our costly and exclusive educational system, and all of the institutions of government which guarantee and protect the rights of all citizens.
This isn't soaking the rich. This is delivery of an overdue bill.
3
The problem with this is the rich do not make money on W-2. This just increases the taxes on high wage earners: lawyers and doctors, not on the very highest income group. The real reform is not to allow the depreciation of real estate. Real estate doesn't actually depreciate in value like a machine and it is a huge tax loop hole. Increasing capital gains would also help, but the real estate loop hole is really the biggest culprit. It is the reason I am sure Trump did not pay taxes before becoming president.
3
Economics, as important as it is to everyone, is one of the least understood sciences, but it generates the most opinions because it does impact everyone in some way, especially when the subject is taxation and distribution. Our monetary system is centered around a fiat currency but was designed for the gold standard, and this creates even more confusion.
First of all, your tax payments are not "revenue" for the monopoly issuer of a fiat currency whose debt is denominated in the currency it creates. Spending the currency into existence must occur before taxes can be collected, so taxes never "pay for" that spending. Ditto for Treasury bonds, which are not "borrowing" anything in the common use of the term.
Both taxation and bonds remove currency from the private sector and only spending into the private sector by the federal government can net create it. Most of the money in the economy is created by bank lending, but that money cannot retire the debt that created it or be net saved. This is why our "national debt" is nothing more than an accounting entity that reflects the net currency in circulation after balancing out private sector debt.
Taxation should be purposed with preventing inflation and directing investments to productive use, not to provide income to spend. Extreme wealth accumulation is simply not good for the economy, especially when it can be used to influence our government. We should spend much more and tax less, except at the very top brackets.
1
"The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue."
But in order to do this, one would have to be able to project the effect of the tax rate on the growth of income of those with high incomes, as well as the growth of the economy as a whole. That is something that has always proven to be impossible.
What's unbelievable is Mr. Krugman's assertion that an optimal taxation structure is one that creates the maximum amount of tax revenue. Can I offer an alternative? Optimal taxation should simply cover the budgeted costs of administering the government, leaving the rest for us to people to spend, save, and invest as we choose.
@Cole Mueth
You nailed it on the head. At the end of the day this type of policy along with most other neo-liberal ideas are to remove choice, or in other words freedom.
AOC calls for 70% top marginal rates for any income earned over $10 million, I think those numbers should be 90% for anything over $5 million, as they were at the height of our nation's best economic years, but I'm okay to compromise on this ... https://i.huffpost.com/gen/2192606/original.jpg
1
A tax policy that gives the government that much free money for who knows exactly what is absurd. So I propose this: a policy that taxes that high but let’s the taxed choose what policies to pay for. Split up the 70-80 percent tax: a “normal” percent goes for general use, the rest gets to be specified (education, military, healthcare, etc) with caps for each to push for diversification. Still doesn’t solve tax evasion and it’s a little bit like forcing people to do the right thing, but it’s a start.
1
Almost nobody paid the 91% tax rate in the 50s. The average tax burden for the top 1% was 42%. Not that different than it is now. In the 1950s-60s things like company cars, and golf club memberships didn't count as income. We have never tried an actual 91% tax rate in this country, but the Soviet Union, Cuba and Venezuela have....
5
@Jerome good comment. I was going tot say the same thing but have a little to add. The max corporate rate was only 50% so rich people incorporated and their personal corporation paid for their cars, golf memberships and who knows what else. Even if you did not incorporate, there were numerous other ways of saving on taxes including income averaging.
I wonder if Krugman leaves this out because it spoils the point or if he really doesn't know. In my experience, economists know very little about actual tax law especially historical tax law.
Also Brian Riedl at National Review presents the math showing that the OC proposal will not fund her Socialist plans---- without slamming the Middle Class who most politicians claim to protect.
3
Ryan Bourne at Cato exposes the hidden and flawed assumptions underlying this article.
1
Krugman argues as a utilitarian, but like many on the left, he is primarily driven by envy and narcissistic rage at those high earners he (wrongly) considers his intellectual inferiors.
Krugman's demons aside, "Life, Liberty and the Pursuit of Happiness" is the basis of America's prosperity, not utilitarianism. The US constitution is a libertarian roadmap, not a communist manifesto. Once you confiscate so much of a man's marginal income that he is no longer working for himself and his family, you have simply enslaved him to the government.
And why stop at income? If the only purpose in life is maximizing your contribution to the state, then most of our constitutional rights should also be jettisoned. Free speech is antithetical to the smooth functioning of the state. Get rid of it. As is freedom from arbitrary search and seizures, the right to a jury trial, to face your accuser, and so on.
The Soviets knew what they were doing. But the one thing they could not dictate by force was prosperity. Make your choice America.
7
@2A That's why we lost the Cold War in 1969 after 20 years of high marginal tax rates.
A crabber shows up to the food fair with two buckets of crabs for sale. One bucket has a lid on it. Customer asks:"Why is there a lid on that bucket?"
"Well, those crabs are Republican crabs, and they are always climbing out of the bucket."
Customer asks: "Then why is the other bucket uncovered?"
"Well, you see, those are Democrat crabs, and they are always pulling the climbers back down into the bucket".
3
PK's column is founded on two myths. Actual tax rates in the 1950's were NOT much higher in the 1950's.
https://taxfoundation.org/taxes-rich-1950-not-high/
and Reagan's tax overhaul stimulated the economy and brought in more money ! Not less !
https://www.thebalance.com/current-u-s-federal-government-tax-revenue-3305762
PK and AOC are preaching idiotic policy to the foolish
4
Regan’s tax reform created more problems than it solved. To his credit, he made marginal adjustments to stop a little bit of the sheer craziness it created. I was in commercial real estate development in the 80s. After his reform act was put into law, it didn’t take us long to start building shopping centers with initial financing that covered 150% of a qualified investors investment in tax credits the first year followed by depreciation schedules that allowed the investor to completely write off the investment in 5 to 7 years through losses against their income. Several of the buildings were economic failures that never leased up to break even. Only a couple eventually became successful developments. Most where sold at steep losses on paper, ironically providing even more return to the investors. It was nothing more than a conservative tax scam shifting billions in capitol from the low and middle classes to the already wealthy (remember my mention of “qualified investors,”?) That was a requirement of securities law at the time—you had to be what was called a “sophisticated investor” to get into one of these deals. That just meant that you had to have a lot of money to begin with. Even the Reagan administration had to end much of this as the impact on deficits and national debt were too dramatic for the country to swallow. Bush 1 had no choice but to raise taxes to pay for the rip off. None trickled down. Everybody but the wealthy paid for it.
3
What does AOC know about tax policy? Little or nothing. "Soaking the Rich" simply doesn't pay the bills Ocasia-Cortez wants to cash. Simple math.
5
Over 50 years ago, I had a high school teacher who said it best. The wealthy should pay a higher marginal tax rate because they have more to lose.
1
What do you make of the following facts (read from the graph)?:
1. From 1963 to 1969 the top tax rate decreased by from 90% to 70%, but growth increased from 1.25% to 3% (more than double).
2. From 1972 to 1980 the top tax rate remained constant at 70%, yet growth decreased from 3.25% to 1.25%.
3. From 1981 to 1989 the top tax rate decreased again from 70% to 30%, and growth increased *again* (less than before but still about double its previous value).
Where is the data that proves that increasing the top tax rate we will get increased growth? I don't see it.
4
Typical Paul Krugman. The data he shows is so incomplete one hardly knows where to begin. Were the rates higher in the 50s. Sure, but there were so many more deductions that nobody really paid them. The rich pay far more today than in the 50s because their effective rates are higher.
The real difference between the 50s and today is that we are much more regulated today. All of this is a huge barrier to business growth and efficiency. Just run a small business and you totally get this.
But, take Krugman's advice if you want to. Like he said the night Trump was elected, a market disaster was going to happen. One of epic proportions. Take your money and run for the hills. If you had, you lost a 30% run up in the market. Or, the advice in March 2017. We would never seen 2% GDP growth again, just a Trump fantasy. How is that working out?
Why such bad predictions? Because central planners don't get the real world. Never have.
5
Yes, all good - but for AOC to achieve this, she would need to understand that politics may involve compromise. Otherwise she will get nothing. I also wonder if the facts sited by Krugman have changed in this day and age of mobile citizenship. A wealthy person can simply pay $350,000 to any number of nations to get a new passport... (I say this as I am sitting on an island far away). I guess what I am saying is be careful before you make big changes.
2
Ayn Rand described the consequences of this theory of taxation very well in Atlas Shrugged when she described Mr. Klugman and his ilk as "looters." We all know very well that the "super wealthy" by the time the tax laws are written are not those making $100m a year, but those making $500k per year. Throw NY state and NYC taxes plus Medicare taxes on top of that 70 to 80 percent and there will be very little left of income above $500k for those who earned them.
In addition, what Mr. Klugman and Ms. Ostacio-Cortez are too ill-informed to understand or too willfully blind to care about is that the Internal Revenue Code of the 1950s contained a plethora of loopholes for tax shelters that ensured that very few individuals, if any, paid an effective rate anywhere near the top marginal rates. Congress, while lowering the top marginal rate to 38.5%, has also closed most, if not all, of those loopholes, ensuring that most Americans with incomes above $500k pay an effective rate that is much closer to the marginal rate than in the 1950s.
Finally, while that person earning over $1m per year may not miss that extra $1,000, you can bet that they'll consider the impact on the risk-return equation when they decide where to put their capital at risk if you're soaking them for 90% of any returns. And all of this is before we even discuss the impact on the economy and jobs of raising the corporate tax rate.
6
I as AOC identify as a democratic socialist. I can say I am not an economist like Diamond, Saez or Romer. I make a decent living and work my but off. I sure would like to ask those economist though why they want to raise taxes on labor? I understand it is a progressive income tax they want to change but this is all taxes based on work, which is peoples time. I don't believe anybody should be taxed that much for time. I don't believe CEO's should make that much for their time and most don't. Most pay themselves in stock options and pay capital gains tax to avoid paying higher taxes. I thought democratic socialist was for the people, that includes all people in my opinion. I feel like it would be more fair if CEO's counted on their income rather then capital gains as income.
Capital gains tax are taxed at 15% if you hold for a year. Capital gains is a tax on investment. I would like to ask those economists why they aren't interested in a 15% flat tax or even a progressive tax even at much lower levels for income but we start taxing capital gains tax at 38% and even had a progressive tax in capital gains that could reach 70%. Capital gains tax is on investments which poorer people are not able to do. I feel like this would give people more money in their pocket for their time and more fair tax for people who have the money to invest.
There is other taxes I feel like we could propose as well to get rid of income tax on low and middle class americans.
2
My whole issue with this is that the rich don't work. The real rich do not work. They have family offices who manage their stock and bond holdings and decide their incomes from dividends and stock sales each year. It is a joke this thing about marginal earnings of the "rich". People who work at high salaries are Wall Street Corporate lawyers, money managers, and a handful of people at banks. These people are not going to stop working because their tax rates go up. They have kids on prep schools, multiple houses, boats, planes, spouses, x spouses, and principally, they have been motivated by money and status their whole lives. Their lives are tied into the equity of their firms and they cannot walk away. Tax rates may prevent them from investing for their bosses in a jurisdiction. That is obvious that the current global monetary system facilitates easy movement of money and creation of credit around this world to play off workers in one country against another. But, they are not going to stop "working". Let's get real. Academics better start grounding their theories in the real world. We are losing patience with their tax exempt revenues at those so called not for profit places while they spout inaccurate depictions of the world at the young. Those universities are tax exempt for public service. It turns out they are not serving the public, they are serving the wealthy. And, one day there may be massive class action law suits against them for this fraud.
2
Increasing the well-being of the poor likely benefits the whole society including the economy, another million-dollar yacht does not...
3
Really Paul,
AOC made a series of inaccurate and misleading statements on the economy and other matters, to the point where the Washington Past has awarded her four out of five "Pinnochios" an impressive measurement of her lack of attentiveness to facts. In the last week, she clearly realized that she had to be more attentive to details and she has obviously sought out some counseling on facts so that she could appear more knowledgeable than she has in the past. I don't expect a twenty nine year old to be well acquainted with tax brackets in the 60's, and she did not disappoint on that score and many others where she has been inaccurate of facts reaching back decades.
The thing is that she does not take this far enough. There is an implication that such a sharp tax rise on 16000 tax payers will make a serious difference in funds available for funding ambitious programs such a medicare for all or free tuition for all. Paul, you come up with a plan for restructuring our tax brackets to make a dent in these programs without losing a major share of the Democratic vote. and I'll listen. And please don't insult those who are attentive to her lack of factfulness by dismissing them as objecting to "smart" (not so much) non white females.
My very initial impression of AOC...a not so bright woman who has received more than herr share of attention who could compete with Trump for the "Best Pinocchios" award, and has the potential for the same kind of demagoguery as our president
4
Who says AOC is non-white? She looks like all her peers to me!
2
peak politics of envy and jealousy
3
I work hard as a teacher and am proud to do so. It's an important job and people are trusting me with their children. I work with an incredible staff--dedicated, intellectual, patient, caring--unbelievably diverse and interesting people. Prior to getting my teaching license and masters in my 30's, I worked for 8 years in the insurance industry and let me tell you, I made good money and did very little. My bosses schmoozed and golfed with clients and made a fortune working 3-4 hours a day, if that. I routinely witnessed people doing little to nothing for hours and being paid handsomely. Endless wining and dining with clients, making so much money. Yeah, that myth of everyone in business working soooo hard all day long, earning those bonuses. I don't think so. You want hard work? Be a nurse, be anyone working in an emergency room, try being an Amazon worker, a UPS delivery person, your mail carrier, do some construction work, try fixing a furnace or painting a house or roofing. Work as a cashier on your feet for 8 to ten hours, drive a semi, work as a public defender, handle the stress of an air traffic controller, plant or harvest crops, or be a teacher. (Like we say, it's five live shows a day.) Those of you in business, yeah, good on you, congrats, but don't act like all that money is something you deserve because you work so much harder than everyone else. Nope. Not buying it. I know what I saw and what honest people have confirmed.
11
While I do agree that an equitable taxation regime should be done, I am unsure if the proposed tax on the super rich would work in the same way as it did for America in the 40s. Practically all the super wealthy would have the benefit of bankers, tax advisors, lawyers and accountants that will advise them on how to best avoid these new taxes by booking income in more preferable jurisdictions. The risk here is the upper middle class and professionals earning monthly compensation will be unduly taxed. For this to work in the modern era the practice of using offshore companies will have to be re-examined and that will require cooperation with other countries. Some of this has begun with FATCA but it has yet to make a significant dent towards equality in the tax burden.
4
Venezuela has the world's largest oil reserves and is falling apart because it declared class warfare.
3
Venezuela...a favorite right-wing bogeyman...wake me when you’re done.
1
@God I hope the Saudi's don't read this. They think they have the most oil.
Shame on Krugman for not pointing out the the actual tax rate paid by the highest earners in the years of the 90% tax rate was actually minimally more than what they pay now, thanks to the elimination of many loopholes. The changes in the tax code over the years has made it such that there are few ways to escape the tax on high income, other than charitable giving. With the new tax code eliminating most of the federal deduction for state and property taxes, most will find that their taxes will actually go up. If AOC wants to work on something, work on decreasing the taxes on those who make little; they contribute little to the overall tax haul anyway.
3
Each person's share of the federal budget (including "entitlements") should be proportional with their share of total discretionary income. This would act as an automatic stabilizer for income inequality.
1
@Daniel That will entail substantially raising tax rates on the lower 50% of income earners who currently pay nothing in federal tax.
These top rates won’t hurt millionaires. Most wealthy people do not derive their money from wages.
The massive taxes will actually hurt working professionals. The most highly educated workers. Productivity will decrease, as it will be Titrated up to the highest bracket.
No one is going to work for money taxed at 80%.
4
@Bob I think LeBron will still play basketball at 80% taxation.
Fine, Democrats control the House where all tax bills must originate. So they should introduce a 73% top marginal rate tomorrow, right? Please Democrats, put our money where you mouth is and go for it.
2
The "tinkle" down theory has never shown to be proven to ever reflect any reality. It is a specious fairy tale at best, a purposely formulated deceit at (close to) the worst.
2
Capital gains must be taken into account, too. Most of the income at the top 1% or higher is not from salaries, it's from investments. The, investments add a new dynamic to the economy, but should not be exempt of tax brackets. It is the smart place to stash money because it provides a much lower tax burden than earning it like the 99% earn their money. I don't know what rates should be used, but whatever amount should prevent the creation of dynasties and income disparities that rival third world countries.
3
I completely understand what marginal tax rates are, i have an economics degree. I have a modest income but know people in the millionaire billionaire categories.
I simply don’t accept the argument that the government redistribution of either accumulated wealth or income is a higher moral ground than an individuals right to his own wealth or income.
5
@Gary " His own wealth " ???
There is no such thing as your own wealth.
Wealth comes from production or capital exchanges with other people or other economy systems.
This is a mystique.
4
@Gary your wealth wasn’t created in a vacuum. There are numerous features in our society, paid for by everyone, that helped you in the creation of your wealth.
2
Paul omits deductions during those high tax eras, the fact that it was after WW2 when major economies were physically devastated. He doesn't make any estimation on what a major shift towards renewable energy would cost (since the 70% proposal would be to pay for that), he doesn't speak on the countless of market participants/investors that speak against higher tax rates (outside of the carried interest which should be at the same as the corporate tax). Same investors that actually participate on the economy instead of reading a book and thinking that a social "science" explains actual practical everyday life occurrences. This point is essential because proposing something with out actually watching how it unravels is essential when opening your mouth. He also omits the fact that economist are the ones that make theory, apply it into law which eventually gets us in trouble. Paul tell them about lowering standards for housing which led into the 2008 crisis. Please Paul this article is completely biased and the reason why past liberals have decided to move away from the democratic party and extreme liberals.
3
Nice try.
The debate is not about the most efficient tax rate on the 10 millionth dollar. The problem is Rep Alex. is suggesting that alone will pay the cost of her multi-trillion Green New Deal...and the negative response is because we know for certian she is lying. We know a 70% tax rate on 10 million or over, or as she so eloquently puts it “the tippy tops” will come nowhere close to paying for the Green New Deal.
We know how this goes Professor. The gig is up. We get lied to by smiling faces, and those lies are supported by sensationaized opinion media masquarading as news, and left wing economists doing the same. Then we, the middle class, get stuck with the bill.
We remember when Obama said we should raise taxes on “millionaires and billionaires” (with your support), only to propose raising taxes starting at 125k, and his fleecing our banks which we are now paying off via higher bank fees. We recall “you can keep your insurance”, crowned Politifact’s 2014 “Lie of the Year”.
So we know that taxes will be hiked significalty at incomes far far below 10 M if she gets her way.
We know that when she says she wants to right the wrongs of energy policies that discriminate against people of color, the only remedy by definition is for a solution funded by people not of color.
We dont have to have it explained to us Prof. And her lies and their lies and the supporting role of you and this newspaper are no longer going to work.
Blame Obama.
5
The fact that Peter Diamond won a Nobel Prize tell us little about him except that he is on the left.
Wouldn't Krugman be surprised to learn that productive members of society do not labor long, drive through the night, and put great ideas together for the purpose of floating the next lunatic scheme the Democrats can think up.
During this country's ascent, we had no income tax (as the founders intended). The sooner we get back to their original ideas, the better.
2
@stalkinghorse Seriously, its been all downhill since 1913. Wonder how we won WWII
1
Graph is misleading! Which is causing which, or maybe there is a common cause between GDP and tax rate in the US post WWII.
1
If the very rich have enough money to avoid paying a 35% income tax, good luck finding that money with a 70% income tax.
3
There is a distinction between tax policy and pragmatic tax administration. People that make that kind of money will pull off every trick in the book to avoid paying taxes when taxed at that level, including downright tax fraud, regardless of what economists say about idealized national resource allocation.
This has been proven time and time again every time countries drive marginal tax rates above a given level, and was one of the drivers behind the 1986 tax reform. Look at revenue raised at these sky high rates during any time period other than World War II and you will notice an interesting trend. Revenue raised was negligible and that should surprise no one.
Yes, taxing income over $10M may encourage the business owner that otherwise pays himself that money to pay his employees (taxed at a far lower rate) that money instead, and that is something worth investigating from a policy and general social inequality perspective. To assume a 70% tax rate on extremely rich people will raise revenue instead of simply making their tax advisers rich instead, however, is foolhardy in the extreme.
1
"You see, the mere thought of having a young, articulate, telegenic nonwhite woman serve is driving many on the right mad — and in their madness they’re inadvertently revealing their true selves." Methinks the Krugman projecteth too much; I'm a conservative, and no one I have talked with has ever mentioned her race-not even obliquely. Of course the claim of White racism is a favorite dog whistle of the left, even though the source of discomfort is an overt socialist, and likely covert communist. AOC is disquieting to anyone whose done anything with his or her life.
One of the consequences of a plan like Krugman endorses is not simply confiscating 70% over 10 mil. The 'progressive' tax system would likely have rates that are in the >50% bracket after 250K, or even sooner. The devil is in the details, and the details are conveniently left out of calls for high taxes on the 'plutocrat' class.
The other reason for suspicion among all those boring working people is the question of what would all this new revenue be used for? The Democrats have of late become the party of dilating race and class hatred, all while claiming it's the GOP. It is not unreasonable to expect that Dem. priorities will put exciting grievance drama first, and banal stuff like fixing bridges last.
7
Prof Krugman fails to include effective tax rates in his analysis, incorporating the material tax deductions allowed in the mid 20th Century which offset the similarly high statutory rates. How do the average effective tax rates of yesteryear compare with today? Taken a step further, when incorporating the increased State and Property tax levies of recent decades, and the FICA tax limit increases outpacing the CPI - again he fails to analyze the full picture. What an embarrassment for Princeton. Unless he perhaps is just trying to intentionally mislead his readers...
7
Dr. Krugman is a master of misdirection. To properly read his article, one must substitute bourgeoisie for "rich", and assume that the proletariat are the beneficiaries. This word substitution renders most of what he says a simple restatement of Marxist principles. As another shining example of misdirection, his chart conflating tax rates and GDP growth provides no global, historical, or demographic context. Always remember that correlation does not equal causation. Lastly, as a basic principle, he assumes that the legally owned property of a certain class of people is properly the object of seizure by the government. Would he really advocate the essential taking of a one-time sale of a small business wherein the owners only received a middle class income throughout their ownership? Making the "rich" a faceless class of pariahs seemingly justifies the theft of their property. Remember that when he and others like him decide to expand that class to include you.
5
Liberalism is fabulous. It consists in "selling" to a gullible crowd loads of sweet dreams that nobody can reject, without (of course) mentioning that the same gullible middle class will have to foot the immense bill. In the meantime, the elite (communist, capitalist, socialist, liberal, Paul Krugman ... whatever) keeps living like royalties, totally unaffected by their policies. How do I know? I used to live in Europe (42 years) and left after I was paying 65% taxes.
4
In all aspects, all I can say about Ocasio-Cortez is WOW!!!. She’s a once in 50 years gifted politician, and I hope she can be President one day.
1
You are all barking up the wrong trees.
The rich enjoy major loopholes, and it's a stupid strategy to talk about marginal rates over 50%. In California we already have 50% marginal rates for upper middle class self employed taxpayers subject to self employment tases and california's ridiculously high rates that are no longer deductable.
The left will lose the center if it keeps up this talk.
Instead, for on "Tax fairness for Wall Street and Fat Cats", to wit:
* Eliminate loopholes for hedge fund managers, commodity speculators, real estate developers and oil tycoons. Their profits are earned income just like their salaried employees. Abolish "carried interest" as a tax loophole, entirely.
* Cap the Trump-Kushner "pass through" tax break at a reasonable level (maybe $50K of deduction) so that it doesn't hurt the small business people that the Dems need to win back, while taking it away from the moguls.
* Establish a new Alternative Minimum Tax rate of 30% on all income over a half million dollars annually. Including dividends and cap gains.
*Require a three year holding period for the long-term capital gains tax rate (leave dividends alone below the AMT level). Apply the current 26% AMT rate for stocks held 1-3 years.
*Raise the corporate rate may two percentage points, don't kill the golden goose.
Dems don't have to be "radical" to push for these long-overdue tax reforms. Let's level the playing field instead of tilting it to the rich.
3
I have always thought a tax on income over $1mil, $5mil, or whatever we choose is meaningless unless we eliminate all the loopholes and deductions. Why do I pay tax on all of my income while others can play shell games with compensation?
How about a 25% tax rate on all compensation (money, stocks, jellybeans, whatever) with no loopholes above $1mil? It doesn’t look as scary as 70% but may raise similar $$ based on the volume of what would be taxed.
Trickle up!
Not even her Nordic countries charge a 70% rate, this is sheer insanity, being pushed by Krugman and the NYT no less. the richest 5% already pay 85% of income taxes. Tax them at 70%, and watch their money move offshore faster than you can blink.
The NYT and Krugman cheerleading for this 29 year old millenial and treating her like a tax scholar is hilarious.
4
So much for the obscenely greed-driven corporatists and their obscenely bloated corporatocracy, the ugly, sick USA, and its penchant for rewarding the obscenely wealthy taxwise and impoverishing the working class!
Communism is wonderful!
1
When will the NYT publish an article about the USA economy? Repartition of taxes, their distribution ?. The fiscal fraud and tax evasion. The sort off article like this one 'soaking the rich " drags a very conservative ideology and level of analysis. It is a populist ( or anti populist ) article.
Mr Krugman should know better than that . it is almost as if it was wished to have a perverse effect.
In this graph, which is "left" and which is "right"?
Might you mean blue and orange? Please label accurately.
This is important. Thanks.
"By 2005, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s”
Paul Krugman, 1998.
And yet, there are actual people who listen to what this guy says. He has been wrong about everything. It must be nice to fail spectacularly and still make 6 figures.
3
Is it ok again for white people to call non-white people "articulate" ? I mean, isn't that even against your own style-sheets? It is at most modern newspapers.
1
@krnewman. Well, we could try calling an occasional white person articulate.
1
If nothing else, can we stop conflating the high, post-WWII tax rates with the post-war economic success we enjoyed, We enjoyed that success because Germany had bombed England back to the Stone Age, while we and England had done the same thing to Germany, Japan, etc.
Thus, if you wanted a refrigerator in 1946, it had to be an AMERICAN refrigerator. If you wanted a shirt, it had to be an AMERICAN shirt. And so on.
That's why we had such great economic success -- not because millionaires were faced with a 91% tax rate (which I doubt more than a handful -- if that -- ever actually paid, thanks to their high-paid accountants and tax attorneys.)
2
To Paul Krugman: thank you for a very interesting column
To people who are having a bad reaction: please remember that we are talking about MARGINAL tax rates. That means that the 70+% tax rate essentially applies only to the final (in terms of amount, not time) dollars someone earns. For everyone, the first ~$10K is taxed at 10%, the next ~$20K at 12%, and so on up to 37% of the dollars earned above $500K. There is no tax rate cliff that someone falls off that would result in overall lower take-home pay if they make more money.
2
@SC We get it genius-boy. Now, what happens when I, as a highly productive earner, considers making that marginal dollar of which you and your pathologically envious leftist cohorts insist confiscating 70%+? Do I shrug and say "fair game - here's your 70c and I'll keep my 30c"?
No. I do everything in my power to move my income generating activities to a lower-taxing regime and if that fails I simply don't produce and you get nothing.
@2A Are you saying LeBron will stop playing basketball if we tax his income too much?
Have a look at this table of income tax rates across some of the top countries in the world.
https://stats.oecd.org/index.aspx?DataSetCode=TABLE_I7
No country has a marginal tax rate as high as proposed by AOC. Therefore to implement one would be economic suicide because the people that make that kind of money would simply relocate to countries with "reasonable" tax policies.
As proof of this look at what happens when states implement "millionaire taxes". The millionaires leave for lower tax states and the states with the millionaire tax end up being poorer off.
Liberal economists (Krugman), have selective memory when it comes to incentives. Subsidizing green energy is an incentive that works because they believe in it. Discouraging work via high taxes is a disincentive that they do not want to believe in because it is an inconvenient truth.
WOW!! This gifted new member of Congress could very well be President one day. She’s a once in 50 years phenomenon.
All very interesting. Unfortunately we live in a plutocracy. Our government(both parties) is corrupt. The campaign finance and lobbying is out of control. The rich are essentially writing their own legislation. A con man and reality TV star is President of the United States. Taxing the rich will never happen unless we have serious reform of our campaign finance and lobby systems.
Please tell me when all the intellectuals will find a plan to actually tax the rich! I did taxes for H&R Block for a number of years, and we had to learn the tax changes year by year. It was an education for me to see how the really rich have so many exclusions. How many of them are ever audited?
@Babsy Trump was being audited, but then he got elected President and the audits stop. By the time he is out of office the statute of limitations will run out.
One simple question for rich Conservatives who claim that anyone is capable of success in America, its just based on ability and effort. "Work hard and you will inevitably be successful, handouts undermine the American dream of meritocracy!"
Do you support a 100% estate tax?
Didn't think so.
2
@SomebodyThinking
Personally I don’t have a stake on this, but I don’t get your point.
The fact that ppl can succeed with hard work, doesn’t mean I want my kids and grandkids to have to struggle if I already did and succeeded.
I much rather have my family benefit from my work and effort than passing all its results to anyone else. So when I die I want my kids to get my things, not because they won’t succeed on their own, but because I love them and I want them to have as nice and easy and happy life as possible :)
The top 20% are paying 88% of the income taxes.
How much more do you want to soak them?
1
@AOC is smart enough to know that "Supply Side" economics is nothing but a belief system- not sound policy. Like all belief systems, it is founded more upon wishful thinking and things unseen and requires a suspension of disbelief.
1
Do the riches still stay as US citizens, if they were taxed 80%?
His graphs compare apples and oranges. Unlike in the 50's when the US was the only game in town people can move their money overseas. Our corporate tax rates have had to come down to match the rest of the world to remain competitive and it is naive to believe the same process won't occur at a personal level if we revert to the earlier marginal rates.
1
Your notion, Paul, that the only consideration in taking money away from the rich is the effect it will have on other people, lacks a certain...moral underpinning. At some point we are just a mob stealing from them. Is that what we want to be?
3
If the NYTimes wants to pay me what it pays the Professor, I could better investigate this comment for accuracy, but some time ago I did spend some decent time on the matter and with statistics from the internet combined with my memory, I don't think that this column tells anywhere near the whole story.
When America had huge supposed tax rates under say, President Eisenhower, those rates were balanced by a zillion more deductions. Not only home mortgage interest was deductible, but also department store and all other interest (not that there were many actual "credit cards" floating around). So were all state taxes, including sales taxes, which were put on a table. There was also "income averaging" so that if you earned $10,000 one year, $200,000 the next, and $1 million the next, you'd get a huge tax break on that last million as against the person who earned a million all three years. And, most states had no income tax at all.
What I found was that the aggregate money sucked from the private economy by the Federal and State governments has been remarkably constant no matter what the top marginal rate is, because evidently anything above "x" hurts, however it is divided up.
And, of course today the difference between the super rich and their employees is so big because instead of the best blacksmith having a market of 200 people in the village, the market is 7 billion humans over the internet so the aggregate income potential is sky high.
3
The right wing in this country have been very successful at pitching the idea that taxes are theft. This canard has become so well entrenched in the minds of their followers that it is difficult to get them to even acknowledge the transactional reality that someone has to pay for schools, roads, airports, water and electrical systems, police and fire protection, the courts, the prisons, the military, and on and on down the list of things they all expect/demand but are for some strange reason unwilling to pay for. This from the party that constantly lectures the rest of us that there's no such thing as a free lunch. The idea that it is only fair that those who benefit most should pay the most gets no traction with them, of course, and they are equally wedded to the false assumption that everyone with money actually worked for it. I just can't for the life of me explain how they manage to get the very people they're screwing to go along with it.
This country will be a lot better off when the affluent start bragging about the size of their tax bill instead of the price tag on their cars and homes. You might even call it patriotism.
5
We've given tax cut after tax cut to the rich and they still lay workers off, outsource work overseas, and use offshore tax shelters. That says it all. Working class people need to wake up. We're the richest country in the world. There's no reason why the US can't have the social benefits (4-week vacation, free/low cost healthcare, free/low cost education) that Europeans have. There's no reason that social security and medicare need to be cut after giving tax cuts to the rich.
8
@John Tax cuts after tax cuts to the rich? According to the IRS, in 2015 the http://www.freedomworks.org/content/top-3-percent-tax-filers-pay-51-percent-individual-income-taxes.
How is this NOT SOAKING THE RICH?
In the 60s and 70s it would be fair to say that almost nobody paid the top rate, due to tax shelters like oil drilling partnerships. Reagan's tax cuts eliminated many tax loopholes, which led to more people paying close to the top rate.
1
There is more to it than just tax rates. There is also the deduction side. Some people call these "loopholes".
The 1950s had high tax rates and lots of deductions. So to have a meaningful discussion, we need to focus on the optimum "net" difference. Today we have lower rates and fewer deductions. So how much do the "nets" differ?
The tremendous advantage truly wealthy people have is being able to spend their built-up and inherited wealth regardless of income or live in the house owned by the family trust. We don't tax wealth. Even if Gates and Buffet earned zero income, they would be very comfortable.
2
Who knows what the "right number" is? What we do know is that Congress, and yes, Repubs in particular, will never do what's right for the nation and its citizens.
Decades ago, starting with Gingrich I believe, the plot has been to take the money from the little guy and give it to the big guy. They have succeeded, and will not easily give it back. The middle class is destroyed, and likely our nation itself.
Taxing the uber-rich is definitely a worthy effort. There must be creative ways to do this. But the powers that be are going to fight it to the death.
Parenthetically, I've always believed that no matter who you are, or what you've "invented" -- even the cure for cancer -- no one deserves a billion dollars. It's an obscene notion that a single human can own that much. What really, do you need? More houses, gold toilets?
2
The rich have been soaking the working class for decades. How about some payback?
2
So 100% crushes economic activity, but 73% wouldn't diminish it? Laffer curve?
For starters make investment income have the same tax rates as wage income. Forget capital gains rates. Since, inflation is really a thing, you can index the long term gains to make it fair, but there should be no special treatment for just moving money around. Eliminate loopholes, especially pass-throughs and other vehicles for corporations and wealthy individuals to escape taxes. Then fully fund the IRS to get stronger audits of the wealthy like Donnie Trump. Allow people that blow the whistle on tax fraud receive a percentage of the recovery. Then we can raise the rates on higher earners though not perhaps to 70%. Numbers that high are usually found in time of war.
4
Soak the rich , go ahead see if it brings anything close to what you expect. Canada just raised taxes on the rich by $3B and their revenues dropped $3B, What's App? Wealthy people are very savvy when it comes to reducing their taxes thru the revenue code. Also a great deal of income received by the wealthy is cap gain income which is taxed 50% cheaper.
Yes, we used to have very high tax rates on the rich but virtually nobody paid them.. There were so many loopholes and legal ways to avoid paying the high rates that rich people went to extremes to avoid them, all very legal. Dr. Krugman fails to mention that little detail.
2
@George Fisher
Good point. I made more or less the same comment. Krugman has to know this, and he is therefore being disingenuous. If he doesn't, then he is .....
Is there any justification why the 1% should be so rich. No person is that valuable that he or she can make more money in a year than the GDP of a country. No one person needs that amount of money to live, even as royalty. I say, first tax bonuses as you would winners of the lottery, cause that's what it is; then ban corporate money from politics, cause that's called special interests; and, finally make it a incentive to right-off salaries and benefits from corporate taxes. Cortez is right and will be more right as she learns the ropes on how to get things done in Washington.
3
Want to raise the marginal tax rate to 80% or more? Go for it. The vast majority of people who earn the kind of dollars that will be affected by that very high rate are financial and business professionals who live on the very blue coasts. They are, in fact, many of the big donors to the Democratic Party. Good luck with that.
2
The problem is loopholes, not brackets.
If you have money, you can make money. If you don't have money, you keep losing money.
People talk about "folks shouldn't pay for the sins of their fathers" but the reverse is true - both Trump and Romney think that they are "self-made men" when nothing can be more ridiculous...
2
AOCs talk sounds like another Krugman hero Hugo Chavez. Raising taxes works for a year or 2 as it did in Venezuela from 06 to 08 when the economy there grew at 10% a year. Then they ran out of rich people.
Democrat leftist think they have rights to assets of the rich, then in essence use that money to buy votes from those wanting free stuff. It leads to disaster every time its tried, Democrats know that. But as in Venezuela it leads to permanent political power for leftist..that was the goal in Venezuela,Democrats are doing the same thing here, that plan includes bringing in millions poor unskilled people who will always vote for more free stuff.
2
Democracy ends when the wealthy figure out they can vote themselves money from the Treasury
1
No kidding, that's already happening. Your supreme leader gets the American people to pay him to take his entourage on his golf weekends at his own resorts. Fair business?
She is certainly telegenic, but she spouts bad facts as often as Trump, and is just as likely to attack others with those wrong facts as Trump.
3
Interesting point of view. I think Mr. Krugman is right when he identifies the most important issue as incentives. What troubles me is that, If my memory serves, those high tax years depicted in his graph were also the years of tax shelters that ran the gamut from legitimate investments to cattle farms, oil tankers, etc. etc. I wonder what Mr. Krugman's graph would look like if you also plotted the actual effective rate of tax being paid over the years by those earning more than $10 million? Do you think many of them actually ever paid at the marginal rate for more than a sliver of their incomes? W
1
The Republicans cut taxes and several things happened. First, economic growth took off like we haven't seen in a very long time. Second, tax revenues as a result went UP.
Normally, we would expect a tax cut to result in a short term revenue drop before people adjust to the new rates and make more money to result in a longer term revenue increase. But that short term drop didn't materialize.
If people have more money in their pockets to spend because they are paying less in tax, they will spend it or invest it. In either case, that means someone else is getting more money, which is how the economy grows.
1
I wish the chart went back to the 1930's and 40's when I believe the rate was even higher. Used to be, when we went to war we actually paid for it instead of deficits & tax cuts for the rich.
1
You can make it 80% and that won't solve the problem. The rich find ways to hide their money before the taxman ever sees it. You don't need to increase the rate -- just close the loopholes that allow them to do this.
Of course that will never happen because congressmen use those loopholes too.
1
If my conservative friends have one thing in common it’s that they all have more than 2 kids. Do they all think they will somehow win the lottery someday? Or have they simply ignored the cost of college and health care? Or worse, do they just not care and hope God will just work everything out? We have a crisis with health care and with education. What will this country look like if only the rich are allowed to get college degrees without crippling debt? What will it look like if getting sick becomes a bankruptcy sentence? AOC has a plan, she has a way to pay for it and most likely won’t effect anyone you actually know.
2
It's hard to know where to begin critiquing this piece. Every point Krugman makes is distorted, removed from context, or just plain inaccurate. No one ever paid a 90%, 70%, or even 50% effective tax rate. The average effective tax rate paid by the top 1% has averaged around 40% from the 1940s through today.
Piketty, etc.
https://taxfoundation.org/taxes-rich-1950-not-high/
Beyond the fact that no one paid the maximum rate, there is the fact that post war economic and manufacturing dominance the like of which the US enjoyed will never return.
The only honest statement in the piece is that the goal is to raise the maximum possible income. Even that would fail.
As for AOC's (Initials? Please.) economic brilliance and honesty, she has already been called on one whopper.
https://www.politifact.com/truth-o-meter/statements/2018/jul/18/alexandria-ocasio-cortez/alexandria-ocasio-cortez-wrong-several-counts-abou/
A millionaire won't miss $1,000. Would a millionaire miss $700,000? I think she/he would.
"(I hear that she’s been talking to some very good economists.)"
Is this a sly pat on your own back? Well, maybe after a snub from Obama and Clinton's unexpected loss, your day has finally come. Hopefully you are more forthcoming in private.
6
I plead ignorance. My question is with the corporate tax cuts, have corporations brought money back from overseas and invested or paid taxes here?
The choice in direction depends on whether or not the money came back?
If money came back, will the tax increase send it back overseas. If nothing came back, well then go ahead and kill that golden goose.
1
It’s the old bait and liberal switch. Liberls say that tax increase will only happen to the rich aka those families earning 100k are considered rich
5
My ex-French boyfriend and his family lived and worked.in the US many years before returning to France.
They are wealthy, were Democrats in the US and are perffectly comfortable paying the huge 'wealth tax' in France. Get it?
3
@Linda Nope, don't get it. Your point is what? Are they really paying a huge "wealth tax" in France? What is that wealth tax? Is it on income, is it on capital gains, is it a "death" tax? Let me know, i may wish to join them.
@Linda I can see why he is an "Ex".
According to the chart, every time taxes went down, growth spiked upward.
2
True. But one could just as easily say, "The long term trend shows a huge decrease in growth rate with a reduction in tax rates."
She’s energizing the Democratic Party. Republicans are going down in flames in 2020.
1
Dr Krugman, clearly some of your “elite” readers do not understand the bare bone basics of tax systems. Maybe we need a column about this.
Nobody is talking about taxing everybody at 70-80%. That would be the top bracket—for Mark zuckerberg, not me and you. And It worked fine for 35years; low taxes for Bubba and grandma, high taxes for the billionaires. In that respect, the 1950s-60s were the “good old days.”
2
"You keep using that [chart]. I do not think it means what you think it means.”
The chart used as "proof" actually shows that GDP growth spiked when the top rate was lowered.
1
I am a simpleton from the west and to me, it seems a central fallacy of the tax and spend crowd that rich people hoard their money like Scrooge Mc Duck. I submit that people with money put it to work. If I have a million dollars in the bank, the bank takes my money and loans it out and makes money for both of us.
That being said, if it costs me more money to make my next dollar than I will reap from it I will have no incentive to make more. To me that would seem to depress economic activity and not be good for the country.
1
I really wish you hadn't gone to "Soaking the Rich".
More like "Explaining to the rich why hoarding their money is both immoral and will lead to their social and economic ruin. And then making them share."
1
If you compare with the readers of Le Monde , of which I am also a suscriber , the comments here show a very shallow knowledge about economy . It is the anglo saxon kind of economy concepts : taxing the rich , how they make everybody down the scale rich also and so we have to spare them...and also because we all dream of being rich . So why destroy the dream... In France we have a pragmatic knowledge of how the economy works, how the taxes are distributed, meaning who pays them and how much , and how they are re-distributed in the state budget . Who in the US knows about the repartition of taxes ? their re-distribution, ..etc ../ Do Americans evalute or have conscience of the amount of fiscal fraud internal and external abroad ? This is complete ignorance.
1
@JPH I too have lived in France. All I remember is a backward, poor, economy riven by strikes and class resentment.
I believe the chance that any of the social media commenters I have seen calling her crazy will ever make $10 million a year is pretty near zero. You have to give the Republicans credit for such an amazing propaganda job.
1
I find it interesting that so many people consider higher tax rates ‘theft,’ as if every penny they make was somehow a direct result of their personal efforts.
If you got a public school education, someone else paid for that. If you drive to work or produce goods and services that depend upon safe roads, rail lines, or air travel, someone else paid for that. If you hire workers to run your business or make products for you to sell, then that is work that you did not do. Why, then, do you think you deserve to reap all that benefit without giving enough back to ensure that others can have the same chance for success that you had?
Oh, well, you might say, I can spend the money more wisely than the government can. Really? Do you know how costly public works projects are? Are you willing to fund basic research with no hope of recouping your money? If you’re too cheap to pay more in taxes, why should any of us believe you’ll pony up? Worried about government waste? What about the hundreds of millions given to CEOs who drive their companies off a cliff? The idea that individual effort can make up for the collective contributions of a country’s citizenry is laughable.
2
@PacNWMom
on the flip side. nearly 45% of americans do not pay any income taxes at all. they do not contribute to the public coffers that allow the services that you have just mentioned. who is paying for their children's education and the roads that they use. mostly it is the 1percenters. i do agree on progressive taxes. the top 1% own 40% of america's wealth but they also pay about 39% of america's taxes. this seems reasonable to me although i would like those numbers to equal. i have a college friend who wants to be an artist. he works minimally and, not surprisingly, he is a socialist democrat. someone else should be working harder to pay for his free education and healthcare while he paints and enjoys his days.
2
First let me know and how many comments this article has initiated. It really is the economy stupid. Secondly, anyone should examine how all the wealth of the very rich is gained. Pay to play is a big part of the very rich method. If they worked as hard for their second billion as you do for your first million I might have a different opinion but once great wealth is gained, great power comes with it and allows for a tremendous amount of manipulation of the systems that provide for wealth. And on further note, we are a nation steeped in the idea that cheap labor is a must and we do not like to allow labor to speak with an adequate voice. Don’t forget that we are a nation that was founded on slave labor. Today’s wealthy still have a lot to make up for. Paying a higher tax is the 21st-century version of noblesse oblige.
3
A rather silly rant. Since the 2008 recession , the greatest economic and population growth has been in the States which are "no tax" States. Should this not be instructive?
Krugman would do better service advocating for closing "loopholes" enjoyed by the rich he would like to soak and for removing from the tax rolls all those who earn less than two thirds of the median income. This would produce better economic balance and be more conducive to social harmony than a knee jerk response of fuzzy thinking and prejudice.
2
Thank you AOC... I support this position and I am glad to say I am not a member of the miserable millionaires club.... you ask what does it take to be a member? First, you are have to be debt free, which is true freedom in this exclusive club, required to complete the remaining tasks. Second, you need to own you company, which you most likely you worked hard to build. Owning you own company allows you to write off all your personal expenses like first class travel, your pimp out mini camper, your car collection, motorcycle collection, your beautiful second home in a income tax free state like Florida, which you establish residency there because your home state has an income tax, which is rule number one in miserable millionaires club, pay as little taxes as possible. Back to the family business. The main liability for a debt free miserable millionaire member, is their employees, who for some unknown reason has provided tremendous success for the miserable millionaire. The top trait is truly understanding that you need everyone else to do the work for you for as "LITTLE" as possible. Because in this club, employees are a liability. They provide no health insurance because the majority of the low pay employees can get subsidies, work hard to insure they have a shortest vacation policy because this would insure they commit to the rule that employees do all the work. If someone makes $1,000,000 a year, how much more do you need? Ask a Miserable millionaire.
2
She is Chauncey Gardner incarnate... and just as amusing.
And this raises concerns for me about my high opinion of Prof Krugman.
2
Krugman cites Romer? She was even too liberal for Obama.
1
I think the discussion is missing the fact that the wealthy, especially the 1%, have many favorable tax provisions that provide shelter from the final tax calculation. Warren Buffett called it out in 2013 when he shared his secretary was paying a higher percentage than he was. https://money.cnn.com/2013/03/04/news/economy/buffett-secretary-taxes/index.html
Last years gift to the most wealthy surely didn't help make that better. We need to start talking again about a flat tax. Simplify the code greatly and have three income brackets, where EVERYONE in the bracket pays the same percentage. Turkeys don't vote for Thanksgiving, so the odds of real impactful change taking place is zero. In the meantime, I applaud Congresswomen AOC's willingness to challenge. Her 60 Minutes interview demonstrates she's up to the challenge and should only learn and sharpen over time. She's advocating for her constituents where few if any have any real tax shelters.
I look forward to watching and supporting her.
1
"Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise."
The goal with taxation should be to maximize over all well being, not tax revenue. Yes, diminishing marginal utility gives a great reason for having progressive tax rates and redistributive policies.
But, for the most part, trade is positive sum. We absolutely must care about the loss in economic output caused by high taxes. Bezos becoming filthy rich because Amazon supplies a mindbogglingly large selection of goods at decent prices with great service is great.
Further, very high tax rates encourages very intense tax avoidance.
Not being well read on the subject, a lot of this is over my head, to be sure. But it seems to me if we implemented this "crazy" tax policy and Combined it with policies
of effective, sustainable, equitable, non-corrupt Spending (deployment of resources) we might attain what is tantamount to
and economic and social revolution. And be the shining exemplar we were always taught we were supposed to be ...
1
Here's hoping that Krugman will give a representative cross-section of the kind of people AOC's proposals would actually apply to. Most people think it's celebrities, whom one could argue do hustle and make their money themselves. But the majority in this tax bracket, over $10M in annual income, are not billing by the hour. Rather, they occupy strategic positions within the economy and from the benefit of those positions, leverage immense earnings. An 70% tax rate isn't on their efforts then but on the benefits that accrue to that position within the economy. (One could even legislate a celebrity carve out, since so many athletes have short careers and few skills to enter new professions. Something that treats a $1M salary more like a 10-year, $100,000 salary, for example, if the celebrity in question sets up a relevant trust so the money is not spent and taxed later.) Regardless, a 70% rate is reasonable, if you're designing iPhones or financing movies. You haven't created the markets or the technology or the human resources that you're tapping. You're a cork on the ocean and the ocean has needs too!
1
I am rich and would gladly pay more in taxes (as would my rich friends) if I had transparency on how the funds are being used and could quantify the intended impact. Why isn't anyone discussing this part of the equation?
2
Resenting, envying and yearning to level those who enjoy much greater income and wealth than ourselves is understandable, given human nature. The real question. though, is what becomes of that extra income and wealth. Is it recycled in purchase of domestically produced goods or services, thus creating paid employment for fellow citizens who need it? Is it invested in productive for-profit, non-profit, or government bond funded productive assets that benefit all? Is it used to buy further political privilege for the already over-privileged? Is it passed on as inheritance in ways that further and dangerously concentrate wealth and power in the hands of hands of an elite, upper 1%? There are pros and cons to consider, often too emotionallly charged to be evaluated rationally. That is true of both the left and right.
2
AOC has seen the iceberg on top of the water, and a little bit more of what's underneath than most others. We must follow Willie Sutton's advice - we need money and rich people is where it is. Whether it's marginal tax rate increases or increasing the withholding limit on Social Security, the rich must, because it works and is right, pay more than their fair share. It's the price of admission to what use to be, and could be again, the best country on earth.
I'm not advocating slip-shod government spending my money wastefully, but the government, public schools, pensions, roads, etc. need more funding.
The conservative achievement of getting less wealthy people to buy into the low tax scheme foisted on us by the conspiracy of politicians and lobbyist is nearly running its course. It has been so nakedly a ploy by the rich to fatten their own pockets (the me) at the expense of the the "we" that it has taken a few decades to see the impact and realize just how badly we have been duped.
Pay attention to AOC - she is the noise behind the curtain whose barking is threatening the rich, political orthodoxy that has overseen the decimation of the middle and working class. It is no wonder she stirs up such a fuss.
2
To demonstrate that there is a direct relationship between the Rate of Growth in Real % GDP and the Top (%) Tax Rate, the best way to do that would be to make a linear regression graph with the former plotted on the "y" axis and the latter plotted on the "y" axis. I have done that using data from the years 1930-2008 derived form the National Taxpayers Union and other Government sources. If one calculates the correlation coefficient (r) from such a plot, a value of 0.3134 is obtained, showing NO significant correlation (P>0.04). Since one would need an "r" of 1.0 to indicate perfect correlation (positive or negative), the calculated value is well below that required for statistical significance. Clearly, other factors are likely to influence the rate of GDP growth. Thus, the view that a high tax rate is likely to have an adverse effect on real GDP and that low tax rates increase personal achievement and/or productivity is untenable, and "trickle down economics" is a fraud. People do what they do simply because it's what they like to do, not solely for money. If the objective of a high tax rate were to provide revenue for the common good, e.g., to improve the quality of education for ALL of our young people so that they can do the type of work that they aspire to do, that might have a significant influence on the growth of real GDP. The U.S. once did very well economically with a maximum tax rate of 60%.
3
"(Progressive income tax is) a policy nobody has ever implemented, aside from … the United States" WRONG, shamefully shamefully wrong, get your facts straight. UK 1970's marginal top rate income tax 90%, when cut to 75% a surcharge kept top rte in investment income at 90%. It was one of a handful of abysmal policy failures that led an inert economy and eventually to strident political change.
Krugman & AOC would do well to study the UK in the 70's and 80's.
1
The argument that people who are taxed more will work less never seems to apply to those who are not at the top of the economic ladder. Those workers have seen their wages become eroded and their healthcare benefits become more costly and yet nobody thinks to say that they will therefore be motivated to work less hard. In fact, they are applauded when they end up having to work harder just to stay afloat.
The assumption seems to be that those at the top of the economic ladder will always have other options for earning an income. What if that isn't actually true? What if doctors can't all go to make a living on Wall street? What if working on Wall street isn't as lucrative as it currently is? What if economists at elite universities, or CEOs could in fact be replaced or overshadowed by hungrier people than them if they worked less hard?
What if people were less greedy and ambitious? What if celebrities didn't cash in on their fame by going into other businesses such as fashion or lifestyle? Wouldn't there be other people to take their place?
1
@DebbieR Yes, you are absolutely right. I am willing to play basketball in the NBA for half of their salaries.
I would like to see a financial transaction tax.
Its sad that like climate vs weather, most people dont know the difference between a tax and a marginal tax.
3
So, what number exactly is a "fair share"? None? Because an awful lot of people pay that share, as in "0" in Federal Taxes. 70% is that a fair system? One in which a large class of people pay nothing and a small class pay 70% or more. Think about it. What would you call a system in which people worked for the benefit of others and had 100% of their wages taken for the purpose of doing so. That is right. That would be called "slavery". So 70% slavery is OK? Not with me.
4
Stop wasting billions of tax dollars. When you can run the government efficiently and you use the revenue generated from the citizens responsibly then and only then you determine if more tax revenue is needed. We waste billions in defense spending. Billions on programs for the poor. Billions on farmers. Billions on incentives for businesses that don't need them. This isn't limited to one party. It is both sides and it is rampant.We need to stop with the labels. Rich. Poor. Right. Left. Treat each american equally like the constitution says. Create a system that treats everyone the same. It is not the govt's job to make value judgments on a liberal making millions or a republican who makes 50K a year (or vice versa).
1
If you want to tax the rich? 10% on gross income for all.
@R.Kenney
How about 80% until we get back what they stole from us? That should take about 30 to 40 years.
1
@Julie who is they?
1
Can someone please explain to me how someone who couldn't name the 3 branches of government gets lauded for their insane tax policy?
3
@Anne She's young, ethnic, female and a Socialist...she's the perfect liberal, millennial poster child and the natural outcome of our current climate of social, political and economic divisiveness.
She's also completely without experience, naive, oblivious and way out of her depth, but her NY base will likely keep her in place long enough for her to become a massive thorn in the country's side (like Feinstein, Pelosi, et. al).
1
It seems to me we have two choices. Either we soak them or we let them continue to soak us.
2
@Julie A third choice might be to acquire skills and abilities that society and the employment market values so you too can earn your maximum potential income. You're an adult so act like it by taking responsibility for your own socio-economic status rather than looking to others to give your their money.
If you aren't willing to put forth the effort required to develop the skills and acquire the education needed to thrive in the US employment market, then you don't deserve to enjoy the privileges of wealth.
2
@Geoffrey: Wow, that is called making a lot of assumptions! How do you know what level of education she has attained? And we do not live in a "meritocracy," no matter how much you wish it were true. If people were really rewarded according to their intelligence, talents, and hard work, there wouldn't be so many starving artists, actors, musicians, and writers. There would not be any marginally employed PhDs working several adjunct jobs to stay afloat. Trump would not have been able to get into Wharton, and his son-in-law would have been kept out of Harvard if it had not been for the large amount of money their families were willing to pay to these institutions. There would be no "legacy" admissions to any top school. It would not be possible for rich people with money to throw around to buy their way into desirable internships or jobs as in desirable professions. Spare us the faux claim that we live in a meritocracy. We inhabit a society run by the wealthy, for the benefit of the wealthy and it is getting worse for the non-wealthy every day.
2
@Allison Society and the economy determine the value of an individual's skills and abilities. If you have a PhD in basket weaving and society doesn't value basket weaving, then you will have a low income. If you have a PhD in computer science and society values computer science, you will have a higher income.
If you feel underpaid, rather than pretend you're the victim of a vast wealthy person conspiracy against you, why not honestly assess the value to society of your skills and abilities? If you come up lacking, then go out and acquire additional skills that are more valuable.
Trump's father developed and acquired skills and abilities that society valued and he used them to generate economic activity that resulted in his accumulation of wealth. He then spent some of that wealth providing opportunities for his family - the same way every parent works and provides benefits for their family to the best of their ability.
Rather the begrudge others the benefits of their wealth, why not try to add enough value to society that you can attain your own?
There aren't a bunch of rich guys sitting in a boardroom right now trying to figure out how to prevent you from becoming wealthy. If you aren't being well paid, you need look no further than your own lack of effort, poor decisions, wrong choices or personal shortcomings.
At some point, you'll need to grow up and face the fact that life is a competition that not everyone can win...it does no good to hate those who do.
What leaves me completely baffled here are many of the comments. I would think that people who read the article would be able to understand what a marginal tax rate was. 99.9+% people would not be touched by this tax and yet I keep reading comments where they think it is going to be a tax on middle class income. It could be that people are actually not reading the article but simply trolling but many of the comments seem honest and sincere.
4
@dkat So, a gross injustice that only affects a small percentage of the population is OK with you? Sounds just like what the majority of whites in the South said about the Jim Crow laws.
3
Colbert, pre French Revolution finance fellow, suggested the art of taxes is to pluck as many geese feathers as you can with the minimum of hissing. Krugman, with his Bank of Sweden prize, AKA Nobel in Economics, has not advanced much further in knowledge but is paid well better.
Let's eliminate the words "SOAKING THE RICH" from our vocabularies. Making the very rich pay a fair share of their taxes is not "SOAKING". What about "SOAKING THE POOR"? Requiring people in the lower 50% of income to carry the weight of governing this country on their backs has this effect:
Lower consumer participation in the marketplace. Huge increase in debt for college -- when college graduates add far more value to our economy than high school graduates or drop-outs. Large numbers of untrained homeless people who are a drag on our economy and health systems, and contribute nothing, etc. Seniors who cannot afford decent housing -- etc. etc. -- all of which DRAG OUR ECONOMY DOWN. LET'S PUT THINGS INTO PERSPECTIVE, FOLKS. The HAVES ARE NOT SOAKED, when required to share their wealth to maintain a healthy economy.
3
@sacques Start giving 70% of your income to the homeless since the income divide between you and the homeless is as great as the income divide between the average US citizen and the 1% top earners. Sounds like you should be required to "share" everything you earn above a subsistence income with the poor - and I'm sure you won't mind the sacrifice in the name of economic fairness since you're advocating the same thing of others.
How about I "require you to share" your car with me since I don't have one and you do? How about I "require you to share" your home with me since I don't have one and you do? Fair is fair, right?
By the way, another word for "required sharing" is "stealing".
2
the real problem is not the tax rate it is the wasteful Federal government spending in the billions per year ; and when crimes occur they are never prosecuted either in federal government or the financial world; most companies pay a penalty when fined but this is a tax on shareholders and has no relevance with regard to the perpretraitors
1
I think there is a bit of an incorrect presumption being made here. Krugman states, "If a rich man works an extra hour, adding $1000 to the economy, but gets paid $1000 for his efforts, the combined income of everyone else doesn’t change, does it? Ah, but it does — because he pays taxes on that extra $1000. So the social benefit from getting high-income individuals to work a bit harder is the tax revenue generated by that extra effort..." But isn't it the case that if an individual is making $1,000/hr they are contributing value of $1,000 per hour, and that if we remove this effort from the economy we lose the benefit of that contribution - the ideas and developments associated with that, and that this ripples through the economy in many ways other than the fact that $1,000 is no longer paid to this person? Gainful work does not provide just the exact value that is paid for it, the results of that work are leveraged to generate profits, which as a surplus are used to drive investment, the development of new opportunities, pay for leisure time, and so on. I understand that the question of whether individual X is worth $1,000/hr is a real one, but it doesn't change the fact that the premise here, that removing an individual's work has no other impact beyond the tax effect is false. Other participants in the economy lose when labor is withdrawn. It's not a zero-sum game.
The biggest failure of this opinion piece is not to include tax heavens and other strategies, available to the rich to avoid paying taxes into the analysis In many cases the actual tax rate the rich pay is much lower than the middle class. Prof Krugman however talks about tax collection as if there was a one-to-one correspondence between raising taxes and collecting. One reason globalization has not worked as predicted by trade economists, is that companies use it to avoid taxes, shifting HQ or profits to countries with lower tax rates, rather than for real reasons (in the economic sense of the concept). Prof Picketty got if right when he wrote the foreword to the book "The Hidden Wealth of Nations".
3
I think the 70% suggestion is much like Trump's wall: easy for people to understand (and for certain people to rally behind) but largely useless at achieving its stated goal. Please let me explain. Occasionally in my job I get to see the tax returns of some very wealthy Americans. For the one that most recently crossed my desk, the 2017 return showed income of $6M but, after deductions, an initial calculation of taxes due of only $50,000 (less than 1% of income) and, after the alternative minimum tax calculation, taxes due of $400,000 (far better but still only 7%). For 2016 this person had income of $5M but, because of large deductions, no taxes due at all. I don’t believe a higher tax rate would have much effect on this individual. There are plenty of tax loopholes that should be looked at and possibly closed or limited for people above a certain income level. Perhaps there is a way to prevent our wealthiest from sheltering money in tax havens like Bermuda. Or perhaps the alternative minimum tax calculation needs to be beefed up for our top earners. The 70% rate? Mostly it will have the effect of alienating those college educated swing voters who handed the House to the Democrats.
3
so i should work 60-70 hours a week to give 70-90% of it to an awful lot of people who just don't care to work at all?
tell me of just one country with this tax rate that's a world leader in anything.
6
73 to 80%, "given evidence on how responsive the pre-tax income of the wealthy actually is to tax rates"? Can you please provide details of and elaborate on this evidence?
2
Speaking of marginal tax rates during the Eisenhower administration is like talking about the Rome without Ceasar.
Do any of these geniuses here have any idea what the tax shelters existed in the 1950's? Oil. Gas, Horses, livestock, deductions for local sales tax, deduction for local income tax, deductions for local property taxes, accelerated depreciation, all interest payment deduction. The list goes on and on and on.
This is not a generational discussion, it's a mathematical discussion. Unfortunately people are trying to rewrite history and the facts of the tax code when there were actual tax shelters related to the 50-70% tax rates. Just wait until the local pension payments are due for some big states and the local rates exceed 25-50% locally, just to fund the pension payments. Those are not deductible from federal taxes. That would put total rates in some places at 95-100% if not higher. Or maybe the "new generation" will just default on all the pension payments to all the teachers, police, firemen, and local government workers. That may work. The unfunded pension liabilities in the US have been estimated to exceed 200 trillion, yes with a T. As an economist what tax rate would you propose to resolve that issue? Less than honest discussions lead to less than honest answers.
At last have an honest discussion.
1
A lot of comments are along the lines that (1) govt. has no business 'stealing' our hard earned money by taxing it at such a high rate and (2) after a threshold everyone should be taxed equally (e.g. 30% @ Billy Walker). In regards to 'stealing' argument - the taxes don't just simply vanish, they are used for our good, provided we elect responsible and ethical representatives. In regards to a flat rate after a threshold - this will be hugely unfair to low earning people. To see how, consider these examples. My car deteriorates the roads much less than a corporation's trucks whose stocks are earned by the top earners. The federal and the state judiciary is disproportionately used by the top earners to enforce their legal contracts. The law and order maintained by the police disproportionately protects the rich because they have much more to lose than the low earners. I hardly use USPS and my mail mostly consists of corporate advertisements, again benefiting the top earners.
There is another benefit of 'insanely' high marginal tax rates on the rich (i.e. corporate executives): It disincentivizes risky behavior that benefits executive salary in the short term while causing long term damage to the corporation. An example of short term corporate policy - using cash for stock buyback (to increase the stock prices) rather than real investment to improve productivity.
2
The difference between giving $1000 to a rich person and giving $1000 to a poor person is that the poor person will spend it all immediately, which means it would go right back into the economy. The politics of doing so would be fraught with disapproval because nobody hates poor people more than fellow poor people. Those who live paycheck to paycheck resent the idea of anybody working less hard than them receiving any type of benefit, even if they themselves would qualify.
4
The devil is always in the details. Dr. Krugman should have discussed that many ways European businesses handle tax avoidance for executives (perks!). If this weren't the case, executives in Europe would be desperate to work in the US, and drive down wages.
Yes, the U.S. tax code has explicit rules for fringe benefits, but their are monstrous loopholes in them.
You really have to look at total compensation across countries to make any sort of comparison.
I expect more from our Nobel Prize winning economists. Good grief.
Why is it the older generation seems to fall for this same misinformation over and over again about the difference between a marginal and effective tax rate.
My husband and I are in our late 20s and make over $300k per year. That puts us easily in the top 5% of Americans. I looked at my household income (adjusted for inflation) according to the 1960 tax schedule. Our highest marginal tax rate was 47%, but our effective tax rate was only 30%. The maximum marginal rate at that time, 91%, would only ever effect people making over $4 million.
C'mon. This isn't rocket science.
2
The marginal rate on the super-rich class is important for another reason: to better modulate the savings glut in that class (as opposed to the savings dearth for most Americans) that has fueled investment asset boom-bust cycles over the past generation, the negative effects of which are disproportionately socialized.
2
As a liberal who came of age in the Great Recession, this article makes a lot of sense, BUT... there are a few assumptions that make me really uncomfortable.
"In other words, tax policy toward the rich should have nothing to do with the interests of the rich, per se, but should only be concerned with how incentive effects change the behavior of the rich, and how this affects the rest of the population."
Since when does the fruit of rich people's labor belong to the population? I just feel like this argument takes for granted that raising revenue maximally is the end in itself. I agree that progressive taxation is necessary for civilized society, but taken to its logical extreme, it is clearly tyranny of the majority on society's best and brightest (or hardest working).
5
Krugman missed these very important points :
1. U.S. GDP growth was higher in the 1950s-70s (than current era) because the U.S. was economically unchallenged by the rest of the world. Europe was in shambles from WWII, China had implemented pure communism and was starving its people, Japan was trying to rebuild and only starting to rise, the U.S.S.R. was a nuclear military power but not an economically productive country. Who was there to challenge the U.S. at that time ? No one. We had a dominant manufacturing base in the U.S. at that time and there were very few options to employ cheaper workers elsewhere.
In recent decades, we are facing manufacturing competitors in China, Japan, Germany, S.Korea, Mexico, Taiwan, etc. China has tech sophistication: landing a moon explorer. China has two aircraft carriers. The EU combined GDP exceeds that of the U.S. We still have economic power, but this is a different world and the economic competition is stiffening. The lower U.S. GDP growth in recent decades is the highly globalized economy which we did not have in the 50s-70s. Krugman's graph is invalid due to this simple fact.
2. People and companies can leave: France has already tried this experiment! They tried to implement a supertax of 75%, was forced to reduce it to 50% and then eliminated it as some wealthy French citizens emigrated. Even the French finance ministry admitted they collected very meager returns from the tax hike during 2013, 2014 fiscal years.
6
We have predatory capitalism in usa. We need to get the oppositions statistics out there now.
Maybe women can get the job done, that men would not do.
RAISE TAXES NOW.
I am 86 and have watched us exploited by the rich all of my life. 80 % works for me.
4
" The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.
That sounds an awful lot like Paul Laffer, whom Mr. Krugman and his disciples have spent a lot of time criticizing over the last 30 years. Now, I guess, Mr. Krugman accepts the basic, and common sense idea that a tax rate somewhere between 0 and 100% yields a maximum of revenue to the government. The only discussion now is what tax rate will yield the maximum in tax revenues. I don't know whether the appropriate rate is 80% as Mr. Krugman suggests, or 28% as Mr. Laffer proposed. What I do know is that government revenue doubled in the 8 years after tax rates were cut by Mr. Reagan. There was no comparable increase when taxes were raised by Bush, Clinton or Obama. A fact which Mr. Krugman conveniently omits from his article.
3
The Krugman "theory of taxation" appears to relate to how much can be effectively extracted. There are competing theories.
One more compelling competing theory describes taxation as the necessary "dues" of legally equal adult citizens in the Republic. Taxation isn't necessarily equal of flat, but is not driven by the economic nonequivalence of citizens.
Another compelling theory of taxation relates to "a return on services" - citizens participate in taxation to reflect their risks and benefits derived from national participation. Again, taxation isn't flat, but isn't primarily driven by what is maximally extractable.
Even if Krugman's proposal isn't self defeating (and it's soundness is controversial) - it is a fundamentally opposed to fairness. Fairness is a process, not an outcome.
The "correction" of social inequality is not the role of the Federal Government. Thank you for considering this perspective.
2
People are willing to pay a high tax rate under a number of conditions:
1) They believe they will get a lot of return for their sacrifice, whether in access to strong schools, health care, parks, infrastructure, reduced threat, etc. People are not interested in paying high taxes while knowing they, themselves, are being left out of the returns.
2) They need to know they will not face a high tax rate for 4 or 8 or 10 years, only to find that, at the end of that period, the tax rates are cut drastically again and they now get no return for their few brief years of high taxes. Public support of large social programs like education and infrastructure require a generation or two of stable contributions. If one cohort faces much higher taxes for a few years, they know they will only have lost personal wealth, and will see no communitarian benefit from the one-off "blip" that gouged them.
3) They need to believe in what the taxes are paying for. People are willing to pay a high tax rate and forgo other personal advantaged during, say, a World War. They are less willing to do so in order to pay for services for people who are perceived as not willing to work hard themselves. Taxing people "because" they have money is not a clear justification. Taxing people because they have money and the nation needs something widely valued by everyone is another story.
4
This theory works if the capital is not mobile. Bad news: it is very mobile. We've tried that in France: President François Hollande created a 75% tax rate for income over 1M€. The result was a massive exodus of high-earnings to Brussels, London, the US, etc. Not to speak about fiscal optimization one can afford with fiscal advisors and layers when one makes that kind of money.
2
Virtually no one paid the high marginal rates that existed in years gone by. In fact, there were tax shelters that made real rates lower for most of the uber-wealthy. Many professionals, athletes and others pay over 45% in state and local taxes on every dime of income while billionaires like Trump and Soros pay an average of less than 5%. Basta!
3
If taxation really is not needed to finance government spending, but rather to help maintain the value of the currency, that there might be other non-fiscal reasons as well. As a political policy tool it has long been said that if you want less of something tax it. The idea of a carbon tax is a case in point.
The US from 1913 until the early 1980s had high to very high marginal income taxes. The argument against these high taxes which drove their repeal was that they did not raise much money. So what did they do? Judging by the global economic and political success of the US during the period in question, they did not discourage creative economic activity, what they did do was go along way to solve the agency problem.
Individuals could be trusted to run major corporate enterprises because the tax strongly discouraged significant transfers of corporate wealth to its executives. What sane board of directors would increase the salary of a CEO if 90% of that increase would go to the government? Once the confiscatory high marginal taxes disappeared executive pay went out of sight. This newly acquired executive wealth went into Hedge Funds which in turn further hollowed out corporate organizations.
No, the income tax was not passed to raise revenue to finance the government, but it was passed to dampen down the rampant, unbridled greed that characterized the age of the “Robber Barons.” And it worked breathtakingly well. ~ Robert Avila
2
Diminishing marginal utility is an “assumption, a notion”. Here are others: the rich, not being economists, look at each incremental dollar as a dollar and feel cheated of any diminution of value; the rich, unlike us peasants, have unlimited options for depositing their cash and themselves in tax advantaged havens and frequently do so.
So where does that leave us? Tax based on the amount, source and use of income. Someone whose economic activity creates decent paying jobs or provides goods and services important to national security and competitiveness should have a tax advantage over someone whose chief activity is shuffling money from one point to another and charging a fee at each point. The two important points in taxing the obscenely wealth are the source and use of income.
3
The better, easier way toward fairness is to have gov't spend via monetary growth, as opposed to taxes. Eliminate traditional taxes entirely. Essentially then you are taxing each and every dollar, whether it's income or equity value, by the percentage of gov't spending. Fact is, the rich have too many demonstrated ways to avoid income taxes. Trump is probably considering this. Don't expect the leftist fat cats who control the Dems to support it.
1
It's hard to know where to begin critiquing this piece. Every point Krugman makes is distorted, removed from context, or just plain inaccurate. No one ever paid a 90%, 70%, or even 50% effective tax rate. The average effective tax rate paid by the top 1% has averaged around 40% from the 1940s through today.
Piketty, etc. *
Beyond the fact that no one paid the maximum rate, there is the fact that post war economic and manufacturing dominance the like of which the US enjoyed will never return.
The only honest statement in the piece is that the goal is to raise the maximum possible income. Even that would fail.
As for AOC's (Initials? Please.) economic brilliance and honesty, she has already been called on one whopper.
Politifact *
A millionaire won't miss $1,000. Would a millionaire miss $700,000? I think she/he would.
"(I hear that she’s been talking to some very good economists.)"
Is this a sly pat on your own back? Well, maybe after a snub from Obama and Clinton's unexpected loss, your day has finally come. Hopefully you are more forthcoming in private.
*Links removed from this post. I'm starting to think including links delays posting or triggers rejection.
5
Greetings from super wealthy and traditionally low tax Switzerland, where we can choose the tax level by choosing our state and community residence. And don’t accuse us of living from untaxed money (better sweep your yard first in Delaware).
A very low quality piece for a Nobel laureate. Reminds one (again) that his prize was an anti-Bush whack by the super socialists of Europe’s north and had NOTHING to do with any accomplishment. A disgrace for Alfred Nobel’s idea.
Why is the left's solution to income inequality (as if that is even a problem) always to lower incomes at the top? This obsession with leveling is antithetical to the American way where everyone should be free to and encouraged to take a chance and reach for their full potential. There has always been and will always be income inequality. Some jobs, professions, and business pursuits pay more (sometimes much more) than others. Some people have way more ambition and capability. It is not easy to succeed but who says it should be? The tax system should be structured to encourage people to strive ahead not punish them for it. The more taxable income generated the higher tax receipts will be regardless of the rates. Worthwhile pursuits target opportunity starting with access to a good education.
As for the tax brackets, what matters is the effective rate. That can be raised by removing deductions and exemptions. This was partially attempted in the current system, It is ironic to read back to back opinion pieces in the Times that one day decry limits to SALT and mortage deductions and the next day demand higher taxes on the "rich".
1
Not only does a$1000 bring more value to a family making $20,000 - but it’s more likely to go into consumption which will help the economy, increase the return on sales taxes etc. Welcome to the Scandinavian model
6
While I agree with a progressive tax system, meaning lower taxes for the poor to increasingly higher for the rich, and I see a lot of agreement on this in the comments, it needs to be said that such a system isn't a guarantee for lower inequality or economic success without a very powerful and effective tax collection, enforcement system and bureaucracy. A big part of the problem is tax evasion through shell companies and trusts, which has been gaining steam in the last few decades, especially in the US. Offshore isn't such a problem as onshore anymore. After the Panama Papers and other revelations most developed countries have been trying to fight back against tax evasion on such scale, to some limited success. Indeed after the 2008 crash, the US forced some banks in the world (including in such traditional havens as Switzerland) to report accounts of US citizens to the IRS. The US doesn't need to share back similar information with regulatory institutions in those countries. Meanwhile, the EU has been pushing for increased transparency in its own backyard to some success. Since then most capital flow has been to the US to states such as Nevada, New Jersey and the Dakotas. That nice increase in the stock market since DJT is in office, was mostly (foreign) cash coming to the US and buying stocks. You can see this in the way the tax cut has played out in another of Krugman's articles. Is there a solution? Only a very unlikely scenario: a new (global) international treaty.
3
Obviously this it the right thing to do. But the story has to change, that's why BW of Boca thinks that it's crazy to tax the rich, he thinks they "deserve" that much money for what they do. We need to think of taxes as something more like "value allocation." Someone's value as an investor who makes, say, $55,000,000 a year needs to be brought down into the reality of the world, where a public school teacher makes $55,000. The investor's value is not 1000 x that of the teacher's. If the investor were taxed 80% she/he would still make $11,000,000 a year, but in that more balanced world (which of course would include fixing the broken military industrial complex, where toilet seat covers still cost $10,000 - even after the similar $450 hammer from the 1980's) the teacher and his/her family would have free health care, great public education, and free state college.
6
GDP decline tracking declining tax rates, is there a true correlation, or is it coincident? If higher tax rates would result in higher GDP (big IF), does that mean that migration of US jobs/ouput would diminish?
France, with highest tax rates for western countries, has a GDP about 1.8, Germany 2.2, with a much lower personal tax rate. The US currently at 2.3.
The notion that higher tax rates will benefit a country's overall economy is not well formed.
The real question is what productive things would be done with any additional tax revenues, that could enhance or stimulate further growth in the nation's economy? And, do you trust the gaggle of folks in Washington to do the right thing to make it happen?
3
After telling us about France and Germany's GDP rate , you then decide , carefully , to evade or rather pretend not to know why Western European countries have a better health care structure and comprehensive public policy. The fundamental truth is that those who have earned a lot of money prefer not see even a stint of their wealth trickle down to people whom they refer to as ' strangers.'
2
I am looking at tax rates from an entirely different point of view. The rich need to be taxed to the max because as a certain Karl Marx stated and I paraphrase: over time, in an unregulated capitalist society wealth tends to concentrate in fewer and fewer hands until, in the end, a few own it all. We see this happen as I write. The danger here is that the wealthy will be able to control the politicians, and thereby their decisions. It is happening at this very moment. The largest contributors will get the favorable outcome. B.t.w. Piketti came to the same conclusion in his recent book "Capitalism in the 21.st Century".
7
Our society created very self-centered people in big percentage. , me, me.... . I deserve it, I work hard, really?? The rest of the population works hard too. No nation in the world that has big problem with inequality can go ahead successfully. When most classes doing fine we all do well. Why do think our population inside the prisons is the biggest compared with many nations together.? How can we brag we are the best? We are Not. We forget to take care millions if people, abusing our military power all over the world, and ignoring the domestic serious problems. Public education is garbage, and Now is going to be worse . Where is the money? The Tax reduction for the top 5% will create problems for years to come.The quality health care is at bottom of the list. Obviously the military takes all money too. It’s a serious abuse. We need fresh mind to change.
2
You can cite economic experts all you want, but the reality is that when you hike tax rates to ridiculous amounts, people take their money elsewhere. A lot of it came back after the Trump tax cuts, but it doesn't take a genius to see that it can be reversed. Let Occasional-Cortex make this a law in her district right now, and let's see how it works there.
3
The theory that higher taxes will make the super- rich / industrialist transport their funds to another country is nebulous to say the least. The wealthy are paying low taxes currently , yet their industrial base are in places such as Vietnam , India , etc., ( cheap labour) So the notion that a 70% tax on billionaires will automatically end America's productivity , while the same billionaires's are now paying low taxes in the States. , and having companies 10,000 miles away is utterly paradoxical. To much is given much is expected. Inequality decreases through redistribution of wealth. The economic system in America is far from democratic , aside from land being in the hands of the few , the economic structure is chiefly base on income and race ( two undemocratic policy)
They’re not talking about taxing billionaires... they’re talking about taxing people that make over 150k... the people, like me who drive our economy and are hardly rich
It's really amazing how marginal tax rates
have gotten confused with tax rates in the
many popular accounts, even in
finance pages of websites etc. How do
people who write for such sites keep their jobs
if they can't distinguish one from the other?
This seems to be an excellent example how a disinformation
campaign can create complete confusion by repeating ad infinitum basic falsehoods in order to prevent a needed
policy change from getting an honest discussion.
Let the appropriate House committees hold thorough
hearings, and make sure the terms being thrown around are
clearly defined!
1
Wealthy people know how to evade taxes, and if they don't they hire people who do. If income equality is the issue, why not try to increase the limit of the payroll tax? The payroll tax is a hard tax to get around. Why not try to tax financial instruments like the buying and selling of stocks and bonds, in other words a sales tax? A sales tax is another tax that is hard to get around.
What about capital gains taxes? Raising the marginal income tax rate has no effect on the CEOs taking a $1 salary. I know, there’s only a handful. But if many of the top billionaires are primarily making their money through investments and their max tax rate is only 20%, there are a lot of potential tax revenues still left on the table. I’m interested in understanding the potential incentives to skirt the higher income tax policy and proposals to close any potential loop holes.
2
The rich have gotten a great ride from Reagan, Bush2 and Trump, but I don't think anyone should have to pay 70% of their income to the government. Even 50% seems too high.
2
No one will pay 70% of their income to the government. the discussion is about a marginal tax rate. For example, the first $15000 pays zero tax, the next $15000 earned pays 1%, the next $15000 pays 2% and so on until someone making $15,000,000 pays 70% ONLY on the last $15000. At that income level, they don't feel the impact of the $15000 as much as the person who only earns say $30,000. My #'s aren't exact, it is just to give an idea of the concept.
6
@vyfareon
What you are saying makes sense, but this would never be apparent to 99% of the people who read or hear about a 70% tax rate.
The rich essentially harvest the surplus of labor, and are essentially hoarders. They play in world opaque and unavailable to anyone with a net worth less than $1,000,000 US. The game is rigged, and rigged to keep out most newcomers. To all of the rich saying they will take their marbles to Ireland, etc.: Leave. You are doing more damage than good, and I doubt you will fare so well there.
1
In an earlier post, I tried to look at the issue from a moral angle. Here is the economic angle:
Suppose income under $10 million is taxed at 20% and income over $10 million is taxed at 70%. A gifted heart surgeon (or actor or sports star or business person) has earned $10 million in the first half of the year which means $8 million after taxes. Allow me to assume that there are no exemptions or deductions, please. They will only complicate the math; not change the conclusion. To earn $8 million, she has sacrificed family time, community service, coaching the neighborhood soccer team, running and cooking. Should she work in the second half? Should she make all those sacrifices again, but for $3 million now? Nah. Her time is more valuable. In fact, she would want to earn more than $8 million to make those sacrifices. So, those heart surgeries (acting, sport, business) will be performed by relatively less gifted heart surgeons. Is that good for the society?
In general, the marginal value of a worker’s time increases as she works more. However, with increasing marginal tax rate, the marginal benefit (after-tax income) comes down. At some point, she will stop working (or work less) because it won’t be worth her while. Alternatively, she will start looking for tax-evasion strategies. Worse yet, she will start lobbying the politicians to create tax loopholes. That’s good for tax accountants, lawyers, lobbyists and politicians. Is that good for the society?
4
I am lost at the point that from the graph in the article "what we see is that America used to have very high tax rates on the rich — higher even than those AOC is proposing — and did just fine. Since then tax rates have come way down, and if anything the economy has done less well." The graph actually shows that out of the last 60 years, while marginal rates were above 50%, we had about four years of growth above 2.5%. Big inflection point in early '80 because money supply was low and another inflection around '09 after the great recession. Growth increased after the early '60 90 to 70% and similarly in early '80s. to pretend this demonstrate 50+% marginal rates have no impact in growth is ridiculous. It is equally ridiculous to consider only tax rate as an impact variable to economic. Productivity, money supply and economic growth are a lot more relevant. I see no data here that shows higher marginal tax rate are irrelevant to lower economic growth. The reality is that policies that promote economic expansion at a given time - industrial revolution, information age, green economy can result in the most value overall but are disruptive to a sector of workers, at a macro level you want policies that move workers to the higher levels in the growth curve. In terms of tax policy, there is a lot more value in reducing corporate incentives that reduce competition, mechanisms that subsidize risk like to big to fail and unfair tax incentive for passive income vs work income.
1
Way to cherry pick; you ignored the longer increase in growth between 1960 and 69 (which was more stable and reached a higher point than any you listed). Beyond that, all other data points represent statistical noise by comparison to any actual correlation and even if we entertain the idea that tax rates have any impact on growth the effect is temporary, brief.
Give me a solution than outlines steady marginal growth and maybe you have a point. But I’d argue that reading tea leaves is more effective than trying to find patterns in that data.
1
A lot of readers need to understand that even if the tax rate is 70%, that only applies to the top portion, not the entire income.
9
I find it interesting that although social outrage is continually expressed over the earnings of corporate/banking execs, no one seems to blink an eye at the excesses of the celebrity culture. Oh, Kanye surprised Kim with a $14M place in Florida? No big deal.Golden Globes, Oscar parties, fashion week events - it's all good on the Style and Gossip pages. Then flip to the Opinion pages - the country is drowning in debt while its people go hungry, starve and can't afford medical care. Blame Bezos. Our priorities are way, way out of order.
16
@Louise Phillips "while its people go hungry" Seriously?? This is the land of media consuming couch potatoes and ever expanding waistlines. No one's going hungry my friend.
It worries me when a popular economist says “Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise.” It seems that Krugman and AOC view the super rich as mules. If the mule will pull the load and generate revenue in lieu of some water and hay, they would recommend pushing the mule hard. I suspect that they will be more indignant at a mule being overworked than the super rich. What is even more interesting is that Krugman is willing to give the control of the mule, I mean the super rich, to the politicians in charge of the monopoly called the government. I am relieved, however, that Krugman has the wisdom to realize that a marginal tax rate of 100 percent would not be good since it would take away all incentive to be productive. It might work for the mule though, at least for a while before the poor creature collapses due to thirst and hunger. I wonder what Krugman thinks of the super rich’s elasticity of productivity with respect to the tax rate, a key variable underlying Diamond and Saez estimate of the 73 percent. Or perhaps, the economic analysis is merely a facade for the Willie Sutton logic underlying his rhetoric, and that of AOC.
13
Just as Donald trump does not understand that people will not simply cave into his wishes, AOC's proposed tax plan does not account for how people will react when confronted with a 70% marginal tax rate. A tax rate that high gives the people affected by immense incentive to go to normally uneconomic lengths to avoid paying the tax.
While many of the comments have discussed various academic studies estimating an effective maximum tax rate, those comments have not mentioned the lengths that people have gone to minimize of defer taxable income. At a 70% marginal rate that incentive is substantial. Especially when one considers that payments to lawyers and accountants to avoid paying taxes can be structured to in themselves be deductible
The net effect is that the country as a whole is much poorer. Simplifying the tax rates to treat all income as taxable at a standard progressive scale peaking at 35-40% and allowing pass-through payments such as dividends and interest (including mortgage, credit card, and corporate bond payments, etc.) would go a long way to reduce uneconomic behavior.
5
I may be way off here, but consider a plot of inflation adjusted GDP vs. highest tax bracket since 1929 in the United States. The overwhelming number of highest GDP years are when the highest tax brackets were 40% (or so) or less. You can dtop the plot on whatever years you like, but the graph depicted int eh article seems to me to show no correlation whatsoever.
3
@Evan Dreyer, PhD
Of COURSE you have higher inflation adjusted GDP with smaller top bracket tax rates. Inflation adjusted GDP has been increasing with time (as it should), and top bracket tax rates have been decreasing over time (because the wealthy have been pushing for them to be reduced). It is not the case that the increase is GDP is caused by the decrease in top marginal tax rates. It's certainly not the case that if we pushed top marginal tax rates back to 90% that the economy would instantly return to 1960s levels (i.e. like 1/5th what it is today).
What the chart does show, is that top marginal tax rate has *very little* correlation with real GDP *growth* (and the correlation that there is seems to be slightly positive). This is to argue against the people who claim that increasing the top marginal tax rate will kill growth. The lack of correlation was the point.
2
@Daniel Thanks. But while I agree that there is 'very little' correlation, and the argument that a high tax rate will 'kill growth,' is spurious, I conclude from at least these data that there is no correlation, and that arguments for or against higher tax brackets cannot invoke GDP on either side. It seems that federal tax burden/GDP has been pretty constant since 1943 or so; irrespective of highest tax rate. Arguments on the justice or injustice of the distribution of the tax burden seem to have to succeed or fail independent of the economy.
@Evan Dreyer, PhD
But that the top tax bracket has little effect on GDP (or GDP growth), was Krugman's entire point. That paragraph was there to refute a common counterargument: "Republicans almost universally advocate low taxes on the wealthy, based on the claim that tax cuts at the top will have huge beneficial effects on the economy." The claim that there is little to no correlation between top tier tax brackets and GDP growth is exactly what is needed to counting this GOP argument.
1
One of Kruman's best columns. A delight to read and clearly spelled out. Thanks!
3
Where are they getting the claim that the efficient market hypothesis implies that everyone makes their marginal product (a key claim that the argument presented here depends on)? This is not generally how markets are supposed to work. Prices (or wages) are set where supply equals demand, not where one side or the other is paying/being paid the maximum/minimum that it is willing to accept.
2
@Daniel
Daniel, the brilliant Dr. Krugman is the inventor of this modified theory. Yes, similar theories exist, yet none so simple to the point of Naivete.
She’s an excellent parrot, especially when she recites the 70 to 90 percent marginal rates back in the day. Thing is, she forgot to mention all the juicy tax deductions, then in effect, that brought the effective marginal rates back down to current levels.
6
@Peter
There is a reason why every commentator does this: it's easy. Anyone can go back and create a graph of the marginal tax rate by year. They can then wave it like Krugman does.
It's not so easy to look at the prevailing deduction environment at the time to look at what people actually paid by year on an income of $X. And, of course, this kind of analysis doesn't yield as good a talking point.
3
Tax deductions stimulate the economy.
Deductions are granted for expenses. Expenses are usually goods and services provided by others. Taxes will be collected from the providers of these goods and services. Effectively allowing the market to spread the money around.
Companies will probably bring back pensions to help executives avoid paying high taxes. Encouraging them to be focus on long term growth instead of short term gains.
The fact that the general public is still baffled by how our progressive tax brackets work makes me wonder why it's not a required subject in schools. This, along with the basics of personal finance, loans, types of interest, it's calculated are fundamental concepts for anyone who lives in American society. I sometimes wonder if the financial hard times so many people fall on would either never have happened or greatly reduced if they really understood what was happening with their money. Instead we allow people to wallow in ignorance, only to be taken advantage of by shady businesses and politicians.
2
@Eric
I'd love to know what proportion of taxpayers now do their own taxes. I'm sure most of our population delegates it to a preparer, so they are tax illiterate and getting more so with every passing year. This makes it hard to legislate, to explain tax issues.
2
Another Krugman Article which proves you’re an ideological politician NOT an economist. Freshman Econ teaches us that all which is relevant is the marginal revenue or marginal expense dollar for decision making. I’m not sure how you ever got an Econ degree.
6
@Nelson
Or a Nobel Prize! How did THAT happen?! Or a professorship in economics at Princeton U. for 30-years plus!! Geez you'd think SOMEBODY would've noticed the guy knows less than you do about economics! (And you are...?) Go figure!!
If she really wants to 'soak the rich', then put an asset tax on the cent i-millionaires and billionaires, to the tune of about 20% annually. I have a feeling the folksy liberals like Mr. Buffett, Mr. Gates or Mr. Bezos may not like 'income equality' after all, once they look at that tax bill.
2
This is a completely intellectually dishonest piece. The high marginal rates in the 50s were accompanied by many deductions. The wealthy paid effective rates of 18-26%. Today's top 1% pays an effective rate of 27.1%.
Add to that the fact that the entire industrialized world's manufacturing capacity had been bombed into oblivion and you have conditions for a US economic boom that are not replicable today.
Krugman is certainly smart enough to know both these things. That he did not reference them is...curious at best.
13
Thanks Paul,
The scenario you describe is a form of game theory, developed and proven by Von Neumann and Nash. The rich should be taxed to the point that they have no unilateral incentive to deviate from the highest possible tax rate that can be levied upon them. Models are available to determine that crux point.
Why our political leaders do not apply such proven mathematical theorems towards our tax policies is anyone's guess...
@Ed Exactly why should the rich be "taxed to the point that they have no unilateral incentive to deviate from the highest possible tax rate that can be levied upon them."?
I guess it's always easy to talk about confiscating other people's money.
6
Wouldn't be a better policy to deposit all individual earnings, business and corporate profits, straight to the government account, and then let Politicians and good Economists decide what is the correct, fair and equal pay for all participants in order to live a marginally satisfactory life?
This idea may sound radical - but hold on, it is not. You see this everywhere around - for example, look at corporations, a symbol of american capitalism - they keep all the revenue generated from the labor of its workforce, and decides, what employees should get paid and how to spend the rest of the profits. They thrive, and so does the American capitalism.
Instead of debating over 90% or 10% tax rate, rich or poor, or blue or red politics - the policy idea above has the potential of eliminating all the anger, negativity, division over such debates, and maybe - make us happy once again as ordinary people of a civic society.
There is a small distinction though, however. In this policy, Democracy still will be intact because citizens will elect the representatives., unlike corporations where employees have no say and don't elect nobody.
All people need to do is show up for work, and wait for govt. to send the Check. We may all end up driving similar cars - except for the color blue or red. Wouldn't be so beautiful - artistic mind at work, sorry! It cannot get anymore simple.
@Sam Uh, no. I think they idea of us all giving all our earnings to Mother Government to do with as they see best is abhorrent. Unless, of course, you don't work for a living.
1
I was hoping Prof Krugman and the congresswoman would provide some numbers like how much money will be raised by bumping the marginal tax rates on wealthy and how far it would go in funding the Medicare for all. Many New Yorkers don’t feel rich while earning low seven figures. It looks like most of us have forgotten the deductions available when the rates were high.What percentage of people really pay that 91% rare?
2
It should be hitting home to Paul and to the NYT by now that legions of (NYT-reading, presumably intelligent) Americans have no comprehension of what marginal tax rate means. In reply to Freda Pine among NYT Picks, I've already copied an early comment last night here that you really should have made an NYT Pick, editors or whoever does the gold-starring, because commenter after commenter has shown that they are convinced 70% means 70% of their entire income.
So I refer anyone reading this who believes that to be true to check out the Freda Pine replies - I can't re-re-produce the original post here and also have pixels to make this point to the NYT and to Paul.
Perhaps (wondering if Paul would agree) maybe the concept would be clearer to folks if instead of "marginal tax rate," it were called "surplus tax rate" (?) or some such, because the rate is only paid on any surplus over an income figure taxed at a lower rate.
And it seems like Paul should devote an entire column to elucidating the logistics of marginal tax rates with examples perhaps like those cited by "Rational not Rationalize" of Milwaukee, whose comment is the one i copied in reply to Freda Pine's confounding NYT Pick.
When I first posted here last night, there were no NYT Picks yet but 4 very good, distinctive comments that should have been picked, the one i copied plus ones by fered, Shend, and A I. Perhaps you could incorporate and/or critique their points in such a column as well, Paul.
5
Oooooohhh -- a very smart woman who knows economics. Pretty scarey for the U.S. Republicans. I am familiar with the story of Denmark. Definitely a country of left winged liberals and NO Republicans! YEAH!!!!!
2
@wendy
You mean slow growth Denmark?
https://tradingeconomics.com/denmark/gdp-growth-annual
1
Many of us don't think that AOC is anymore crazy than Stalin was! But rather that while she pretends to care about the "people", she is a liar about her ideology and intentions, because she has changed her positions so dramatically in the past. She is a typical Marxist elitist who believes that a God like few made up of superior people like her (no matter what their skin shade or gender) should rule over the masses of the common herd by confiscating a large share of their wealth, and then dispensing it to those who will swear allegiance to her and using it to finance whatever fantasy of Utopia their Party elite 'dreams' up. For example going green is not going to help the US be sustainable along any ecological dimension, or stop global warming, if the US via even higher mass legal and illegal mass immigration increases its population to 1 billion by 2100. The 70 or 80% upper marginal rate is not the problem, that's why so many people agree on it. But thinking people should worry about what someone as contemptuous of most Americans as AOC would do with that money (like encourage more mass illegal immigration via more free gov services for 1/3 of a living wage immigrant workers), and also how they would use their power to confiscate wealth and a culture of centralized gov decision making about how people live their lives to destroy their perceived enemies.
7
The War on Drugs ignores the serious health risks to our civil rights. Marijuana doesn't have to be safe in order to warrant full legalization. The war on drugs was never about drugs. it's had always been about race, politics, and money. All substance prohibition needs to be overturned in order to restore our civil rights and bring to heel the police state we now live under.
1
It all depends on your definition of rich.
1
@W.A. Spitzer
I'd say $10 million would do it, wouldn't you?
I offer an observation on the principle of Diminishing Marginal Utility. While the principle that the same amount of money means less to a rich person than to a poor person makes sense, the conclusion that the $1000 increase in taxes has no effect on the rich does not makes sense. If that change in taxes was not meaningful for a rich person, why would they fight so hard to lower the top tax rates? So, I think this assumption is flawed in some way.
As other people have mentioned, there seems to be an inherent assumption in your opinion that the only value of higher incomes is the value they bring in taxes. I absolutely agree that the “rich” (however that is defined) should pay at higher tax rates, and the recent tax rate reduction is unwarranted. However, I think the tax rate should be based on the assumption of having the lowest tax to cover the expenditures. Income is not something the nation allows citizens to have, but their due based on their labor (and the economic system).
3
From the moment she declared herself as a "socialist" I said to friends this insubstantial person is the left's Trump on politicking boldly but falsely. Check out the interview with Anderson Cooper on 60 minutes and her response to giving false facts.
She has all the right buzzwords - great media PR - but has done nothing substantial to support all the attention she is getting. I see her as bringing a lot of unnecessary criticism on the Democrats and like the empty insubstantial Jill Stein unnecessary divisiveness.
I hope I am wrong. Would have been more impressed if she entered Congress quietly with humility and got some substantial work done before her opportunistic PR media grab.
6
Mr. Krugman, are you really drawing parallels between the complex (and mature) global economy of 2019 and the post war growth/expansion economy of the 1950's? And pretending the same drivers apply? Come on friend, you know better.
And as far as "AOC" is concerned, let's be honest, aside from a few internet trolls on twitter, no one has a problem with her color (a nice olive complexion, actually) or her shoes or her dance moves. What's annoying is her teenage demeanor and spouting off of grotesquely inaccurate financial facts (as if she heard them on a playground) to support her extreme-left policy ideas.
AOC interview: "the pentagon got a $700 billion budget increase last year and they didn't even want it" "they're like, "dude, we don't even need another nuclear bomb", "that could fund X% of my medicare proposal". She was only off by a factor of 63x. Plain logic and a vague idea of our GDP and federal budget would tell someone that number was impossibly off. So far she's not demonstrating the level of fact familiarity, seriousness or thoughtfulness that should come with the job. And she certainly knows nothing about tax policy. At best, she's savvy enough to have copied Trump's strategy for media attention with her outrageous tweets. It worked for him and it's working for her. Facts be dammed. One would expect someone like yourself to see through that, regardless of how strongly you support government theft of tax payer productivity.
11
Yes a thousand dollars to someone earning twenty thousand is going to have a big impact compared to someone earning a million - the percentage is so far off so what kind of economist would make such a ridiculous compare? Krugman. And to state that Republicans don't have any telegenic smart non whites was a racist statement - anybody care? BTW - ask France Venezula Russia how those high taxes are doing for them. In Canada they raised the rates and actually took in less money. Do your homework. Compare to the booming economy of China - The tax on an individual's income is progressive. As at 2017, an individual's income is taxed progressively at 3% - 45%. The 2017 corporate tax rate for domestic and foreign companies is 25%. And our economy is currently beating theirs. Hmmmm.
6
Nice chart on marginal tax rates and growth rates.
Surely PK knows the difference between correlation and causality...
He should be embarrassed.
7
He is refuting republican claim that higher taxes cause lower GDP.
Reading Paul Krugman one gets the sense that wealthy people are bad people who should be punished for being rich. They are good for only one thing: paying taxes for the benefit of the rest of us. I find this offensive- - - regardless of the merits a more progressive tax rates. There are plenty of ultra wealthy Americans - like Bill Gates, Warren Buffet, Mike Bloomberg, et.al. - who support a more progressive system but don't need to be slandered by know-it-alls like Paul Krugman. Rather than encouraging an intelligent debate on inequality and ways to even the playing field for all, Krugman's tone (if not his substance) tends to encourage class warfare.
10
@Henry I totally agree - it seems that this rich=bad, poor=good fight started during the last administration, and has grown since. I wish people had a clue about the job creation and economy boost that the so-called rich crate with their so very bad businesses.
4
I agree the rate at the top needs to increase and the loopholes need to be eliminated however as the old investment adage goes, historical returns are no guarantee of future performance. We would be wise to consider this in our tax policy.
Economies change. Post Word War 2, America was the only functioning 1st world economy. We made money hand over fist because we were producing most everything and rebuilding everyone else.
Also we need to change the way we think about taxes. Taxing income is inefficient. Most wealth in the country is not accumulated directly as income but as capital gains and/or asset appreciation of some kind. We need to be exploring a net worth tax rather than higher income taxes. This is far more equitable as well.
Why should I have to pay increased taxes on the hypothetical appreciation of my home every year but Buffet and Koch pay nothing on the massive appreciation that the Federal Reserve Policy of the last 10 years has gifted them?
4
Bravo!
I won't claim to know the best marginal tax rate for the highest income bracket, but surely we can increase this rate until people who work for a living can earn enough money on which to live. Why is it so hard to believe that a large number of economically disadvantaged people having a modest amount additional money to spend would do far more for the economy that a few wealthy people with a vast amount of money to spend. Does Alan Greenspan truly view a minimum wage as as just another entitlement? One doesn't need to be a democratic socialist or communist to recognize that we need to pay attention and work hard to avoid being pulled back into a feudal system.
3
Isn't this person 28 years old? I have t-shirts older than her. Any system that punishes people who work hard by confiscatory tax rates is bound to fail. Perhaps she should start touring Cuba, Venezuela and North Korea for glimpses of the macro economic disasters that she intends to wreak upon the United States.
I wish this person wisdom and humility during her time in Congress. Regrettably, that often comes only with age and experience.
10
@William Seaman
And it only comes with age and experience if the foundational education is there to benefit from it. I have my doubts.
3
It's no secret that most rich people live in Blue states. So what stops Blue states from raising state taxes on the rich?
3
@Vasantha Ramnarayan
CT has the 6th highest corporate tax rate in the country. GE left. Aetna left. Alexion left.
Quite the legacy for ex-governor Malloy. No surprise he didn't run for re-election with that resume...
1
California has done that. And now Trump's tax plan reduces how of that we can deduct from our federal income tax return.
Paul--
I believe that most Americans are fine with the wealthy just paying their share without offering them tax break "incentives" to trickle down some income. They need not pay more then their share---just not pay less. So many aspire to be wealthy that there is no underlying animosity toward the wealthy in this country. the Steve Forbes flat tax may not have been such a bad idea after all.
PS--Careful with the acronyms for Spanish names---I do not want to speak for others, but to my knowledge and in my experience many resent the angelification--which is what acronyms are. My Hispanic in-laws grind their teeth when they hear or read it. Referring to people as A-Rod or K-Rod or J-Lo or AOC, when they have family names, simply because it is easier for Anglos to say or type, is often insulting. Andrew Cuomo is not A-Com, or AC. And it is not for brevity. You routinely refer to John Maynard Keynes by his name, and not JMK. So please, can we stop the anglifying before it become a routine? Tnx.
how about JFK or MLK?
3
@Billy
Howzabout RBG?
@Billy
Almost forgot: Beto
The proposal to increase income taxes misses the point. Remember the comment from Warren Buffet that his secretary pays a higher percentage in taxes than he does? The real fix is to treat all income (wages, dividends, and capital gains) equally for tax purposes.
2
Tax cuts have been a failure. Time to take down the tent folks. After Reagan's tax cuts there were nearly a dozen various tax hikes to cover deficit spending. Under Clinton, despite FOx News and the GOP claiming that they would destroy our economy, instead led to 20 million jobs a rough elimination of deficit spending and a bit of pay down of our debt. I thought that after Bush was elected that such fiscally prudent policies would continue. They did not. The uncontrolled spending of the second Bush DOUBLED annual spending to about 3.5 Trillion dollars. Our deficits and debt have gone through the roof. People already forget that under Obama, actual spending growth slowed to a crawl. But we should have had increasing war taxes and income taxes after the recovery to cover costs of the previous wars and to reduce deficit spending again. The current round of tax cuts have been a joke. Projected deficit REPUBLICAN owned btw, is over $1 Trillion.
3
a bit of a typo,. should read that Under CLinton's tax hikes, our economy thrived despite the naysaying from Fox and their GOP friends.
Have to add, why all this debt? Because banks can soak the US taxpayer. We were on track to eliminate our debt at the end of the Clinton administration. Didn't happen.
That is so cool Tax the wealthy, until there are no more people to tax.. Uh Oh where does the money come from then? And what about the "wealthy" who are supporting family members, school, housing, etc., because they can. And yet, still pay more than 50% of what they earn. Let me get this straight, earn a lot of money, give to charity, that's right, give to others, then support others who cannot do for themselves. And for that, be vilified by those who don't have a clue about working since they got out of college, for 50 years, paying taxes, doing "the right thing".
6
the proportion of "smart people" who make 8 or 9 figure incomes per year are staggeringly small. They are fractions of the fraction that is the 0.1% that we are talking about.
The VAST majority of the people making over $100 million, for example, are...
Bankers. Hedge fund managers. CEOs of near monopolies whose expertise is highly transferable to numerous other capable people (and therefore there exceedingly high compensation is a perfect example of a market inefficiency).
For all intents and purposes there is only 1 category of person whose wealth/income pushes into this range ("smart"):
Entrepreneurs who found unicorn companies that increase in valuation so quickly as to provide these people with yearly incomes in the hundreds of millions or billions (typically through sale or IPO).
There are... dozens? A hundred? People like this. total. In the entirety of the entire population of the US.
Their destinies. Their decisions as to where to park their money (Which is largely not spent, left in the form of stock, and at best invested in highly technical securities or private equity or hedge funds). They are not the concern of the other 99.9999999% of the population.
Like it or not, having lots of money does not increase your value to society. Only your measurable contributions to the betterment of society MIGHT POSSIBLY be argued as increasing your value to society.
Objectively. Factually. Measurably. Bankers, hedge fund managers, etc. provide zero merit
1
@Jarl
Wow, if I thought like you, I'd trot out my resume and apply for some of these plum jobs.
If you can spell "hedge", you're on your way. Investment bankers? How hard can it be? It's like selling cars or houses, only bigger, right?
Executive Search firms are constantly looking for people who can show they are smart enough.
1
The tax increase would only be meaningful with the elimination of loopholes - that allow people like Donald Trump to pay ZERO taxes. If we go to Medicare for all, we're going to need every penny we can get - especially since we're also in the process of going broke - more so now with the recent tax cuts for corporations and high income households.
1
The unmentioned factor here is that the TRULY wealthy pay very little taxes at all, either on their unearned (investment) income, nor on their living money, borrowed against vast assets never sold (thus never taxed) that magically adjust their basis on the death of the owner.
That's a bigger tax dodge that needs fixing. A transaction tax on all transactions, a graduated corporate gross income tax, plus a property tax on stocks and other assets would go a long way toward creating prosperity and reducing inequality.
2
Isn't this chart a definition of the Laffer Curve? That is, it demonstrates the highest tax that can be levied while not effecting the production of wealth. Give the benefit of doubt to the GOP and call it 60%.
2
Dpnald Trump personally and emphatically puts the lie to marginal productivity theory of income distribution.
1
The political price of proposing to heavily tax the approximately 16,000 people who get a salary of over $10 million is that the Democratic party will be cast as a radical socialist party that the electorate will overwhelmingly not support.
1
I wonder if the Wall Street Journal relied on the same faulty statistics in its Op-Ed in the Weekend Edition a couple weeks ago. They basically made the same argument as Moore.
"Peter Diamond, Nobel laureate in economics"
Not true. There is no such thing as a Nobel prize in Economics, ergo Diamond cannot be a laureate.
2
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, is an award for outstanding contributions to the field of economics, and generally regarded as the most prestigious award for that field. Wikipedia
2
@Equality Means Equal
The Nobel Memorial Prize in Economic Sciences, officially known as The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (Swedish: Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), is awarded annually by the Royal Swedish Academy of Sciences to researchers in the field of economic sciences
Peter Diamond was awarded the 2010 Nobel Memorial Prize. As such he is a Nobel Memorial Prize laureate
3
No thank you.
Please, remove your hands from my pocket.
Where I'm from, we already pay too much in taxes.
What do we get for the taxes we are already paying?
A dysfunctional government that has shut down.
6
Setting aside Paul's ideas about rates, just look at his context. He apparently believes an individual only has income because society allows it, and finds it useful. This mindset assumes that the country is entitled to 100% of your income and deigns to let you keep some because -- don't you know -- it's beneficial. You have to make sure to dangle enough meat in front of the sled dogs to keep them pulling.
6
If we give the rich extra money won’t it trickle down to the rest of us?
2
I live in David Bratt's old district. Bratt before he upset Cantor was an economics professor at Randolph-Macon College.
He actually campaigned on how good he thought The Tax Cuts and Jobs Act has been for the middle class.
I personally felt he was a toady for the rich like all the other GOP charlatans.
And lets not forget McConnell statement that if the The Tax Cuts and Jobs Act didn't pass the big donors checks would stop.
1
A while back there was a news report that the country with the most equal after-tax incomes in the world was Sweden. It also reported that Swedish M.D.s had the lowest average golf handicaps in the world.
3
@Ian Maitland
There must be a connection between the two. Lol.
2
For four decades, we have had income redistribution to the top 1% from the middle class due to GOP tax policies. The 1% are not going to let that go no matter the consequences.
And no one can predict what the exact consequences will be, but ballooning debt across the entire globe certainly does not point to good thing.
1
What Dr. Krugman's graph shows is that there is no demonstrable correlation between high marginal tax rates and low GDP growth or between low marginal tax rates and high GDP growth for the period from 1957 thru 2016.
This should throw shade on arguments that a higher marginal tax rate will destroy the US economy. From the comments, it doesn't seem to have.
Facts are so annoying when don't support one's ideology...
3
@Jack be Quick
Of course, there is little or no difference. That is because no one pays the highest marginal tax rate at 70 or 80%.
The only meaningful comparison is between total AVERAGE tax rates. And those show relatively little change between the 1950s and today.
The top marginal tax rate is meaningless or a fraud at the rates endorsed by Krugman and AOC.
Do the experiment for yourself. AOC is elected President and gets a top marginal rate of 99.25% enacted. (The same top rate as in the UK during WW2).
How much additional revenue will that top rate bring in compared to a top rate of 0%?
HINT: They will bring in the same amount.
SOLUTION: ?
2
@Ian Maitland
You're missing the point (along with most of the commentators who are getting their Fruit Of The Looms in a bunch) of Dr. Krugman's argument: "Republicans almost universally advocate low taxes on the wealthy, based on the claim that tax cuts at the top will have huge beneficial effects on the economy. This claim rests on research by … well, nobody. There isn’t any body of serious work supporting G.O.P. tax ideas, because the evidence is overwhelmingly against those ideas."
It isn't about whether or not "no one pays the highest marginal tax rate" or about "total AVERAGE tax rates."
1
@Jack be Quick
I think it's about all of the above.
Krugman says that high tax rates in the '50s didn't hurt the economy, so why should they hurt in 2020.
I simply pointed out that average tax rates today are not much lower than they were in the 1950s, so no conclusion can be drawn about what an AOC/Krugman tax hike would do to the economy.
1
Tax's shouldn't be used for social policy - they really don't work that well in that area. And the historical tax rates referenced in the analysis were also in the context of very liberal deductions and exceptions to the imposition of taxes. In other words, those rates were on the books but hardly anyone ever paid that tax amount.
Overlooked here is the concept of fairness. Is it fair to tax a millionaire's marginal $1000 at 80%? I think too little attention is paid to the fact that dissatisfaction among the public comes not only from those directly impacted by a government policy, but also from outrage by those who are practically or actually unaffected by government policy, but still are offended by it. I think most American's can live with a relatively lower income earner paying less (even nothing) on their marginal $1,000 of income. But the vast majority of American's would cringe at the idea of taking 80% of a millionaires marginal $1,000 - because it would seem manifestly unfair. And most American's believe in our capitalist, meritocracy system. Extreme taxation rates appear to penalize success in our capitalist system. While Diamond and Saez are no doubt right about the impact a different tax policy would have on inequality, they ignore how it would undermine belief and support for our capitalist system. People should believe success is good (not frowned upon and penalized) for a capitalist system to work.
3
And let's not forget that show biz big shots used every loophole to avoid the tax such as selling their interest in their shows (Jack Benny) to secure the lower capital gains rate and moving out of the country for a period of time. Others just stopped working once their marginal rate was 91%. And lets not forget state and local income taxes.
Face it, AOC is now earning much more than she did in the private sector. I believe she will feel very comfortable living off the US Government.
1
A flat tax would be fair to everybody. Why is this concept so difficult? Taxing the upper income earners 70% is discriminatory. Having people be responsible for their own expenditures is positive for everybody.
What happened to self responsibility?
No, I do not agree with crazy loopholes for the rich, but it is also so sad to subsidize low income folks paying for yearly passes at Disneyland, flat screen TVs, etc.
Flat tax would resolve all.
5
A much larger problem as indicated by the tax giveaway provided to wealthy GOP donor patrons is the Economics of Soaking the Middle Class! This has to stop now! I have little sympathy for the so called Soaking the Rich, we are far from that scenario. Your opinion is so far out of touch and hinges on desperation....
How is she "non-white?"
She's of Puerto Rican extraction, but unless I'm missing something, she's still a Caucasian. This is so confusing.
What's the difference anyway? Aren't we all the same species -- Homo sapiens? Jeez. Can we just stop with the labels and move the agenda?
5
Thank you! We need to shout this from the rooftops daily!
2
How do people think they earn their money? In a vacuum? Dumb greed to obscure the obvious - that tax-funded society creates an educated, healthy workforce willing to work for them and infrastructure to enable it all. Stop investing in that, and we already see the results in our D infrastructure and autocrat-wannabe pres.
So the only thing which matters is how much money the big government can take from the people. So the people are mere slaves to the state, oxen pulling the plow. How many times should you whip the oxen to get the maximum production from each?
2
Kudos to Paul Krugman for refuting the Washington chorus bashing Ocasio Cortez.
Can someone please show me the alleged outrage re: AOC's dancing? Looks like a fun video to me. I don't think I have seen a commentator on the right even make a single comment about it. Seems like a made up headline.
AOC is so naive. She sounds like an uneducated preschooler. Simply amazing what voters will tolerate.
4
Using the economic data from after WWII is comparing us to a devastated world economy. Of course we grew, pent up demand and no competition to speak.
That is not the issue now.
Maybe tax rates should be higher on everyone. Federal income tax is paid by 53%. Income tax, not SSI or MC. Or excise, yada, yada, yada,
But it seems only the rich should pay for what we all use.
1
As I recall, the wealthy had a tax rate of 70% in the 1950s, a time of prosperity and growth in America, a time when infrastructure was built at a rapid pace.
It makes sense to have the same rate now when we need to update our infrastructure, healthcare and educational systems. With various tax deductions, it won't hurt the wealthy. Some, like Warren Buffett, have said for years that the wealthy SHOULD be taxes like this.
It would also help with the soaring national debt.
It seems that only ignorance and stubbornness are preventing this sort of taxation. And the fear of losing votes at the ballot box.
1
Few rich people ever paid 70% or more of their income. There were lots of deductions and tax shelters when the nominal rates were at these high levels. At the end of the day the amount of money the government collected in taxes has remained relatively constant.
I am disappointed that PK failed to acknowledge this fact and rebut it if he disagrees.
10
What does "AOC" mean?
@Mark91345
Congresswoman Alexandria Ocasio-Cortez, or AOC by her initials. Not even a week in Congress and she's already an acronym!
2
@Mark91345
Alexandria Ocasio-Cortez
Paul Krugman is a disgrace. A partisan hack. Each article the New York Times publishes from him proves it more and more.
This is pathetic.
8
You might have to unload that second yacht.
Thank you for real data Professor Krugman. The big picture helps. Common sense also says that every dollar someone making less than $100,000 will be spent in the United States. NOT every dollar that someone making over $10M will be spent in the U.S. I'm for infrastructure projects, where every worker and $ comes from people working here as, again, common sense says that most of that money will be spent here. As opposed to corporate cuts where GM will move jobs outside the US and corporate execs can purchase more land in Patagonia (Argentina).
I never believed in the slogan “soaking the rich” just because they are rich. I am a firm believer in the graduated income tax as long as it keeps from stifling production. Economists can argue over what level that is better than I can.
I am for cutting out ridiculous tax loopholes but we need to be careful how we do it. Tax deductions for charitable donations should be very carefully handled! When I go to Lincoln Center or a Museum there is always a list of people who have donated anything from 20 dollars to several million dollars to keep these institutions of culture going and often free to the public. Let’s not throw the baby out with the bath water by jeopardizing the good that charitable tax deductions can do.
I hesitate, really hesitate to recommend eliminating all deductions and leaving it up to the government to run things. I look at government run subways and public housing in New York City and its a disaster of incompetence and political expediency not likely to be fixed in my lifetime.
So yes, cut the obvious tax dodges but please don’t think by the mere fact that the rich will pay more things will therefore get better under government management. Government waste and corruption and shoddy work are well known unfortunately! Until government proves professional and financial competence perhaps we all would be better off if more money stayed in private hands, no matter how “unequal” it is.
4
I think the greater problem is that it's hard to introduce legislation that people are not used to. The Affordable Care Act, for all its flaws, made the push for healthcare greater because once people were accustomed to having better healthcare, possibly having it confiscated was no longer an option for them. Voters today aren't used to paying the high tax rates of the 50s and 60s, so asking them to do so now seems outrageous in the eyes of many. (It's also worth mentioning that there were far more tax brackets in the 50s as well. In order for increased taxes to work, we would certainly need to consider adding more nuance to the tax bracket system as well).
On a side note, I find it odd that we give so much of our time and attention to a freshman representative who has yet to serve a full month in Congress. AOC has potential, and I do believe her heart is in the right place, but the way the left has catapulted her to fame (prompting the right to attack her in retaliation) says a lot about our culture's obsession with celebrity, and how we continue to deify politicians, as also seen with Trump and Sanders.
3
I just wonder what Krugman considers rich. Is an income of $300,000 rich? $600,000. So if someone makes 600 K then they would only get to keep 120 K. What about state taxes and college tuition?
1
@Melissa Levine: Dear God, please look up what a marginal tax rate is. Educate yourself.
2
Requiring one group of Americans to shoulder a grossly disproportionate percentage of the costs to run the country is discriminatory. The wealthy are being singled out simply because of their income and being forced to pay more for the same rights, privileges and opportunities to which all US citizens have equal access.
There's no fair reason why you should pay a single penny more in taxes than I do or vice versa. We're both Americans and should share equally in the cost of running the country. You shouldn't be punished by higher taxation just because you earn more money than I do.
If you and I went to the grocery store and each bought a loaf of bread, you wouldn't want to pay 20 times more for your loaf than I did simply because you had more money. If you and I went to lunch together everyday, you wouldn't want to have to pay for my meal every time. That's what progressive taxation does - it forces those who have more money to pay many times more than lower income citizens for the exact same freedoms, rights and privileges of citizenship.
If you think progressive taxes are fair, then let's start going to lunch together daily...your treat.
The total cost of running the country should be divided by the number of business and work-aged citizens and the quotient should be each one's tax liability. If that number is too high, then the population feeling too much fiscal pain should apply pressure on their elected officials to reduce federal spending.
3
@Geoffrey
Oh please, right now the uber wealthy pay a lower percentage in taxes than the middle class. That needs to change. They also rely on the federal infrastructure more than we do. The courts protect and defend their international contracts and investments, while we the middle class, foot the bill. They need to pay up, like everyone else. They are not special.
3
@Martha Grattan I'll be expecting all of my meals to be paid for by you from now on...since you make more than I do and it's your idea of fairness.
Where shall we dine first?
1
@Martha Grattan So, you think it's fair that one American citizen is paying a million dollars a year in income taxes and another is paying nothing? Aren't they both entitled to the same freedoms, rights and opportunities under the constitution?
Why is the higher income citizen being forced to pay for the lower income citizen?
90% of federal tax revenue is from citizens making more than $100,000, so how do you imagine the middle class is "footing the bill" for the wealthy?
2
“Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise.”
Think what Paul Krugman is saying... It doesn’t really matter how many articles Paul Krugman writes for the NYT (or what quality), what matters for the tax policy is whether he is paying more or less in taxes. In other words, if the tax policy results in Paul Krugman writing fewer articles in 2019 versus 2018, it’s all good as long as the tax revenue collected from him went up by a penny...
And honestly, I think he correct when this logic is applied to Paul Krugman’s output. But I am less certain that this logic applies to engineers, doctors, scientists, businessmen. What do you think?
1
“The problem with socialism is that you eventually run out of other people's money.”
― Margaret Thatcher
5
@Noreen: "The problem with capitalism is that other people eventually run off with your money." (Me)
3
"Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue."
What country is Mr. Krugman referring to with this statement? His favorite economic model, Venezuela? Maybe France or Sweden? It is not clear, but surely he's not referring to the United States of America. While it's no surprise Mr. Krugman now feels comfortable openly flouting his out-of-the-closet socialist tendencies, this statement belies a fundamental misunderstanding of government's relationship to personal income in the United States. Whenever a socialist of Mr. Krugman's wealth and stature advocates the government confiscate as much of the rich folk's money as possible, there's an obvious but highly effective retort: "OK, you first." Mr. Krugman probably doesn't fancy himself as being one of the wealthy folk whose money he advocates taking, but boy is he ever. With teaching and newspaper salaries, book royalties, speaking fees and Nobel Prizes, if you don't think Paul is pulling in a few mill a year you are nuts. The truth is, there's nothing stopping him from paying 90 percent right now if he wanted to. What rate do you think he actually pays? Hmm, let me guess.
Krugman is a petty socialist hypocrite, just like AOC who once said congressmen should give up their salaries during government shutdowns, but since being elected refuses to do just that.
4
Many of the commenters here have no idea. what a marginal tax rate is. Pitiful.
6
Very disingenuous article. Premised on the idea that a 90% marginal tax rate on all income ever existed. It did not. The average tax rate AFTER DEDUCTIONS (which were more than plentiful) during the 50's was 42%. The ultra-wealthy then, just as they do today, earned much of their income from capital gains which were NOT taxed at 92% and therefore almost nobody had wages high enough to break the threshold to invoke that tax rate (equivalent to 2 MIL/yr today in wages).https://taxfoundation.org/taxes-rich-1950-not-high/
4
No poor person ever gave anyone a job.
And, Paul, in the interest of intellectual honesty, when marginal tax rates were much higher, they were applied to adjusted gross incomes that were made lower than today because there were many, many more deductions: every bit of mortgage interest and taxes, all medical expenses, professional dues and subscriptions, interest incurred to buy anything at all. There was no AMT or income based phase outs of deductions that have become a staple of the tax code in the last couple of decades.
Why the relationship between taxes and GDP growth? Simple, this country is quite mature and inclined to grow only slowly. Without applying the paddles to the patient, it becomes moribund. Raise taxes and watch it slow, slow dramatically. I'm guessing we'll get the chance to prove it.
5
@Kurfco Sadly, you are correct, and I fear that is what is going to happen. Already the left is calling for tax increases, which will do nothing but drive the money offshore again.
2
I'm not going to go deeply into it since you can look it up for a better description but here's the main point:
No one is suggesting a 70% flat tax on all income!
There would be a bracket and the 70% would apply only to the income over that bracket. So if the bracket for 70% is at $10million and you make $20million, you only pay the 70% on the amount over $10million. It's not a tax of 70% on the full $20 million. So everyone just calm down.
3
@JT It doesn't matter how much of your income is taxes at 70%, even if, as Occasional-Cortex says, it's the very tippy top (could she be any more embarrassing to women?). If you are going to take 70% of any of my earnings, I'm going to find another place to put them.
It is one thing to look at the past with rose colored glasses and say that the high marginal rates of the mid-twentieth century will work as well in the early decades of the twenty-first. Perhaps, but to focus solely on this as a singular panacea is to miss the larger context. The economic realities of then, when the US was the dominant manufacturing power are long gone. China has now taken on much of that role now. Further, we weren't faced with the expense of rebuilding after a devastating world war, which gave us a singularly unique advantage at the time.
Clearly a higher marginal rate may well be justified to correct from the "supply-side," aka "voodoo" economics that have been in place since Reagan. But is the wealth generated by the rich derived from owning means of actual production based on value added work, or more from passive streams like dividends? If the former, growing a business can grow an income and therefore more easily absorb the larger cut, the latter, people sufficiently wealthy might move it all offshore as there's no incentive to do otherwise than escape a bigger tax bite.
2
Yes, a high and fair tax on the wealthy, is fair and should be done. I have met people with private planes, 3 homes , 4 cars and various other accoutrements of wealth. Of course there are horses, boats, real estate, and many more as I think of it. I am also thinking of those who would not call themselves wealthy but definitely could pay a higher percentage tax rate. You know, people with a spare million for a condo, luxury cars etc. I'm glad this issue is in forefront where it belongs.
2
@jlmmsw And, shockingly, they probably worked for it, and created a lot of jobs in the process. That should, like, totally be punished.
1
Paul, first you say, "What this implies for economic policy is that we SHOULD NOT CARE what a policy does to the incomes of the very RICH." Which is practically all you should care about when you want more Tax Revenue, since the rich constitute over 80% of all Tax Revenue, and encouraging them to seek tax shelters reduces overall Revenue. And then in the next paragraph you contradict yourself by admitting that taxing at 100% eliminates any incentive (especially the rich people you don't care about that pay 80% of all tax revenue). Why would you want to eliminate the incentive of the rich to get richer and pad you coveted tax revenue? Actually to say taxing at 100% "eliminates any incentive" is hilarious due to how glaringly obvious it is. For such a smart person (Nobel Laureate) to explain this obvious fact just shows the intellectual level of your readers. Why would you work if ALL the fruits of your labor are taken, stolen by the government. In the same way, if a certain bracket is taxed at 80% or 90%, then why work that much harder? For the good of the country? No one is incentivized by that. The only true sacrificial service to one's country is the military.
5
How about taxing wealth?...not just income.
I would appreciate it if the NYT would educate us on the differences between taxing income versus taxing wealth.
5
One question, how is "Rich" defined?
When the income tax was first introduced, it was only designed to tax the "Rich." But that's not the case today.
It sounds great, until someone says that you're rich and the tax should apply to you.
5
Rich is more than what I make. It ain’t rocket science! :-)
1
@Kit And you would not be upset until they changed the definition to make it where you had to 'pay your fair share'.
Why is there not more stories in the Times about prominent right wingers lying about what marginal tax rates are? Do they know? Do they not know? Can they know and get away with blatant lies? We need some coverage of the ongoing cluster that is how to keep up with their non-stop lying.
3
Wishful thinking from a card carrying socialist. If you are that big of an earner you will renounce your citizenship and move your residence-wink_ wink to a more friendly. Anyone see that Google moved billions through their Dutch subsidiary to avoid taxes. David Tepper moved out of high tax N.J following hundreds of thousands of others. The rich will outsmart the taxman as they always do. I don't get all the attention she is getting as she has yet to do anything other than beat out an old incumbent.
3
If the goal is the welfare of the poor - Paul Krugman won't achieve what he is trying to achieve, the way he is trying to achieve. here's why:
https://www.healthpolicy101.com/2018/08/httpswwwhealthpolicy101com201712ten.html
you are welcome.
1
Krugman is off base again and on so many different levels. He confuses correlation with causation. The growth of ALL modern economies has been on a downward slope since the mid-1960s. Even in economies where tax rates have remained high, the growth rate has declined.
Second, the impact of tax changes always has a lag. If you look closely at the period from 1981 to 1988, you see a tremendous jump in growth at the same time that tax rates were lowered. Look at the impact of JFK's tax reductions. They correspond to five or six years of accelerated growth.
Lastly, the tax rates shown are not apples to apples. Deductions and means for sheltering income have changed dramatically over this period. If you raise a rich person's tax rate by a dollar, she will logically spend up to a dollar in work-arounds to avoid paying the tax. This behavior was rampant in the 60s and 70s.
Krugman also does not share any data on the correlation between changes in tax rates and the impact on total tax revenue collected. There is an 80%+ correlation that shows that lower tax rates lead to more tax revenue and the reverse is true as well. Why raise rates if it will lead to lower tax revenue?
4
Evidence for your claim, please.
"So the social benefit from getting high-income individuals to work a bit harder is the tax revenue generated by that extra effort — and conversely the cost of their working less is the reduction in the taxes they pay."
Why the need to have Nobel Laureate Krugman re-state the obvious in his column?
My bumper sticker says it all, at less cost:
"Work harder, there are millions on welfare who depend on you."
6
Republicans adhere to a tax theory that has no support from nonpartisan economists and is refuted by all available data knowing full well that it's voodoo economics - they just don't care. they continue to do it anyway, because it benefits them - because they are rich (er) themselves, and they get more campaign contributions from their donors by pleasing them.
4
On average we use about 21% of GDP to run the fed govt.
On average our taxes produce about 18% of GDP.
The 3 points wass the approx 600 Billion deficit we would have had if revenue had not declined rapidly as it did via tax cuts and spending increases of Jan 2018. The gap got larger, no surprise because we to not have high enough effective tax rates to produce more revenue when cut. Apparently the gap is now above average of the last 40 years, deficit soon to be 12.Trillion. Chronic deficits have our way to meet expectations for about 40 years.
Want a balanced budget so there room to adjust in a downturn?
Cut real spending 1%, raise effective taxes rates 2-2.5% for two-three consecutive years. .
The numbers are big but the gap is small, easily adaptable.
2
This woman is the Donald Trump of the left. She will say of do anything to get her name and face on the front page. Read the Aaron Blake column in today's Post. Then do the math with her numbers. The amount she purports to be able to save by eliminating waste and accounting errors in DoD is approximately twice the entire DoD budget. It appears that she picked the number $21T, the approximate size of the current national debt, because it is the biggest number she could find with a dollar sign in front.
This doesn't do a whole lot for Krugman's credibility, either. Like AOC, for him the ends justify the means.
Sad.
7
@Matt good lord, you are wrong on everything, Please look into the facts.
AOC picked $21 trillion because she misunderstood the report regarding the total in bookkeeping errors and "hidden" or missing money at the Pentagon over 20 years:
"In all, at least a mind-boggling $21 trillion of Pentagon financial transactions between 1998 and 2015 could not be traced, documented, or explained, concluded Skidmore. "
https://www.thenation.com/article/pentagon-audit-budget-fraud/
She has admitted her error, but apparently AOC's detractors have not understood the valid point she was making.
Does anyone seriously think that Krugman and Co. will only seek higher taxes on earners exceeding $10 million in annual income?
4
Hey Paul Krugman,
I’m no economist, but how’s this for an idea to help “job creators” create more good jobs? (1) Give small employers an enhanced business deduction for wages paid over a threshold hourly rate for hourly workers, up to a target hourly rate. For example, employers get to deduct 120% of hourly wages paid over $10 per hour up to $13 per hour and 140% of hourly wages paid over $13 per hour up to $16 per hour. Businesses up to 50 employees are eligible. Sorry Walmart, and (2) institute a form of Medicare for all, and, voila, employers no longer have any health insurance costs, and (3) some form of additional voluntary Social Security on steroids, in which employees could make voluntary contributions to be matched say 50 cents on the dollar, so they would have a chance for real retirement security.
How to pay for it? Sixty, seventy or eighty percent marginal tax on incomes over $1 million or $2 million per year. My Dad paid 90% marginal tax in the 50’s and did just fine. (True, he didn’t like it, but he went to work, happily (for the most part).
I have a JD, but I am not a real doctor, but I do have a Masters Degree in Tax!
Jim Roberts
3
Why the inflammatory use of "soaking"? It's misleading at best and needlessly provocative. Krugman does a good job of stating the value of the structure on its on merits. What title did Krugman suggest?
1
Yes, saying "soaking" is dead wrong. Tax Fairness is the real descriptor.
@Freeman Because at least using the term 'soaking' is truthful
Then again, maybe she’s a modern day Robin Hood.
3
This is NOT about "soaking" the rich. They have been soaking American for 40 years of tax cuts for themselves, starting with Ronald Reagan. During the presidency of hat radical communist of the 50s - Dwight Eisenhower - the top marginal tax rate was 90%. John Kennedy dropped it to 70%, then Reagan to 39% and then other Repub presidents dropped it to @ 30% at top rate. Guess where all the deficit increases came from - yes, all from Repub presidents, except for Barak Obama - who was left a complete economic disaster by GW Bush - the Repub who slashed taxes, made war and increased spending - then left the empty bag for Obama - who had to spend more $ to save the American economy, jobs and families. And guess who got most of tht $- you guessed it - as always, the rich. So, let's not "soak" them Let's just get our money back, with some interest - yes, 70-8-% top tax rate, and reinstate the progressive tax system. The current tax system is a sham.
7
@EWH The so-called 'rich' create jobs and pay the majority of taxes already. Try and soak them with ridiculous rates and they'll take their money overseas. They've done it before and will do it again, as would I.
1
Most rich people are Liberals but they know that they can find tax loop-holes and shelters, just like in the past when rates were high. the talk of high tax rates are just 'virtue'signaling'
2
It should be noted that AOC has the same degree as Trump's top economic adviser.
4
Why, given all of the NYT's articles and Op Ed's about gender equality, are all of the examples of a high net worth individual in this article male? It would be really helpful for a woman of any age, and especially any young woman, reading this article if the "she" pronoun has been used equally in the examples of a wealthy person. Please think twice about this next time, Mr. Krugman and lead the way in your future articles to change your readers' gender assumptions. Thank you.
Something about monikers like "The Rich" taint Paul Krugman's cred, for me. I am not wealthy, but I always aspire to improve all aspects of my life for myself and my growing family, and a 70-80 percent marginal tax rate sounds a lot like de-incentivization to me. Krugman's verbiage notwithstanding, freshman rep AOC may or may not have a good idea, but more than what she wants to take In in taxes, I am interested in what she - or the congress - will do with the extra revenue once they've got it; If it is to provide healthcare and education, I'm on board, for the simple reason that that is money I will have spent anyway. But if it is for the Military/Industrial/ Pharmaceutical and Oil complexes et al, well ......Let's just say that we don't know that much about AOC yet and what kind of public servant she becomes. So far, I like AOC....but not because she wants to "Tax The Rich."
1
In 1980 we were sold a bill of goods called Reaganomics, aka, Voodoo Economics. Our politicians, Democrat or Republican - made no difference - were bought and paid for by those who benefited from this misguided and fraudulent tax policy who have stolen the rug from under us and left us to pay for their unusable wealth like some sort of feudal peons. So there was no motivation for them to turn back to what actually worked for two generations, New Deal Demand Side economics. (I know, I'm not an economist, and there are other names that economists would rather use but I'm just a regular joe trying to make a living and observing things as we go. I'm heartened to hear, FINALLY, someone talking about a return to sanity and to policy that benefits everyone. Of course for those relative few who believe they are entitled to have it all, this is nothing short of Communism. But for the rest of us, it brought decades of sustained growth and world economic and financial leadership. I pray these young people like AOC go ahead and return to the future. Now I'm not talking about another welfare state, though I have no issues supporting a strong and sturdy safety net. I'm talking about people having enough money to save, invest, and buy things in order to provide great jobs and excellent wages, first class education and health care for everyone. The establishment as it is currently constructed with the old Supply Side crowd, including the Democrats, has got to give way and get out.
2
@Doc
"Our politicians, Democrat or Republican - made no difference …"
I'm sorry but no. Over the past 50 years, every economic crash came under a Republican administration, and left behind unusually large deficits. And Clinton, Obama, etc. fixed the mess. Invariably, Republican obstructionism (e.g., McConnell) made the clean-up all the harder. The vast majority of Democrats would gladly pay more taxes so that we could have better and more affordable health care for all, infrastructure investment and infrastructure jobs, etc. Ocasio-Cortez is unusual in a number of ways. One is that she has apparently made a real effort to consult with credible economists. Even Sanders did not do that.
"Doc" wrote:
"In 1980 we were sold a bill of goods called Reaganomics, aka, Voodoo Economics. Our politicians, Democrat or Republican - made no difference - were bought and paid for by those who benefited from this misguided and fraudulent tax policy who have stolen the rug from under us and left us to pay for their unusable wealth like some sort of feudal peons. So there was no motivation for them to turn back to what actually worked for two generations, New Deal Demand Side economics. (I know, I'm not an economist, and there are other names that economists would rather use but I'm just a regular joe trying to make a living and observing things as we go. I'm heartened to hear, FINALLY, someone talking about a return to sanity and to policy that benefits everyone. …"
4
@Robert Hardly. Obama took us into a recession which Trump turned around. Obama said he could never do what he has accomplished, but then took credit for what he deemed impossible. Hmmm
1
@Katie
Not sure where you get your information? Time to find a better source? As we all know (most of us, anyway), the financial and subprime mortgage crises were triggered by the collapse of the housing bubble in 2007, under President Bush. Everything else was caused by that. After a year or so of clean-up work, there was slow and steady improvement throughout the Obama presidency--despite feckless, explicit Republican obstructionism that put the wellbeing of the country last. The first two years of Mr. Trump's tenure were still essentially Obama's economy. Trump's economy, that is, his only contribution, is this darned volatility, caused by his senseless, ignorant trade and tariff chaos.
Katie wrote:
"@Robert Hardly. Obama took us into a recession which Trump turned around. Obama said he could never do what he has accomplished, but then took credit for what he deemed impossible. Hmmm"
1
Soak the rich scheme:
An annual national progressive assets tax. Similar to a local property tax.First 500K of assets exempt.
2
All that congress seems to talk about is lowering the high tax brackets for high incomes. It seems like such a farce, when you look at the actual tax tables and see that someone with a taxable income of $5.00 has to pay $1.00 of income tax on that amount. Sure, a single person who earns $12,005 gets a standard deduction of $12,000, which would then give them a taxable income of $5.00. So a single person with $12,005.00 income ends up wit $5.00 taxable and they have to pay $1.00 on that. Not to mention the fee they pay their tax preparer to give them this sad news. Not to mention that the Social Security and Medicare deduction of 7.45% taken out of their checks, totaling $894.37 leaving them with net paychecks totaling $11,110.63 for the year. Why can't congress put a minimum on taxable income? I have no doubt the $1.00 or more that low income people save in taxes would immediately be spent and go into the economy, triggering a multiplier effect and enriching the rich in a much more healthy way than just giving it to them to buy back stock (causing stock inflation and other bubbles.)
2
"So why not tax them at 100 percent? The answer is that this would eliminate any incentive to do whatever it is they do to earn that much money, which would hurt the economy. " If earned and passive income taxed, then earning incentives (relatively) unimportant?
3
I find it interesting that this article pretends the marginal tax rate is in the 35%ish range. If that 'rich' person lived in California, they are also paying Medicare / SSN / State income taxes to the total tune of about 50%+ marginal rate. I don't know what the right % is (nor does anyone really), but for many it is already over 50%. Maybe 10% more? If federal increases to 80%, then the state takes 15% and medicare takes another 2% or so, that just seems too high.
2
80% is far too high for anyone. Also, correlation is not causation. And your chart cuts off on the convenient date of Jan 1, 2017. Simple observations like this suggest you're hurting the credibility of Keynesian economics.
2
This article completely ignores the effects of globalization and staying competitive in global market. In the 50s did companies even think about relocating to Ireland or another tax friendly country? If tax rates rise it will only accelerate the pace of companies leaving the US.
5
I reject even the premise that high tax rates "soak the rich", or that the wealthy reap net benefits from lower taxes. They have more personal income, sure. But that doesn't add value to their lives.
What does add value to their lives - and everyone's - is a stable society governed by the rule of law; where everyone has the opportunity to become their best self; where our natural resources and beauty are preserved; where art and culture thrive without concerns over health insurance; and where a highly-educated workforce is free to birth and raise a new generation without facing financial ruin.
THAT has value for all, including the wealthy people who, possessed by greed, would rather the requisite resources sit in their bank accounts than go towards achieving these ends.
9
@Seb Williams Sounds utopian, until you're the one paying for it.
So tell us Mr. Krugman, after taxing the "rich" 80%, who decides what to do with that money? Ah, is so nice spending someone elses money. Nobody would want to work knowing they have to give 80% of their income to a bureaucrat. Capital would fly away to other places, I'm very confident...
4
Isn't it so obvious to everyone that a shrinking middle class isn't good for anyone - except apparently the head in the sand Republicans.
We MUST address the income gap. Let's hope there are some Republicans with a conscience out there. I wonder....
6
@cort
The GOP wants to address the income gap by promoting economic growth and increasing the number of available good paying jobs. The Democrats want to address the income gap by taking money from those who have it and giving it to those who don't.
2
What leads to increased economic growth and development?
-Education (invest in Human Capital)
-Investment (invest in infrastructure)
When was the last time the Republican party (George HW Bush is the answer, btw) raised taxes (without adding to the deficit) to invest, which brings future growth?
1
Both of your statements are demonstrably false.
Who ever said economics was a rational, rigorous, scientific activity? Economists. The rest of us are willing to admit we don't understand how the system works, why it works, or what to do when it breaks.
In terms of fairness, I don't see the top marginal rate as the main issue in our tax code. Rather, it's the preferential treatment of capital over labor that distorts our tax code and drives inequality. There's no reason why the Mitt Romneys of the world should only pay 20% on their income. This, and not the top marginal rate, is the true issue. And I was surprised to see it called out by, of all people, Tucker Carlson. If there is overlap between fox news and piketty on this issue, maybe there's a chance for bipartisan action.
9
You're referring to the capital gains tax rate, right? So let me get this straight, one invests in the equity of an American company, helping that business raise much need capital to expand, hire workers, create value for the local economy. In return, the investor takes the risk that their investment drops to ZERO. If they are lucky, the company gets things right and generates sustainable profits over time, bolstering the stock price and allowing the investor to sell at a profit and/or receive dividend income. Losing 20 percent of that income to the IRS seems a like a fair trade to me. Carried interest is a different issue.
2
@Father of One I disagree, not least of all because the tax is on your NET capital gains; you get to deduct your losses. So risk should not be a factor in determining the rate. Not to mention the rising portion of passive investments in the entire market that do not serve to efficiently allocate capital in any meaningful way.
5
Ahhhj the "Socialize the losses and Privatize the risk scam". This is a straw man. Capital and labour should be taxed at the SAME marginal rate.
5
Nice in theory, poor in practice. The top marginal rate here in Canada is 55% and begins just over 110k. Most Canadians are more than willing to pay their share for social services, but having the government as a greater than equal partner in your earnings is a very tough pill to swallow.
This is where Krugman performs and elegant slight of hand. He presents the market-side inefficiencies but neglects to mention the inefficiencies on the public side of the ledger. What are the chances that the military takes a smaller slice of revenues if the base amount is raised through a higher marginal tax? zero. How efficient is that in terms of allocation?
2
The 'Military Industrial Complex' is a separate issue.
In pursuing all the comments here, only one person @Hammond has written in who would be directly effected by such a proposal. How telling is that? Before all the purveyors of increasing tax rates weigh in that it's only because the 1/10 of 1%ers don't read PK, or make comments, (I am not one, but do read about economics), just put the 70-90% tax rates in context of the economy and the Federal budget between 1955-1980. US GDP was between 50-27% of global GDP, and US growth was between 3-5%. Today US GDP is 24% of global, and growth is averaging about 2%. Federal spending was $616B in 1980. It's almost $4T today, an increase of OVER 666% in 38 years. Corporate taxes were between 33% and 14% of all Federal tax receipts. Today they are about 9%, which belies that $2T of US profits sit untaxed off shore, legally. Also lost in the conversation is how corporations paid most health care benefits back then, and health care costs, controlled in part by AMA and ADA rationing, has spiraled out of control. Ditto college, and housing. Point is, unless we meaningfully raise corporate tax rates (plus cut their now legal political 'donations') and really cut Federal spending, just soaking the rich won't pay for all the additional services people want/need, or balance the budget. It's a simplistic response to a complex problem. Just ask the blue collar rioters in France, where they actually do have a 75% income tax bracket.
1
"Here's one for you, nineteen for me" - in the sixties the highest marginal rate in the UK was 95%, as memorialized by the Beatles in "Taxman."
1
Does the world need higher taxes on labor or capital? In a world of increasing automation and wealth aggregation the answer is capital.
A relatively small wealth tax would be vastly more equitable, non-distortionary, and politically acceptable than this sort of pie-in-the-sky confiscatory nonsense.
I normally find PK's columns thought provoking but this one is lacking substance (besides some economic name dropping). And there is no convincing argument to tax someone at 70-80% because of the good old days.
1
You are coming conflating 'Marginal" with "initial" tax rates. Look up the definition
1
The early growth-rate increase tracks very closely with the Vietnam War years. Correlation? Causation?
You know AOC is right because the Right is attacking her character and not her ideas.
8
Doesn’t anyone understand that correlation does not imply causality. It is just as possible that the healthy economic growth in the post war period allowed the politicians of the time to set the marginal rate as high as they did. More likely, there were many, non-measured, causes for both effects. There are statistical methods available that would shed better light on this discussion. No causality claims should be made without an analysis of variance.
1
@Ron I agree that you can't assign causality for economic growth to the higher marginal tax rates, but you can say that it is proof that high rates don't automatically kill growth, as some claim.
3
When I look at the chart of tax rates and growth, I see a period in the post-war economy when growth rates were rising even when tax rates were at their lowest.
I also see a period in the late 1980s and early 1990s when growth rates were at their post-1972 peak -- and the highest marginal tax rates were in the 30s. It also looks to me that from a low in 1983 or 1984 until 2008, growth rates were relatively steady -- at least in nominal terms, despite highest tax rates of 40%.
All of this leads me to question whether there is any significant connection between economic growth and the top personal tax rate at all.
All the serious scientists and all the available evidence also show that burning of fossil fuels is now the major driver of climate change, and that it's going to get a whole lot worse if we don't do something soon. But try getting Republicans to support policies that take that consensus into account, or to stop calling Democrats who do "radical environmental extremists." Science, evidence, and just plain undeniable facts have never mattered to some people. You can't reason with them, so you have to vote them out of office.
6
My hope is that AOC become an internet phenom among younger voters and they show up in force for 2020 to vote progressive partly because of her. I suspect the Trump loyalists are scared as hell of her because she's hip and in this day and age of YouTube and Snap Chat, hip wins. That said, never underestimate the uneducated to vote against their best interests and in favor of a greater economic divide because, you know, "Socialism is evil" and all that.
7
My thought: start with all income ( earned, dividends, interest, capital gains, pensions, S.S. income, etc.) and compiled it each year and then apply a graduated tax to all of it. No more breaks for unearned (passive income). Finally, for those in higher tax brackens who are receiving S.S. benefits, return the portion of their S.S. that ends up being taxed to the S.S. system to help sustain that system, not to the general fund. A side effect of this would be it would tend to simplify tax filing.
1
There's an ugly secret to this discussion of a 70% tax rate on income over $10M. It's that there aren't enough tax payers at that income level to make a difference. The real motivator for this discussion is that if you can tax $10M at 70%, then surely it is ok to tax $1M at 65%, oh and lets tax $500k at 60% and $100k at 55%. What will happen is what always happens.
The real rich will move their money and develop complicated schemes to not pay the taxes assigned and who will be left with the burden? The hardworking and successful, small business owners, middle managers, inventors and engineers, surgeons and attorneys will see their taxes double.
7
@Dan
You are absolutely right. This is the shell game of the left.
1
The presidency of George W. Bush was basically a lesson in the failure of right wing economic ideas. Nobody should take them seriously any longer.
7
I can reflect and witness that the tax system in the USA for average income is higher than in France , the supposedly socialist or even communist country where health insurance and education are " free ", according to some Americans.
So...where do these taxes go here in the US ? To an army of 1 million soldiers and 2% of the population in jail ?
1
@JPH Where's your data? Just saying it doesn't make it so. In fact, I would be astounded to see how a system with "free" health care could have lower taxes than the US without it. Please share and enlighten.
1
@J Boro It is a well known fact among the French community. And Europeans in general. I did not write "lower taxes " in general. I wrote that at average income ( 80/100 K$ year ) taxes are higher in the US than in France. You are welcome to make your own research if you like. And what you call "free health care " is not free as well as education ,even university . We all pay for it.In France we have free health care for everybody since 1949. And free education. And 5 weeks paid annual vacation for everybody, even at minimum wage.
@J Boro One explanation is that your health system is very costly ( no 1 cost in world rank ) while it is of very low quality ( 38th in world rank ) while the French health care is 34th in cost but no 1 in quality ranking worldwide. An exemple one of our children needed an antibiotic that cost 1000 $ in the USA . A french doctor friend provided it for 40 euros = 50 $ . Same product from same laboratory in Germany.
It is fascinating the magical thinking appearing on this thread by the wishful who think somehow the ultra wealthy are too ignorant to understand the impact of confiscatory marginal tax rates or too lazy to find ways to avoid paying them. They can afford to hire accountants to develop plans to avoid the majority of any tax hike or if unavoidable simply defer income or shelter it. If not, they reduce their work time because they won't work for the government's benefit and spend more time with their families.
For those dreaming of the idyllic tax world of the Eisenhower era through the 70's, you must be ignorant of the rest of the tax code riddled with tax avoidance opportunities like tax shelters and 100% write-offs of business expenses like meals and entertainment. When the tax code was reformed to lower marginal rates, they were accompanied by a severe reduction of deduction opportunities which distorted the tax code. It ultimately resulted in higher tax collections, as incentives to keep more earnings were introduced in the code.
This silly notion that the wealthy are going to turn over their income without attempting to reduce their tax burden should be dismissed. Furthermore, even if you are correct and human nature changes overnight, no one has calculated the annual tax revenue increase from .1% of all Americans because it is a fraction of the overall total currently collected and fund very little of the programs that so many salivate about implementing.
6
Thank you! I was going to write a similar post about the wealth of tax breaks that were available back when marginal rates on very high incomes were so high. You express it better than I could. An additional example of the tax break largesse during this period was the fact that interest - all of it, not just mortgage interest - was fully deductible. Oh, and there was no alternative minimum tax, either.
When discussing the effect of a particular tax (or any other) policy it is super important to take account of its full context!
2
Reality check true tax rate is like glass water is half full or half empty. Empty is what we doing to our selves by allowing government to spend trillions in last 20 years on computors made in china for our government use using are taxs. Reality those jobs could paid taxs to our government to build those computors. Grand standing an playing good guy bad guy Reality is unlest government becomes self accountable we are all doomed.
"......in their madness they’re inadvertently revealing their true selves."
Funny, those are the same words used to describe to Democrats when it comes to Trump.
1
Unfortunately, Kruman doesn't seem to understand--it's more than the rich who get "soaked" in this country.
I own a successful contracting business. In those years when we do well (most), I share my good fortune with my employees. Why not???...I can't run the company without them--and they do their jobs with the understanding they have skin in the game. It works.
Here is how average folks get "soaked".
I created a "bonus pool" of $32,000--distributed to my 15 employees as a bonus handed to them at our Christmas party.
The math is ugly:
Bonus Pool: $32,000.
Payroll and other costs: $41,000
After-tax earnings $19, 400
Let me sum this up for you:
I wanted to share $32,00 of my good fortune with my employees. It cost me $41,000 to do so. Of that $41,000, my employees received $19,400--or 47% of it. The government received 53%--or $21,000.
The question not being asked is, why does the government need so much of our money?
Despite Trump's tax cuts, the U.S. Treasury will take in record revenues this year--and next. We have a government we can't afford, folks. And we'll soon have to make some tough choices--because it seems no matter how much revenue we raise--no matter how we raise it, politicians will always outspend it. At some point soon, our national debt will become unsustainable.
8
No amount of rational talk or evidence will budge the Repubs. They care only about two things: Power and Money. Period. They have no concern about the good of the country. They are are far more interested in getting brib...er..."donations" from their billionaire patrons and in return giving them tax breaks...in order to continue the "donations" to increase their own bank accounts than they are in the welfare of the American People.
At least that is the rock-solid evidence of the last 50 years of their actions.
2
@Joe Rockbottom Not true, but at least Americans see it every day. If dems would give at least 1% of the effort they expend to help illegals, towards the citizens of the U.S., we would be so much better off.
I agree with higher marginal tax rates on high-income earners. For decades we had tax rates way up there and the country still prospered and wasn't running deficits. Why can't we do that again?
1
Because the tax code itself has changed in fundamental ways. Back when the marginal rates were so very high there were many more ways to take deductions. And there was no alternative minimum tax. So the net effect was very different from what the effect would be of introducing those high marginal rates now.
That title isn’t a best choice. It creates misinformed concern about not being fair. Rhetoric does matter, y’know.
The Economics of Soaking the Rich works for me and the majority of Americans.
293
@JamesRobin Hood. But he was forgiven.
@James
You want to legalize theft as long as you are the beneficiary
7
@James ...just like many other forms of bias and discrimination. In the 1950's, the majority in the southern United States said that discrimination against blacks worked for them.
11
It's ironic that Republicans who want to "Make America Great Again" don't seem to realize that in 1945, when the America achieved total victory in WWII, the top marginal tax rate was 94%. In the 50's and early 60's, the top tax rate was over 90%, and the economy, the middle-class and the stock market boomed. When Neil Armstrong walked on the moon, the top bracket was 77%. Today's top rate is 39%. You can't achieve greatness without sacrifice.
3
Yes, and the tax code back then offered a myriad of generous deductions that have been removed or severely curtailed over the years. Plus there was no alternative minimum tax. Simply reintroducing high rates would be hugely different from going back to the tax code that was in effect in 1945.
"[T]ax policy toward the rich should have nothing to do with the interests of the rich." That should tell you all you need to know about the sensibility of the 70-80 % tax proposal. Let's just change a word and see how that comes out. "Tax policy toward the poor should have nothing to do with the poor."
3
She doesn't know anything about tax policy and neither does PK. Estimates are this would raise about $60-80 bill in add tax revenue annually - which is not even a rounding error in our federal budget. And that # is assuming the super rich, who have super CPAs and tax attorneys, don't find ways around this tax or shelter it. Further, Canada attempted a similar tactic recently and instead of the positive 3% revenue increase they projected, it went negative. We need serious retooling of our entire tax code - this isn't part of it.
3
Krugman certainly makes a fascinating point, and it is apparent that the American right needs to re-examine its fascination with supply-side economic theory. However, I’m slightly skeptical about using the United States’ tax rates during the monumental global changes of the period following World War II as a precedent for how these large tax rates would be received in today’s America. With Nobel laureates actively supporting this policy, I assume there is an argument for the validity of using the post-WWII time period as a proper case study; however, I would love to read an article breaking this down with the typical eloquence of Krugman on complex economic issues, as this seems like a criticism worth more than one line in the article.
5
Among other impacts revenue from high marginal rates funded budget deficits as required under Bretton Woods. Abandoning those Accords, (8/1971) rendered taxation for revenue obsolete. The rich began a relentless campaign for lower corporate and marginal rates. See the effects in Krugman's graph.
With a non-convertible fiat currency and a flexible exchange rate our federal government would no longer need revenue per se to fund itself.
Taxes For Revenue Are Obsolete, written in 1946 by Beardsley Ruml, the former Chairman of the Federal Reserve Bank of New York and published in a periodical named American Affairs. While Ruml was writing about the merits of corporate taxes, it is his discussion about how the function of taxes changed after the nation exited the gold standard that make this a must read.
https://goo.gl/v3GNG9
" ... with Federal spending not revenue constrained, the first function of taxation is to regulate the value of the dollar, which we know as regulating inflation. The notion of the Federal government ‘running out of money’ and ‘dependence on foreign borrowing’ as well as ‘sustainability’ is categorically inapplicable."
1
Miserable (I suspect racist) Republican attacks against A.O.C. re-enforce the obvious: that these are yesteryear's Americans. It follows, as night the day, that the Republican Party has only begun its long losing streak -- as in decades.
2
Why not go back to the good old Ronald Regan days, 50%. Has any looked the deficit these days? Government does not earn money like a billionaire that can choose to save. Government provides services and needs resources to do it. Yes, there are areas, such as defense, that likely should be revisited ($14,000 toilet seat), but services diminished will hurt people. It is happening now. Regan days worked then, they will work now. It is a reasonable compromise. Should the rich pay more? Isn't that unfair? When Romney reported paying only 11% when he ran in income tax, it revealed that the rich have the resources and "rules" to figure out how pay far less than they should. And they do. Let's balance the scales a bit and add a bit of fairness.
3
High tax rates of the very wealthy created the country we live in today. Thank you President Eisenhower for the interstate highway system...a result of high tax rates on the very rich. Our infrastructure was built by high taxes on those citizens who could afford the freight. This is real trickle down, where all citizens benefit, not just the 1%.
4
I appreciate the importance of the free market and its unique ability to create better living standards, and I also appreciate the dangers of well-meaning socialism. That being said, the reality in this country is that there are plenty of pepole with so much money that they simply don't know what to do with it. They spend it on more and more outrageous high-end luxuries and experiences, like bottles of wine worth thousands of dollars, luxury hotels and resorts, expensive art, or warehouses full of exotic cars, as Jay Leno has done. At the same time of course, others are malnourished, living with no heat and can't pay their medical bills. The wealth in this country can rightly be called obscene; obscene is the right word because it is so eagerly wasted on pointelss, lavish treats that do nothing to help those who are suffering so terribly at the bottom. This inequality coupled with apathy is reminiscent of the condiditons before the French Revolution, and it has gone on too long. So whatever the merits, whatever the potential cost to the economy of taxing the rich, whatever the ideal rate might be, it has to be done. We don't have to accept a society like this, and we won't, and I don't care what your economic model spits out, nobody should be spending $500 on a meal while others are going to bed hungry.
8
I usually agree with Paul Krugman but not so this time. What's to stop the Gates, Bezos and Dells from moving, along with their corporate headquarters, someplace else where the tax structure is far more favorable for the super rich?
4
Yep, move HQ to Dublin or Singapore, then jump on the Gulfstream and go buy a big house in Zurich or a penthouse in Monaco. Problem solved. And to people who think they won't do it - they will. Rich people have done it for years, and continue to do it now.
2
As a real live business owner let me just put this in simple and practical terms that everyone can understand. I relocated my company from NY to Washington State to save 8.22% in annual taxes.
Do you think I’m just going to sit around and get taxed at 73% (assuming of course I was passing through ordinary income and was in that tax bracket)? Of course not - I would relocate my business to Canada, Ireland or somewhere else which didn’t “soak” me.
Economists can toy in their theoretical world of retrospective data all they want. The reality is that most business owners making over 10M a year would just relocate - or distribute salary through dividends to avoid the high bracket. Capital and people are more mobile than ever.
8
@Jason I agree with you on the principle that no one is going to sit around and take it. However, they are not going after corporate tax and personal income is taxed worldwide. Still based on your reply, you wouldn't sit there and take it and would get your accountant to figure out a tax minimization strategy. I find this talk about people paying all their marginal income to the government silly and naive at best
@J Boro. The total Canadian Federal and Provincial tax combination would be about 54% on ordinary income. My point is simply that, given enough incentive, one could easily avoid boeing soaked and these sorts of ideas usually come from economists or politicians who have no context or experience owning or running a business.
Personally I think 37% is too high and I would argue that our bloated government should spend it more efficiently.
Let’s review our history - Federal taxation as a concept is only 100 years old and before WWII the feds only took a couple percent. It was after the war that taxes rose to the marginal rates Krugman seems to pine for. This was understandably to pay for the war itself. But guess what- once the feds had a line to that “revenue” as they like to call it - it never went away.
am sick and tired of hearing that we somehow all "owe" it to the filthy rich, as if they are the only ones "mercifully" putting their money to work and "providing" us with jobs. baloney.
are rich people undeserving of their wealth, not necessarily, but they "alone" do not make for an economy. demand for a product or service is what creates an economy. and what's required to meet that demand or service? money... in order to build the operation need to meet that demand/service.
here's the thing. "rich" people aren't the only ones with money to invest. other companies (i.e. banks) are also in a similar business, as are investment funds. I would want a system where there is NO chance for one to be wealthy (always good to have something (that could possibly happen) to shoot for), but I also don't want a system where those few who gave made it (on the backs of everyone else...I mean how else did they accumulate their wealth?), have such an outsized role in the policies that affect ALL of us. plus, demand from the many is much more of an economy that the demand from a few...no matter how expensive their toys..
2
Do they "deserve" their wealth? I look down the Forbes Billionaires list and see some people who inherited a successful their money, but I also see a lot of people who started from scratch and have gone on to change the world.
1
The incredible fact about this topic is the massive disconnect between the populist platitude of "the rich should pay their fair share" and the reality of nearly all tax policy enacted for the last three decades. For the record, the wealthy people in this country, from those on the Forbes list to the mere deca-millionaires, are people with large net worths. They have piles of net assets.
With that in mind, current U.S. taxes target "ordinary income" of working people. The very wealthy do not have W-2 income; they have portfolio income comprised of mostly capital gains (23.8% at the Federal level, 15% + a 5% for those earning more than $426K + 3.8% for the ACA add-on). Those with even with $50M in annual capital gains will only ever pay 23.8%. Hedge fund, private equity ,real estate fund managers all get paid via carried interest, so capital gains rates apply to them.
However, if you’re a well-paid worker trading your time for a salary, you are taxed at the highest rates. Earn more than $165K/year and you pay more than the largest passive investor. Anyone earning >$600K/year pays 37%. Add state and local taxes of places like California or New York and you can easily get to more than 50% for a marginal tax rate. Add in 10% sales taxes, property taxes, fuel taxes, etc. and your fair share becomes a lot!
When you continue to carry the “tax the rich” torch please be mindful of whom the rich are and who and what the policy you’re advocating for is actually going to tax.
5
Some of what Alexandria Ocasio-Cortez says is absolutely correct but she admits she doesn't really know why and is not able to defend her position. Other things she says are totally wrong. In some ways she sounds like the mirror image of Trump. How can we raise taxes on the truly rich so that they will pay instead of the middle class or new rich. Real rich people don't pay income tax because they don't earn money, they receive dividends. They use charitable contributions to private charities to offset any earnings they do get. Some poor kid who finds a way to make a million dollars one year pays at the highest rate while the truly rich pay at far lower rates. Alexandria Ocasio-Cortez wants to raise the rate for that person who makes a million dollars one year in his lifetime while allowing the truly rich to continue to avoid their fair share of taxes. Her positions on immigration are totally based on prejudice against White America. She holds the United States to a different standard from every other country in the world. She doesn't say Mexico or Columbia should adopt her advocated policies. All her life she was told she was a victim and she still believes it even after being elected to the United States House of Representatives.
2
You were doing well until you played the race card. It's true that Ms Ocasio Cortez seems to have a rather blinkered view of the super-rich, but is it because she's racist against white people? Really?
So I agree with the policy, but I disagree with the logic stated here. It is imperative that we never see any individual, whatever group they happen to be in, as only signifying based on that group identity. A person, to paraphrase Kant, must be viewed as an end in and of him/herself. This is as true for a rich person as it is for a poor person. I would emphasized instead the marginal quality of taxes. As one's supply of dollars (as income) increases, the government takes an increasing share of each one. Thus people pay the same tax rate on the same dollars. High tax rates, up to 85-90% are perfectly justifiable in this scenario, but we don't have to use the logic that says rich individuals only matter as they serve the whole. The reason I think this is important is not because the rich, as a group, suffer from any systematic discrimination—quite the opposite—but we should DISMISS any argument that requires us to treat individuals for as means to an end, not ends in themselves. That kind of logic almost always gets turned AGAINST those without power in our society.
1
Love AOCs economics. Doesn’t square with her open borders riff though.
1
Interesting to note that the majority of the "Times Picks" today are cries and moans- mostly false- about how awful and horrible equitable taxation would be. Makes me wonder what the true views of this publication might be. Pretty revolting, in all honesty. Our nation is collapsing from within as we struggle under the weight of a new gilded age, and all people can comment about is how evil and "unfair" it is to balance things out again?
Cry and moan all you want, but Ocasio-Cortez is absolutely right, as is Paul Krugman. For decades, the wealthy and corporations have been strip mining our nation for their own benefit. It's beyond time for them to start paying their fair share again. And yes, that means a higher marginal tax rate. They've spent decades reaping the benefits of our infrastructure, our educated citizens, our technological innovations, and have spent that time hoarding every cent, polluting our environment, and corrupting our government. Enough. Put up and shut up.
4
This article implies that all money belongs to the government, they just need to decide how much they want to take. If Denmark does that, so what. If it was done during Ike's administration, so what. If you think taxes should go up, but not for you, shame on you.
3
Here's hoping her "crazy" ideas and those of her fellow young/new members of congress will spark intelligent debate and actual govening. I hope the media will champion these new faces as long as they can back up thier ideas with facts and don't stray into the swamp. How refreshing to see young, diverse, excited people in government instead of grumpy, thick jowled old men.
4
In Europe and other places, a farmer or school teacher would look at our current inequality and say, “I work hard every day, and my work benefits society. Why should an investment banker make billions more than me?”
But a majority of Americans do NOT see it that way - not at all. Work in America is not about making a contribution to society, work is about the accumulation of wealth and power. Period. American workers say: “An investment banker figured out how to bilk the system and make billions more than me? Good for him! I hope one day I can bilk the system, and when I do, I hope I don’t have to pay taxes.”
9
Income taxes of any kind are counterproductive.
The best tax system is the land value tax as promoted by Henry George in the 19th century.
1
The comments make it obvious how few Americans, even NY Times subscribers, understand US tax rules and "marginal tax rates." We pay varying rates of tax on distinctly different tranches of our income.
Currently you may pay the top rate of 37% on your last dollar of income, what is termed marginal income, but by the time you get there you may have hundreds of thousands in other write-offs on which you pay zero tax.
Many people who run a business, or structure their income as business income, are allowed to deduct large tranches of their expenses. You think people driving $300K Mercedes or using $15,000 phones are not being subsidized by tax breaks? Those expenses also serve to reduce their marginal tax rate.
In contrast, my sister the teacher in the rust belt is not allowed to deduct the $2,000 she spends on school supplies, including replacing the lost boots, warm hats and gloves of her inner city students.
After you've taken out your business expenses, you pay zero income tax as head of household on the first $18,350, thanks to the standard individual deduction. There are many similar deductions to reduce your marginal tax rate.
2
@Capt. Penny
Seriously - you want to criticize the American public for not understand the US government's tax laws? The laws that have been made so complicated you need either an accountant or a software program written by an accountant to understand it and file your taxes?
I think we all understand a tax plan that taxes higher percentages the more income you have. And sure - you can pay zero income on the first $18,350, you earn, but you can't live on that amount or even double that amount in most major cities and their suburbs.
So really, what is your point?
2
I think his point is that "high taxe rate" doesn't mean high taxes...so "taxing the rich" isn't the same as stealing their hard earned income. you should congratulate the post on being able to remind everyone about how taxes actually work.. and for reminding everyone that someone earning very little, who may not pay any taxes, may not have enough to live on...as you rightly point out, as well as reminding everyone that very wealthy people get to deduct quite a bit and do not pay the taxes we otherwise think they do. the above can be used as the basis of the discussion need to raise marginal tax rates...
@Robert
Whatever way a proposal like this is decided in the details, the bottom line to me, is it's not that simple. It is and it isn't. It is simple that there are more and more billionaires and a billionaire lifestyle is a distortion of society. Not only does it keep the wealthy billionaire out of touch with how the majority of people live, but at the same time, they have the power their money provides, to continue to shape the world to their liking in increasingly distorted ways. All the while, having a negative effect of raising prices and making more and more inaccessible to all but the wealthy.
And that is a problem but not the only problems in our society and raising taxes has no affect in making our government more responsible and less corrupt. Or does it change the division in this country on basic values.
I think there should be a way to reduce the income inequality but I think this new Senator and her supporters, have made this adversarial rather than working on the problem together and that in the end will make more problems than it solves.
Not so crazy - tax rates were just cut for the wealthy resulting in an enormous deficit. Tax rates for the middle and lower classes were increased - who is soaking whom?
4
Trickle down has not only not worked, but it has also brought this nation to the brink of destruction. When we had a much higher tax rate for the super wealthy, we were doing immeasurably better as a society. So many of the commenters in this space have drunk the GOP's Koolaid (thanks Reagan, both Bushes and most of all Dick Cheney) that was served up and believe that they are in some kind alliance with billionaires. They are not.
3
Every personal income tax cut, including Kennedy's and Reagan's, were sold based primarily on two premises: (1) the government had plenty of money; and (2) it's better if individuals pay less in federal income taxes. But the first premise had the false pretexts that the Republic would agree about limiting the growth of the federal budget and that government would become more efficient (e.g. decrease waste, fraud, and abuse and get better at collecting taxes--improve the IRS). Those things did not happen in big ways and it became easy to finance bigger budgets through debt. So there really is no significant consensus that a $4 trillion + annual budget is enough. The second premise is still based on the pretexts of the stupid Laffer curve, which has never had any empirical proof, and the fundamental greed of people. Too many rich people can fight, and succeed, to keep their wealth; too many poor people think that, someday, they might be rich, so they vote against taxes increases on the wealthy (e.g. thinking eliminating estate taxes might, someday, directly benefit them.) Because being greedy is still considered, thankfully, "bad form," the rich sell their tax cuts by insisting: (1) trickle-down Laffer nonsense; and (2) they know better how to spend money on worthy causes. Reagan sold too many people on the nonsense that the very government he ran could not be trusted, was the "problem" and not a "solution." Meanwhile, all he did was increase spending and reallocate.
3
Rep Okasio-Cortez is quite impressive. She handled the 60' interview, broadcast yesterday unusually well, with quick disarming answers.
Her implication of 60-70% top federal income tax-rate on over about $10 million is actually more modest than Ronald Reagan's first tax-cut to 50% on over $175K in 1986, just before the drastic cut to 28%, with the tax-reform of 1986. Even that cut to 50% was seen as too much.
The main effect of Reagan Tax-cuts was federal income tax-burden seamlessly shifted from the rich to middle income groups https://upload.wikimedia.org/wikipedia/commons/e/e8/US_high-income_effective_tax_rates.png
Then there arose an antipathy if not hostility towards paying taxes. People used to feel paying taxes was their civic duty. No longer. Reagan taught us government is bad. Starve that beast. As Lee Atwater implied, cutting federal incomes taxes, which doesn’t affect the bottom half, when coupled with cuts in social safety-net programs is kind of dog whistle.
The principal advocate in the Congress was Paul Ryan, who with others wanted to destroy social security by “privatizing” it, and cutting similar social safety-nets to pay for the tax-cuts for the rich. And they managed to cut a $trillion in federal taxes!
3
Anyone who as ever met a CEO knows that with few exceptions these are not particularly intelligent or talented individuals. If anything what distinguishes them is their facility in navigating corporate politics and willingness to engage in shameless self marketing.
The notion that these people are irreplaceable or critical to the success of economy is preposterous. If they object to a 70% **marginal** tax rate on high income, then let them move to the Cayman Islands and be replaced by individuals who understand that they are not worth obscene compensation and are willing to give back to the society which enables it. If anything corporate governance would improve.
3
Look, Krugman may have a prize but he is nuts. The simple truth is everyone above poverty line should be taxed the same flat tax around 15%. That will enormously simplify the process and basically do away with the IRS. 15% well-spent should be enough to run the government. Probably we would collect more tax as those who spend a lot of time hiding income and assets would find 15% more than fair. Go to a flat tax, and everyone can pay their equal share
2
It's nice to read the Krugman is coming around to Bernie-nomics. Better late than never. I'm sure he'll never give him any credit, though.
2
Let's look at the average tax rate paid by the median household income and see who really wants to move back to the 1950s tax rates.
A median HH income of $53,939 (In constant 2013 dollars) would mean average federal taxes and rate of:
1956: $11,360 taxes paid / 23.2% actual rate
2018: $5,979 taxes paid / 11.3% actual rate
Are NYT posters willing to also have the median tax rate double for the median household as well as for the rich?
Instead of shared contribution by all or most, my guess is that this is typical political posturing where "you are getting something extra that won't cost you anything as it'll be paid for by [bad] people" which sounds a lot like Trump.
Nice.
2
@NYC Moderate - Your constant dollar calculation does not reflect the difference in scale of income and inequalities between 1950 and 2018.
This is a typical false argument supposedly based on factual
elements .
@NYC Moderate
I seriously doubt your figures are accurate.
Though the top rate was 91%, the median household's tax-burden cannot be significantly higher than today's median household's.
Please check your source.
@JPH
Can you expound? The median household would pay twice as much taxes, which isn't far off from the increase in the top end relative to today.
If everyone is willing to have their tax rate doubled, it should be an interesting conversation.
1
I suggest that all income and income of every kind be put into a general account that first funds the government and then, initially, is dispersed so as to eliminate every kind of poverty; thereupon the remainder is dispersed according to the life style of the individual whose income had become part of the general fund, that is e.g. most millionaires would still end up living and spending like millionaires. However, such a way of doing things would entail the end of poverty and all its aspects – just imagine!
Did I miss an important fact in this article? Did I miss a specific number because all I saw was "very high income" and then an analysis of a millionaire not noticing the loss of $1000.
Exactly what income level is she suggesting for an 80% tax?
2
For the last 100 years, in times of "national crisis" -- WW1, WW2, Korea, Cold War, Vietnam... The wealthy have been called on to pay a higher share of the LAST dollar than the poorest Americans.
don the con wants a wall because of a "national crisis?" then do what patriotic Americans have been called on to do for over 100 years: pay what they can bear. Instead the GOP cuts their taxes and pushes debt onto the entire nation.
3
"Socialism," more accurately "democratic socialism," is what AOC and a number of progressives and Democrats are talking about, and which is a popular form of government in Scandinavian and other advanced European states--especially those rated high in health care and quality of life.
Socialism is based on "sharing," which is exactly the word that sends right-wingers, and free-market capitalists into panic mode, whose goal is to acquire it all, generally by taking from others. These were the children in preschool that drove other kids and teachers crazy with their selfishness, greed, and lack of concern for others.
As a reminder, here is an excerpt from "All I Needed to Know, I Learned in Kindergarten," by Robert Fulghum:
Share everything.
Play fair.
Don't hit people.
Put things back where you found them.
Clean up your own mess.
Don't take things that aren't yours.
Say you're sorry when you hurt somebody.
Maybe we should send copies of Fulghum's book to Donald Trump, Mitch McConnell, the entire Trump cabinet, Rupert Murdoch and Fox News, most Republicans, and every whining, selfish member of the 1%. Or don't they read? Or care?
3
@PB. And send a copy to every democrat as well.
1
Reagan sold the biggest undeserved tax cut for the wealthy when he embraced the economic theory of trickle down economics. How did trickle down economics work for you if you weren't making six figures a year?
Trickle down caused the greatest transfer of wealth from the middle class to the wealthy that America has ever experienced.
And now to compound the problem of income inequality, the Citizens United decision in the Supreme Court has made it possible for the wealthy and corporations to pour funds into political candidates and ensure their continued control of Republicans who can protect their tax reductions and loopholes.
5
How perfectly wonderful that the youngest member of Congress knows “a lot” about economics. May she be able to teach what she knows to those who voted for DT’s “tax cut.”
1
A lot of Republicans quote Ayn Rand, forgetting that she applied for both Social Security AND Medicare when she came down with lung cancer.
And a lot of Republicans quote what Churchill had to say about overtaxing, forgetting that he was also an advocate of universal healthcare and that they have so many loopholes in our tax system that billionaires can end up paying ZERO or deferring the amounts they owe indefinitely.
Now they quote Trump, who won't even show us his tax returns and whose campaign chairman is facing jail time for money-laundering and tax fraud charges among other things.
She's a breath of fresh air who brings the subject of tax reform up - not that any of her adversaries are willing to actually talk about it. They'd rather talk about her dancing technique.
2
I would like to see the economic research where there is a relationship between high tax rates on high earners and the growth in GDP. Also in the 50's and 60's few paid these high rates due to tax planning.
2
@Joe - What is the growth in GDP ?
Can you explain please ?
Just before the Reagan era, Republicans made a Faustian pact with their wealthiest donors: Republicans would henceforth exclusively represent and serve the interests of the wealthiest 0.1% of Americans. In exchange, wealthy donors would open their piggy banks and provide limitless funding to ensure the GOP would become and remain the Majority Ruling Party.
Those donors believe they are entitled to all the nation's wealth. They should not be forced to pay taxes to support things that benefit people other than themselves; and they particularly resent liberals taxing them to redistribute their wealth to undeserving "takers." They believe the only purpose of government should be to protect their wealth, and to help them acquire more. Their vision of America is a kind of feudalism, in which they are the entitled nobles who rule over 300,000,000 impoverished serfs.
That agenda and vision are indeed what Republicans have worked to attain. They've cut taxes on the wealthy, sought to demolish programs and services that benefit the non-wealthy, and eliminated barriers to the wealthy acquiring more wealth. But as that agenda is hard to sell to the millions of people they need to consistently vote against their own interests, Republicans needed to create and disseminate a more appealing alternative reality. Thus their repudiation of science and legitimate economics in favor of nonsense that affirms their alternative reality and justifies their agenda. They delude even themselves.
3
First, Krugman ignores the fact that other taxes (e.g., state income tax) are paid on income -- CA is 13% at the top. NY is similar. So when you throw around nos. like 70 or 80%, you are really saying 85-95%. Second, even taxing in the manner AOC suggests might fund from the over $10 million club some portion of her Green project (until the wealthy take steps to immunize their income from such confiscatory taxes) you can only go to this well once. How then, does the left fund all of the other spending programs it has in mind?
2
The super rich don’t spend 15-25% of income on buying goods, it gets reinvested; They pay sales taxes of maybe 1% if that.
2
Before getting too excited about marginal tax rates of 70% or even 90%, we should remember that some wealthy people pay NO tax, no matter what their marginal tax rate, because they work the loopholes. Many others pay far less than their marginal rate would dictate, for the same reason (e.g., the “carried interest” loophole).
Thus simply jacking marginal tax rates upward to even 90% wouldn’t necessarily create a revenue windfall: Wealthy people would shift their tax strategies accordingly — to minimize income taxed at marginal rates, and thereby to avoid paying higher taxes. (Ninety percent of nothing is the same as 37% of nothing — it’s nothing.) The devil is in the details, a.k.a. “loopholes.”
2
70% or 80% might work on paper, Dr. Krugman. It might work in small, homogeneous countries like Sweden or Finland (for now). But not in the US, not in today's world.
Think Amazon, Ebay, Facebook, Google, Netflix, Yahoo, Groupon, Linked In, Uber, TripAdvisor, Etc. All founded in the US, all of them a very large part of the future of our economy. Tell their founders 4/5 dollars will be be given to a wasteful government, contend with irrational bureaucracies and regulations, and none of them would be here.
There has always been something attractive about splitting it down the middle. That idea goes back a few years! Maybe you go with 49.8%, eliminate the loopholes. Enough with the silly math.
@Bill Sweden has a higher percentage of foreign born population (20%) than the US (16%).
Also it's 70% *marginal* tax, with a proposed bracket starting at $10 million. So if you made 10 million and 1 dollar, only that last dollar is taxed at 70%
1
What if 4/5th of that income paid for universal health care? Would that be so bad ?
1
It is waste to spend money on border walls.. but what about medicare insurance for all, and investing in a green economy for starters?
2
Raising income tax rates on the very rish is not the best soultion for a number of reasons:
1. There is simply not enough income to really cover the expenses of a modern government;
2. It will be very difficult to convince most people that the way to pay for government programs is to take proportionately more money from wealthy people, even if it won't really change their lifestlye (as already shown by some comments below);
The right and fair way to collect the money needed to run the government is to tax everyone the same percentage of their net wealth, and to eleiminate income taxes.
The point is that wealthy people don't have proportionately high incomes, because they earn their wealth through asset appreciation, not income. So no matter how high you set the marginal rates on income, wealthy people will not be paying enough to really provide the money needed. As a percentage of their net worth, the wealthy simply don't pay anything like what poorer people do.
4
Calling colleagues and leaders "insane" does not solve this or any other problem. These are functional people on both sides. So far, AOC has managed to keep her dignity among colleagues who have consciously tossed aside their own. I hope that she'll continue to keep it, as this country needs her.
2
I agree with your analysis but a 70% highest marginal tax rate will never pass congress regardless if the person in the White House is Trump or a Democrat. I fully agree it’s very joyful watching the right squirm when they see Ms Ocasio-Cortez sworn into office.
1
Krugman: "... when taxing the rich, all we should care about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue." Krugman's philosophical assumption is a tad harsh. At any level, on one should be required to work solely for the benefit of others, even if that is what the rich think their employees should be doing. But even a rich person deserves some benefit from their labor. So if 73% is the best economists' estimate of the rate that raises the max possible revenue, I wouldn't be opposed to taxing the rich at a lesser rate so they aren't solely working for the benefit of society. How about 72%? ;-)
1
Having graduated with an economics degree, I am shocked to see the usually-erudite Krugman completely miss half of the equation in the following section:
"In that case, however, why do we care how hard the rich work? If a rich man works an extra hour, adding $1000 to the economy, but gets paid $1000 for his efforts, the combined income of everyone else doesn’t change, does it? Ah, but it does — because he pays taxes on that extra $1000. So the social benefit from getting high-income individuals to work a bit harder is the tax revenue generated by that extra effort — and conversely the cost of their working less is the reduction in the taxes they pay.
Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue."
The total social benefit is not merely the taxes paid by the rich man. The total social benefit also includes the benefits enjoyed by whomever it was that paid him these wages, presumably for economically productive work. We benefit not only from the taxes paid by a world-class surgeon, but also from the numerous lives he saves in his work. We benefit not only from the taxes paid by Aaron Judge, but also from the entertainment and joy of watching him play. There are benefits to society that extend far beyond the immediate tax implications of someone's labor.
3
@Alex
What is your point?
This woman has learned more in a short time in government than most have in a lifetime in congress. Better the media and others stop demonizing her and tell how she is succeeding where too many others have failed. We need more like her and should encourage that.
2
WOW! I never thought that AOC's crazy idea will ever be substantiated by Nobel laureates. It is true that the rich is powerful to influence our tax law. There is another problem the rich can take full advantage of all the tax loopholes to reduce their tax bills as our Presikdent Mr. Trump has done. Mr. Trump's or his father's cheating of taxes came out when he became the president. there are so many others who are hiding under the curtain - who knows? so I agree let us increase the tax rate to 70% to 80% but in steps over several years to mease the economic performance.
1
There was a time when the top tax rate in Britain ranged between 80 and 99% - popular it was not. The excessive tax in the 70's led to self-imposed exiles and a talent drain in addition to loss of revenues. The Rolling Stone's masterful album Exile On Main Street was recorded in France where the band had taken up residence to avoid 93% tax on their revenues...(so yes - there can be a positive side to punitive taxation) The underlying issue is taxation-avoidance which has spawned a global industry and turned tiny banks in tiny nations into tiny banks n tiny nations with massive deposits.
There is a long-standing argument for a flat tax rate of 20% across the board - no exclusions, exceptions, exemptions or escapes - everyone pays the flat rate whether you're a bodega owner in New York or Apple Inc. in California. Whether this simplistic approach has merit or not - it's worth exploring because the 2,300 page US Tax Code takes another 66,000 pages to explain it...which is a pile of paper only tax lawyers could love.
2
A lot of folks here are making some basic errors about how income taxes work. In particular, people are losing track of what the infamous "brackets" are. If you're in the top bracket, that doesn't mean all of your income is taxed at the highest rate, just the amount of your income above the threshold for that bracket.
The current top bracket is 37%, starting at about $500k/per year. Now, there are lots of accusations about what is a "crazy" tax idea. One thing I think is crazy is treating someone making under $1 million the same as someone making tens or hundreds of millions.
4
@Max Brown
Totally agree with your final sentence. Too bad--as we all know--that many of these billionaire earners are able to heavily influence this debate with their campaign contributions.
2
Krugman provides good data to make the point AOC's ideas were at one time US policy; but until 1972 the opposite of AOC's ideas seemed to be correct (growth rate zoomed with the lowering of the max tax rate on incomes from 90% to 70%, then rose again with the lowering of the tax rate from 70% to 30% in 1981). But from 1957 to 2017, it seems, lower top tax rates correlate with lower growth. But the 1972-75, 1984-86, and 2005-08 saw increased in financialization of the economy among other troubling things like trillions chasing commies and now terrorists. Clearly there is no causality in the data Krugman offers. But, yes, many people were as crazy as AOC in the 50s to think high taxes on the wealthy was a good idea. "Good" economists also praise the idea from 140 years ago that only land rent go to fund government (plenty of rich people there), and concurrently bring rich, middle, and poor income tax rates to 0%. So let's be careful how we cherry pick our data and explore more than Krugman's hobby horse ideas. It is VERY important WHICH rich people pay and WHAT they are taxed on. I think most people would welcome a 30% increase in pay, even if it meant (non-land owning) capitalist pigs got the same.
1
While I generally agree with your argument the data you use to support your thesis is completely confounded.,i.e., was it the high tax rate or the economic times more generally that resulted in the higher growth rates?
Is there any justification why the 1% should be so rich. No person is that valuable that he or she can make more money in a year than the GDP of a developing country. No one person needs that amount of money to live, even as royalty. I say, first tax bonuses as you would winners of the lottery, cause that's what it is, then ban corporate money from politics, and finally make it a tax incentive to right-off salaries and benefits from corporate taxes. Cortez is right and will become more right as she learns the ropes of being a politician.
1
Cut the FICA withholding rates back to pre-Greenspan levels...Roughly cut them in half...Surely, the 'store of funds' to pay out current generations as they retire and die (est. at $2.8T) is big enough by now.
Doing this would...
1) Restore a personal savings function to middle-tier earners. Reagans overnight doubling of FICA rates clobbered personal savings. Workers without savings are over-reliant their current incomes.
2) Takes away the GOP pool of funds they use to finance their tax cuts for EVERYONE...which always seem to benefit the Already Haves far more generously than the middle and
3) Returns billions in capital each year back to employers to decide how to spend it.
There should be an increase in income caps to 5 or six times median household income with a cut of twice median income for the matching portion on the self-employed.
Our tax system has been over-rewarding capital and punishing money earned by income since Nixon. Rates should increase but closing the 'capital gains' tax evasion paths needs to be examined very closely. Very closely.
2
@Jack
Where to you get your "est. at $2.8T" stat?
Imagine this: There's this game where you earn money. It's called United States. When playing this game everybody has to payback some money so the game can function.
There's even a possibility that you can become insanely rich. I mean really, really rich. You could buy anything you want from this game. The only stipulation is that if you play the game well and win and become really, really rich, you gotta payback a lot more money. So the game can function for all. But you'll still be really, really rich.
You in?
If not, we've got these other games, they are called Madagascar, India, Greece...
2
I made about $225,000 last year and paid about $40,000 in Federal income taxes. Then I had to pay state income tax, social security tax, medicare tax, property taxes of over $10,000 on a 2,000 s.f. home I also have an adult child who has Aspergers & migraines who has a part time job in a store where he earned $18,000 last year. I am subsidizing my disabled child by putting a roof over his head, paying for him to be on my health insurance policy, providing him with a reliable car to get to his job where he has learned many social and other skills which has been advantageous to his future success in life. I do not get to claim him as a 'dependent' on my taxes since he is over the age of 23. Once he ages off my health insurance I will have to pay well over $600 a month for COBRA ins. which actually works out much better than the ACA which has $7K plus deductibles. Or I could tell him to leave his job and try to go back to school again to gain some kind of skill. The gov't ignores the plight of ppl like my son. He has never gotten SSI and since he can work at a menial job but doesn't earn enough to support himself they ignore him. He did attend a comm. college yrs ago which I was happy to pay for but due to his learning disabilities was not successful in passing any courses. So in addition to saving for my own retirement I have to save money for my son's future expenses because the gov't is not going to put a roof over his head after I pass on. I am unsure how to proceed here.
2
@Sam C. You have my sympathy and I know that many of us understand exactly what you are dealing with. I have neighbors that also have children with disabilities who struggle along with the expenses of adult children who are not able to support themselves.
I think the issue here, is that if corporations were providing higher wages and more benefits to employees, instead of writing millions of dollars in bonuses to the upper echelon and themselves and finding ways to escape paying taxes at all, then you could support your son and care for him, without the stress and uncertainty of ...'how is he going to manage if I'm not here.'
To me the question becomes, how did these individuals become so wealthy? Haven't they taken from all of us in society with high enough prices, low enough wages and escaping their own taxes, to accumulate wealth?
On the other hand, the wealthy are not the only ones to blame. We have taken our eye off the ball. Congress has sold out to the wealthy. And then there are those who try to scam the system, or don't work, or gamble away all their money and are financially irresponsible.
We all have changes we could make, to fix these problems. I just don't think a 70% tax on the wealthy is fair, or reasonable, or has any chance of solving anything, but will create more problems in society.
2
Above a certain level just take a flat percentage with no adjustments. You make $100 million? - you owe $25 million. The govt (ie, we the people of America) should be happy to get $25 million which is worth more than what many thousands of other taxpayers would collectively pay. The rich taxpayer keeps $75mm. Seems a win win.
But a tax rate at 80%?— Bet you a lot that the rich taxpayer relocates to a Caribbean tax haven and we see $0.
We should want people to get rich. We should want 25% (or some similar ballpark agreed number) of the biggest number possible to be paid in taxes.
1
And good riddance to those greedy, money soaking rich. When they are gone, the source of that wealth may be taken up by a hundred or more individuals who will be happy for that chance. Income hogs are not welcome.
If this country enables you to make ten million a year, then you should be grateful : and be thankful for the opportunity to make 200,000 on each million beyond that.
She's in for a big fall given the reality of governing.
Mr. Krugman, my wife is contemplating quitting her job because of the high marginal tax rates that my income put on hers. It will be a net loss for the economy, but perhaps a win for her. I think you underestimate the discouraging effects a high tax rate has on the labor force.
2
People who really are insane, and need treatment for it, might object to Mr Krugman calling people he disagrees with insane.
People who remember that the Soviet Union sent its 'resistance' to insane asylums, among other options, might likewise object.
People who look at Mr Krugman's graph might notice that the first two big tax cuts line up with big growth jumps. The first two tax hikes line up with growth shrinkage. Growth tanked the first time Lady Pelosi became speaker, and recovered somewhat when the Tea Party came in.
Only a racist would disagree with economist Thomas Sowell, or deny him the Nobel Prize (right?), and he notes that tax cuts in the A.D. 1920s increased both revenue, and the percentage of taxes paid by the rich.
Slavery is unconstitutional, and taxing away from a man more than half of what he earns sure sounds like slavery to me. (And remember the states are entitled to some percentage.)
And by giving his life, Jesus showed what true generosity looks like. By taking it (to prevent riot, genocide, and job loss), his enemies showed what taxation looks like. By rising from the dead (in historical fact), He showed the only superpower du jour who the Only Superpower is.
Bring back the top 90%! Otherwise we will continue to devolve into an autocratic country of vast inequality.
1
Republicans and everyone else on the right are more taken by Alexandria Ocasio-Cortez than anyone else. They can't get enough of her. It's driving them insane. They can't help themselves. She will outlive most of them, and will likely lead the charge towards changes in America in ways that scare them the most. They are now engaged in operations to diminish or defeat her that makes what they did to Hillary pale in comparison. This is a combination of admiration, fear, jealousy, racism, and misogyny in heaping proportions. I wish her success.
3
There is never enough money to finance liberalism.
There is something wrong with the chart. It seems to show US economic growth at a very low level for 2017 but conveniently does not point out that the latest tax cuts were not enacted until December 2017.
The 2018 economic growth rate looks to be at least 3% but Paul doesn't mention that either.
I would love to see Thomas Sowell analyze Paul's claims. I would bet he would decimate Paul's theories.
1
Please explain how you obtained the real GDP per capita plot in more detail. Why is it so different than the one from the FED, which uses the same data:
https://fred.stlouisfed.org/series/A939RX0Q048SBEA
2
Paul Krugman offers a graph of tax rates versus growth and concludes ...
'What we see is that America used to have very high tax rates on the rich — higher even than those AOC is proposing — and did just fine. Since then tax rates have come way down, and if anything the economy has done less well."
A rather unsophisticated analysis for an author with Mr Krugman's credentials.
Here's an equally simplistic comparison -- with which he might disagree (because it doesn't fit his progressive narrative) ; '...America used to have a very low immigration rate and we did just fine (with economic growth). Now, the immigration rate has gone way up and if anything the economy has done less well'.
These issues deserve a more compelling analysis from 'experts' like Mr Krugman.
7
It's been said today, in support of this AOC position on taxing the wealthy, that it is not a 'socialist' policy, why just look at the Nordic countries and the high tax rate they all pay and then everything is taken care of by the state. We should try to understand the complexity of what the Nordic countries are doing and if it works, in what ways it doesn't work.
We are not the Nordic countries. They are smaller, and more homogenous. They are said to have less corruption. Because they share the same values, there is more trust and cooperation and they willingly contribute more taxes. It is a mutual decision for the good of society.
What AOC is talking about is adversarial. I definitely think those with more wealth should pay more taxes and that they should be able to see the sense to that and agree to it and accept it, but at the same time, if you told me I had to give this government, whether democrat or republican at the helm, 70% of my money - a government that proves every day, that they cannot govern and have spent money they don't even have to put a sword over all our heads with the national debt - I'd be most unwilling.
I don't believe this new congressperson, is what this country needs. We need someone leading the way toward negotiation, consensus, cooperation and compromise. We all need to get on the same page, or like a couple who cannot manage that, maybe an amiable divorce rather than killing each other is the solution.
4
This woman is scaring the GOP because she is bright, articulate, telegenic and charismatic!
The GOP fear was palpable when they booed her when she was sworn-in, in the House.
The GOP Men hate it when women succeed.
They hate it even more when that woman is a minority!
Their true racism is revealed.
6
Many Democrats and Independents have wondered why so many modern day republican voters always fight so hard for their 'underdog', the wealthy. Is it that one day they too might be that wealthy? America did so well as a country when Ike's taxes were highest on the wealthiest 2%. It enabled America to build infrastructure and at same time create largest middle class. Every since Republicans started selling the con of Trickle Down Economics, giving the monies back to the wealthiest among us, our infrastructure falling apart, and our middle class disappearing. But yet, republican base continue to vote against their best interests so long as they hear the right 'dog whistles' from their candidates. Trump doesn't give care about them, neither does Ryan or McConnell - but yet - the base falls for it every time. Why is that? What's in it for them?
1
As another op-ed pointed out last week, taxing the income after it is acquired won't work. The US has a weak communal culture so there is a widespread belief that you should keep what you can take/negotiate/con people out of, etc. The profit generated by economic activity must be more widely distributed before April 15th. Afterwards it's a dead end, no matter how much it would help the country. Because with a weak communal culture, made ever weaker by non-white immigration, individuals will rightly refuse to accept that their personal effort and risks they take belong to the state.
People have a different conception of society now than in 1955.
2
We have a strong Second Amendment to allow us to keep and bear arms, but the government will not allow us to keep a thousand or a million AR 15's because of the potential for big violent uprisings. A lucky collector might get to keep thousands of rounds of ammo and a few hundred guns before the law takes them away. So why allow billionaires--multi multi millionaires too--to accumulate so much money that they can disrupt democratic processes in myriad ways, especially by campaign "contributions," super pacs, bribing cities, states, and government leaders? We have gone too far when businesses and individuals determine fiscal policy of the state and create a state that is dependent on borrowing from those financial entities as the US does. The huge capitalists need to be trimmed way back, their influence cut way way back, or we are doomed.
4
When I was young, the very wealthy had 50% federal tax rates. They were still very wealthy.
Since we, as a country, have decided to lower corporate taxes, by a lot, it makes perfect sense to increase the tax rate of the wealthy. The policy alternatives are huge federal deficits, or vast reductions to health, food, environmental, public places (think national parks), public services, medical and scientific research, physical infrastructure, etc. programs.
1
They are setting the system up to starve to death and fail.
"Diminishing marginal utility is the common-sense notion that an extra dollar is worth a lot less in satisfaction to people with very high incomes than to those with low incomes"
Huh? Rich people who got that way know all to well the value of a dollar. Ambitious people like that don't just stop and say "ok I'm done." Krugman and his ilk should get out of the ivory tower and speak with entrepreneurs in order to understand the real psychology.
Knowing the value of a dollar is different than valuing a dollar. A billionaire probably wouldn’t take a city bus across town for $1000. A poor person would take a plane for that.
Krugman specifically addresses your criticism by explaining why a 100% tax rate would be bad. You are doing exactly what he criticizes; opposing data with off-the-cuff conjectures.
1
@In the know
Rephrasing for the cognitively challenged:
"Diminishing marginal utility: The notion that a rich dude will totally not wash your car for $10 but some immigrant dude totally will"
There. Maybe you can understand it better now?
As usual, Krugman the Fake Economist uses his best obfuscation to slant his analysis. He chooses to use a chart to demonstrate the effect of tax rates on GDP growth--leaving out the most recent results--which would show 4% GDP growth in conjunction with the largest tax cuts every enacted.
Krugman also uses the IRS's historical published tax rates for comparison purposes. What he fails to mention (of course) is that those rates bear very little relationship to what was really happening at the time. Because of loopholes, exemptions and creative accounting, wealthy people never paid those rates--or anything close to them. What he should have used, if he was doing honest analysis, is the "Effective Tax Rate"--what the wealthy really paid--as a percentage of their incomes.
Here is the real truth: contributions to the U.S. Treasury, despite Trump's tax cuts, are at all-time highs. That's right folks--more revenue is being collected than ever before. Krugman, at his most devious, can't be bothered to mention this.
Unfortunately, because politicians can always outspend any revenue stream--no matter how large--our national debt continues to grow unabated. Eventually, the realities of our fiscal profligacy will bump up against Moore's Law--which simply states, "If something cannot go on forever, it will end". The question for the citizens of this country is, "how how will things end--in a controlled, thoughtful way, or as part of a great economic unraveling?"
3
@Jesse The Conservative
I have no idea what you are talking about. Forget Krugman and what he has to say. Forget data, open your eyes. Anyone living in the world, let alone this country can see every day the disparity between the ultra wealthy and the rest of the population. Greed and power which they have chosen to use, to further feather their nests instead of making decisions that benefit society. Whatever taxes people are paying, they are still able to accumulate millions and billions of dollars. And not always in an honest way.
And yes, you are right, our government whether republican or democratic, has failed to govern for the good of the country and has made a mess of our economy, made unwise decisions, spent money they didn't have.
People who are supposed to be leaders in the world, have responsibility to the world, not just themselves and when they fail to do that, we all suffer.
1
@liz, you should get down on your knees and thank your lucky stars that we have millionaires and billionaires in this country. In earning their wealth, they made us the envy of the world.
If you want to go live in the poorest, most despotic places on earth (North Korea, Cuba, Venezuela), find those places where there are no businesses, no millionaires, no billionaires.
1
I disagree with this.
Taxing the rich always seems like a great idea for socialists and liberals. Its always seems to them like the easy fix. Probably the best way to know that someone is clueless about economic and tax policy is when they just scream "Tax the rich!"
The fact is that its just is not that simple.
What is not taken into consideration here is now much the wealthy invest in the economy, create jobs, and donate to things like arts or social programs that our government can not fund. How much do the wealthy invest in new businesses? How does their spending effect the rest of our jobs and wealth because of their purchases? Trickle down economics works! Do we really want a high tax rate on entrepreneurs?
Socialism has failed almost everywhere. Please don't bring it here.
A better way is to always ask do we have the correct tax rates? Taxes that are too high or too low are always the issue. We need to constantly strive to get it right.
Oh yeah, one more thing. The idea that anyone can compare our world economy today to anytime in the past is just absurd and of course after WWII when most of the rest of the word was in ruins and they all had to come to the USA to buy any goods will not be replicated any time soon.
2
@David K
"What is not taken into consideration here is now much the wealthy invest in the economy, create jobs, and donate to things like arts or social programs that our government can not fund..."
I hope you see the irony in noting that the government can not fund these things - precisely because they are not collecting enough tax revenue. How about we tax corporations and use that money to invest in the things we need, instead of letting the corporations fund the selective public things they choose to pay for. Then we could take pride in our public institutions and we wouldn't have to suffer the pathetic indignity of going to venues with names like Enron Stadium or the Staples Center.
5
Krugman addresses your criticism. That’s why he says the top rate shouldn’t be 100%. He simply says that the benefits you cite will still happen when the upper rate is 70%. You have simply decided that economists he cites are wrong about that.
@David K
I don't agree with a 70% tax rate. I don't agree with demanding the wealthy pay more taxes. I believe we have problems of corruption and the deficit that are having a huge negative effect on our country and the wealthy either see it and don't care or stick their heads in the sand or are partially responsible in some way by their influence on government.
None of us need a degree in economics to look around and see how many people are not just millionaires any more but billionaires. How did they become billionaires? I believe they made choices along the way that were not in the best interest of the people they employ, the community they operate in and their customers.
It's greed and a desire for power, that motivates people to accumulate that kind of wealth. And they are so busy collecting wealth and gaining power and thinking of just themselves, they do not even see the ways their actions are eroding a healthy society. And they are out of touch with how the rest of the world lives.
Honestly, I would not want any of my family to accumulate wealth. It scares me as much as having too little, with how it changes people and not for the better.
Economist are positive folk, they do a good job pointing out the good policies, progressive taxation is a good policy, but minimum wage, trade barriers, taxing people and buying things for them they don't ask for like free college, healthcare, etc., rent fixing, union wage monopolization... and pretty much everything else on the far left agenda is horrible policy, and it'll all backfire, causing the poor to get poorer, the economy to stagnant, and riots in the streets like much of Europe and South America after years of these type of policies.
2
Smells like the politics of resentment. I've been a low income earner and, now in my 50's, a high income earner. The assertion that the negative consequences (removal of incentive to work) kicks in at 100% is ridiculous. It kicks in much lower than that. In addition to a 70-80% income tax, I would also have a 10% state income tax...and medicare tax plus the medicare surtax....and FICA. That doesn't even include the property taxes, sales taxes, gas tax, tax on my auto purchase and licensing and all of the other taxes we pay. The disincentive for me kicked in at 50%. When federal tax was 39.6% and state at 10% the value of spending more time with my family outweighed the value of working harder and longer. The first 50 hours a week I work is hard (but rewarding) work. The next 20 hours is a bit harder and comes at some personal sacrifices (less time for me, less time for family, fewer outside work obligations possible). Why would I work even longer hours (at even greater personal sacrifice) only to pay 50% (or the 70-80%+ that AOC and Krugman want) in taxes? The answer is I won't. So this "little engine that could" works less and fuels the economy less. Our company employs 0.5 FTE less employee as a result as well. Krugman/AOC may be virtue signaling or they may actually believe their nonsense. Either way, it is insanity. Their indoctrinating too many people into becoming dependent on an inefficient (and often corrupt) federal govt and it's largesse.
4
@Steve M I think these super high tax rates are only for the VERY highest earners. Like, millionaires and billionaires. I could be wrong, but I'm not sure if this would apply to what you're describing.
1
On "60 Minutes" last night, I thought I heard AOC say her proposal is to levy high rates on every dollar you make AFTER your first $10 million. Many people don't seem to be getting this.
My opinion: AOC's ideas are going nowhere in this country. And, hypothetically, they would be much more disruptive that Dr. Krugman seems to suggest.
Think about high-end New York real estate, for example. Effectively capping income at $10 million would diminish the buying power of people who pay for top condos. This would have a diminishing ripple effect on underlying property values, the construction industry and everyone it employs, the City's tax base, and other areas, I'm sure.
Policies that raise taxes invariably end up affecting middle and upper middle-class income earners most because it's easier to take small amounts from lots of people than big amounts from a few. (Especially the few who can afford esoteric tax shelters.) That's my uneducated answer to the diminishing marginal utility theory.
2
Your last paragraph seems to deny the premise of the argument. Tax laws are not magic potions that might unexpectedly spill on the wrong people. If you wanted to, you could easily write a law that raises taxes on incomes above $1,000,000, or $10,000,000, and affects no other rates. Just as lowering the higher rates of the recent past most benefitted the ultra-wealthy, raising them would primarily affect them, assuming the law was written that way.
Rates were 70% when Rockefellers and Kennedys ruled the world, but you can be sure that they never paid average rates as high as a bricklayer.
Krugman's references to US economic history are inapposite.
Instead of focusing on higher tax rates for the rich, why not do something meaningful for the vast majority who are not wealthy?
Working people have values too, but stealing from the rich did not use to be one of them. Philanthropy does serve a purpose.
2
Alexandria Ocasio-Cortez and Paul Krugman are absolutely correct. The top tax bracket under Eisenhower was 90%. Now it’s about 37%?? Substantially higher taxes on the rich is a no-brainer. Emphasis on substantially.
7
The most obscene political position I have come across is the solicitude shown by the Right -- especially the Republican politicians -- towards the super-rich and the taxes they pay. The Republican partygoers seem to be thinking 24/7 only about ways to raid the public treasury and remove its contents to the bank accounts of millionaires. Don't they see that the rich will always land on their feet no matter how the are tossed? That is what you see throughout human history. Why, then, cry for the rich and their eminently bearable tax rates?
5
The pre 1981 tax code allowed deductions for auto sales tax, housing interest, credit card sale tax, charity, second homes, etc. all things that if the money was spent domestically, tax would not be paid on it.
It also included income averaging in case one had a wind fall during one year.
These elements of the old tax code should be revisited.
3
Any increase in federal income tax rates must consider state rates as well. A 73% tax on high income combined with a non deductible 13% California tax would create a flight of capital to low tax states. Bringing back the SALT deductions would mean giving the rich a huge tax benefit. Is that politically possible?
Why not start by taxing the investing rich at the same rate as the working rich? Why Warren Buffet pays a lower rate on his income than his lawyer or accountant makes very little sense to anyone. Income from investments no matter the source should be taxed at the same rate as wages.
1
@Mark
Regarding your last line: I often preached the same. However, investments carry significant risk and the surest way to shrink investment capital would be tax it the same as income. I like that Buffet points out the injustice the disparity between taxes on capital gains and on income, but I think he would agree that it is legitimate to offset the risk with lower taxes on the gains.
The change in the marginal tax rate must be coupled with a change in how carried interest(dividends) are taxed or the wealthy will simply take most of their income in securities instead of cash.
That avoiding paying a fair share of taxes is somehow a good thing is a scandal. Should we not consider people who seek to avoid paying their fair share to be un or even anti American?
1
I am not familiar with economics, but thinking of this with commonsense, I suspect tax rates are determined by power play and the willingness to pay. Those who have power will dictate lower rates for themselves and only those willing will willingly accept higher rates such as in the post war period in the United States, and currently in the social democracies of European countries.
All other theories I think are just theories to justify whatever rates we want.
The real arguments I think lie in why certain rates are beneficial to tax payers, individually and collectively. But these arguments are hard to make because people are mostly selfish and greedy and want for themselves the biggest pie.
The reality is a compassionate and equitable society necessarily require the those who are capable of making more wealth to willingly give some of it to those who, for whatever reasons, cannot. Such society recognizes and cherishes "common good."
The United States of the 21st century unfortunately is not such a society. We are selfish as much as we are ignorant. We do not care as much about our humanity and we understand less our interconnectedness to each other.
I wish Rep. AOC success in her endeavor to bringing a kinder, wiser and still prosperous United States of America.
1
" You see, the mere thought of having a young, articulate, telegenic non-white woman serve is driving many on the right mad — and in their madness they’re inadvertently revealing their true selves.
What a load of Twaddle. Pure Projection. You see, the mere thought of having any non-white vote for, or be elected as Republican's drives the Left crazy. They can't cope when they leave the political plantation the left has created for them.
Republican's have elected plenty of non white females. https://en.wikipedia.org/wiki/List_of_African-American_Republicans
My province recently elected a couple of Government's that though raising Corporate taxes and royalty rates on natural resources would generate more revenue. Funny thing happened. Revenues dropped, unemployment rose and a massive surplus, (Yes Alberta had BILLIONS in the Bank) turned into a massive debt, unemployment and deficit. Corporations and jobs fled...
AOC has zero understanding of how business works. Neither did Saint Obama. Yes, business and jobs will flee your idiotic high taxes and red tape. Remember how wrong you and "Magic Wand" Obama were on this one Paul?
"There is no way to bring back manufacturing jobs to the US that have moved overseas or been replaced by machines."
In the spring Alberta will turf it's accidental socialist government, cut it's corporate tax rate back down to 10% so we can begin to pay down the 40 Billion plus debt the moron's who followed advice like yours racked up.
4
As someone who earns well less than $100k a year I simply cannot believe this nonsense of 70 or 80% tax rates.
Just because I am not smart enough to earn $5 or $10 million or more a year does not give the government the right to take most of it. This tax concept is pure insanity. Even if it applies to earnings that only exceed the $10 mil number. Insane.
Look, I think the Republican's theory on taxes and the trickle down effect is insane as well. But, you know what...? The Dem's theory of 70 to 80% is just as much insanity. In fact, it's pure theft of someone's earnings.
I don't know where the magic number lies as I do believe once you earn more than "x" dollars as a threshold, along with a phased-in buffer, EVERYONE above the buffer should be responsible for whatever rate we as a country determine to be appropriate. My belief is a single rate of possibly somewhere between 25% to 35% maximum. Much beyond that is theft in my opinion. Even a 50% rate makes the government an equal partner in someone's earnings. What policy on Planet Earth could possibly justify the government becoming an equal partner, or better, with someone's earnings?
As far as this so-called "non-white" is concerned. I don't care what color she is. And, I couldn't care less about her video, which I actually thought was creative. More power to her and congrat's on her newly elected position. But she really needs to stop wanting to confiscate people's' earnings.
174
@Billy Walker
I think you are confusing tax rates on one's entire income with "MARGINAL" tax rates which only has an effect on income over a certain high amount. Paul Krugman is talking about marginal rates and so is Ocasio-Cortez.
For example, the income you report of $100K would NOT be effected by the taxes that either AOC or Krugman espouse.
If you don't believe me, check it out yourself.
160
The U.S. has had a long history of a graduated income tax. In the Reagan era, the tax rate was at 50 percent having come down from 70 percent. We are not funding government spending, and are instead running up substantial deficits. Moreover, as the baby-boom population retires, social security and medicare will become unsustainable. While we can certainly reduce government spending significantly (especially the sacred cow of military spending), we will need to increase tax revenues. Tax increases are inevitable, and the most fair way to distribute the burden of increased taxes is through a graduated income tax. Those with the ability to pay, should pay more. After all, they are certainly enjoying the benefits of a free and stable country more than those at the other end of the income spectrum. While we can argue what the top marginal rate should be, it certainly should be 50 percent or greater. We should also eliminate the special tax preference given to dividends and capital gains, which mainly inure to the wealthy. To those whom much is given, much is expected.
117
@Billy Walker
At less than $100k/year in income, you needn't worry.
In income tax terminology, the term "marginal" means a rate that's applied only to income above a high threshold affecting the top percentile of earners.
In your IRS Form 1040, you'll note that you are taxed at a certain percentage based on your adjusted gross income (AGI). Your AGI places you in a tax bracket, or income range. A marginal rate of 70% would apply to the highest tax bracket, because it would affect only those dollars that exceed a certain threshold (such as the $10 million mentioned by Ocasio-Cortez) - a threshold most of us will never even imagine earning, much less topping.
Don't let the number scare you, Billy Walker - unless you hit the Powerball.
95
I find it revealing (again) that Republicans had no trouble with Kavanaugh's sexual assault as "youthful indiscretion", but can't stand seeing a young, well younger, Ocasio-Cortez just dancing. They do that because their propaganda machine, Fox News, tells Republican voters what to think and it has traction, at least among the angry white voters.
I think it's great that she may be talking to "some very good economists", although it won't make one bit of difference, even if as Dowd worries they overstep, unless the Democrats regain the remaining two branches (Congress and the Presidency), and then only if the extremely conservative Supreme Court doesn't step in and stop any fair taxation plan, which is pretty predictable. It's a nice thought exercise though, even though fair taxation will never happen.
2
Let's pay the $5B for Trump's wall with the tax cuts McConnell gave the rich last year.
2
Why not a 100% tax on ridiculously high annual income? Oh no, the dogma goes, it would "deincentivive" the ultra wealthy! Really? When was that theory ever tested out? Most of the truly productive wealthy - those actually generating new ideas, new companies, new jobs - aren't in it principally for the money, they are in it for the challenge, for the ego, for the rush, fame... fortune is a nifty by-product of what they are driven to do anyway. Meanwhlie, old hacks at Exxon or IBM or Goldman Sachs, paper-pushers at hedge funds pocketing a billion dollars a year (yes.... it happens) aren't creators in the least. They are mere leaches upon society. We saw just how such "talent" in the banking system caused the crash of 2008. Such mega-wealth is anathema to a democracy. The Constitution says "preserve the General Welfare." Let's talk about a "maximum wage." It can be far higher than the average Joe could ever aspire... say $10 million per year, heck make it $30 million per year. After that, say adios to your over-the-top cake-eating. The rest is going to the "general welfare."
1
@Russ
It's "promote the general Welfare."
BTW - the highest tax rate (90%) back in the "golden thirty years" post WWII was on incomes over $4 million. In today's dollars that would be $40+ million. Sounds reasonable to me.
3
America's Banana Republican tax regime is paving the way to national diminishment. Not only is it a rigged system in which labor (wage earners) is always at a disadvantage to capital (corporations, heirs and other rich folk), but the GOP has done everything possible to enable big money to corrupt our politics and maintain a corrupt status quo. We can do better, and must.
3
Paul’s “family” knows on January 1, 2019 that it will make $20,000 (not $19,000 or $21,000) in calendar year 2019. Accordingly, if the “Government” gives the “Family” $1,000, it will make a big difference for that lucky family. That is Nobel quality economics? I do agree with Paul that the one million dollar taxable income individual paying taxes quarterly neither knows nor cares whether or not the quarterly payment is plus or minus $250 so the “Goverments” gift of $1000 to that individual is of no importance.
@Scott G Baum Jr
"That is Nobel quality economics?"
He's trying to "dummy down" the theory, but evidently he didn't do so enough for some people.
If it was just about working long hard hours then slaves would be the wealthiest people in the world....but that is not how it works in this version of unregulated savage raw Capitalism. I went to school w/ kids from wealthy self made entrepreneurs and none of them were very bright (like their parents) and none of them accomplished much in their own lives & careers (like their parents) and I did notice how selfish and stingy they became (unlike their parents who were generous and charitable).....so much for inherited wealth.
5
All the rich, when subjected to punitive taxes (including at marginal rates) have to do is leave the country. Like they do in France, Then the total and marginal taxes raised from them is zero. if you think this is nonsense check out the net emigration of people from high tax states to low tax states. Also this absurd policy creates America's lovely inner cities. The Curley Effect. Krugman cherry picks: his graph proves nothing.
2
@DG This is untrue. The United States is one of the only (if not the only) country that taxes its citizens on income earned while living abroad. The only way to avoid that taxation is to give up citizenship. I'm not saying that won't necessarily happen, but it didn't happen last time the marginal rate was that high for the ultra-wealthy. To compare to stats of moving from state to state is inaccurate in this instance.
1
@KT
So you think US citizens are a captive group to the IRS. They can renounce their citizenship at some level of taxation. The past doesn't predict the future.
@KT Also don't the tax treaties mitigate some of this essentially unlimited taxation ?
I know that Canada's seems to.
If you tax 99% of my income---even marginally----I am deleting my US citizenship.
All these great ideas.. It's a shame NOTHING will change. Voter turnout in 2018 was a bust for the highly coveted 18-26 YO demographic. The liberals were banking on record numbers from young voters but it fell flat. Until these kids get off their duff and vote- 2020 will be 4 more years of Trump and Company.
Just a small suggestion for 2020..
This time let's have the free concert AFTER the election .. not before- and tell the kids if the Democrats loose then there will be no free concert!
Remember these are children voters.. we need to treat them as such.
This trickle-down theory that the Republicans have foisted on the American public has been debunked since it became their mantra. David Stockman, senile Reagans economic adviser said it was plain nonsense. The greedy wealthy, whos comments follow, will of course, attempt to discredit anything that will affect their pocketbooks despite concrete evidence to the contrary. As a retiree living on social security, plus having a modest savings, I have a hard time imagining why these billionaires have let their avarice destroy any empathy they ever had.
1
I am puzzled by the majority of comments here. The column is not about the justification for raising the top marginal rates. As Dr. Krugman persuasively argues, there is every reason to raise those rates.
This column is about the competence of Ms. Cortez. Here, I fear that Dr. Krugman is being somewhat disingenuous. The foolish prattling of right wing men about her videos are just that - foolish prattling.
But there are serious questions about Ms. Cortez's competence.
1. When asked about the low unemployment rate, she said that it was because "people were working second and third jobs." This is an answer that may be forgiven from history major or from a surgeon. Ms. Dowd tells us that Ms. Cortez is - hold your breath - an Econ major! This is on par with the nonsense that President Bush used to dish out.
2. And then this: she plans to fund her social programs by savings released from a "21 trillion accounting error made by the Pentagon." This is a display of awful innumeracy. All that she has to do is to look at the size of the US GDP to realize that savings of that magnitude is absurd.
Dr. Krugman rightly excoriated the incompetence of presidents Bush and Trump and their wingnut followers. But it is not OK look the other way when incompetence of this scale comes from a lawmaker - just because she is on our side.
Having her heart in the right place is not an excuse to not use her head. This is not about her past dancing - it is about her future law making.
SK
6
Why does Paul Krugman have to describe Alexandria as a young articulate, telegenic nonwhite woman? Young, articulate, telegenic woman would be enough. The color of her skin is as irrelevant as the size of her shoes.
4
I would assume that AOC and the author would be willing to give 70% of their income in taxes. Perhaps, they already donate that much to their favorite charity?
As Margaret Thatcher said: the problem with socialism is that evnetually you run out of other's people money...
6
You have short memory, surely you can't have forgotten how having a young, articulate, telegenic non-white family in the White House drove many on the right absolutely berserk and beyond? I can recall seeing white male US jaws shuddering with rage at the sound of their name. It was quite a revelation.
1
All well and good until you realize that the Democrats consider you rich as long as you work.
4
GOP became more like a mafia cartel (now led by a mafia boss, who hardly believes in any ideology or morality or any sort (religious or social or political).
We are now facing the consequences for promoting stupidity and religious/racial bigotry in our education system and public policy, mainly since Reagan era.
2
OC's Fallacy is that you can tax your way to prosperity.
Makes sense if you are a Socialist (can produce nothing).
6
Time for VP Pence to lead a charge under his removal powers.
If he refuses his clear duty, we will add him to the impeachment list with don con.
Shutting down the Government over a border wall is insanity.
1
As my late preacher Daddy used to say:
"If you want to know what the good Lord thinks about money, just look at the people he gave it to."
Amen.
1
Whatever one makes of AOC's tax ideas (they're good) or PK's take on them, the frenzy that AOC has sparked is quite a sight to behold. This is how people shape the conversation, and it's how the Dems can reclaim a share of the news media spotlight.
Conservatives have known this is how it works for a long time: it pays to have a few extremists willing to utter ideas from the fringe. The media will cover AOC because it's AOC saying things. Period. Over time, with persistence and if she and others like her have substance and discipline (still not certain), she will help move the window of opportunity to the left. She will help normalize what until recently was regarded as 'zany lefty'.
This clearly freaks out conservative operators and it will be one of AOC's biggest contributions. Her strength will be to make everyone talk about her and her ideas. Her haters commenting here are proving the point. Finally, a Dem who knows to steer clear of the 51-point policy plan that oh-so-cleverly tweaks the tax code here and balances the wishes of everyone/no one and instead just make a bold ambitious claim. Good for her.
306
@MW
Let's hope she's classy enough to avoid profanity.....
4
@MW
The thin of the wedge can be very powerful. Cities/people are now publicly questioning the tax breaks given to companies like Amazon while the other day my (former Republican) brother in-law said he rather agreed with AOC that elected officials shouldn't be paid during the shutdown, either.
17
@MW,
It’s not just far left policy proposals. It is policies that are easy to understand for the voting public. New Democrats have specialized in mind-numbingly complex, means tested proposals that don’t excite the voters and empower technocratic bureaucracies that administer them or provide gobs of corporate welfare.
What Democrats need is policies that collect taxes from the wealthy and provide broad public benefits to working and middle class citizens without requiring them to hire a consultant to fill out applications.
Make public college tuition-free or at least debt-free for all students regardless of income. If a few rich kids get this deal it won’t cost much but it will eliminate the entire funding benefits bureaucracy that checks on income and wealth. I’ll bet it would save money and eliminate all the back biting about who gets what.
9
The key phrase in Prof K's excellent column is "monopoly rents." So much of our economy now is based on monopoly rent, the ability of a cartel to "tax" everyone for access to their monopoly control of certain sectors of the economy. These rents are distinguished from "profits" in the classical economic sense, which assumes that mythical "perfectly competitive" marketplace.
Thus, we can think of a high marginal tax rate as simply a canceling out of the ill-gotten monopoly rents.
1
I'd like to see A.O.C. & congress create processes that are empirically based instead of stealing a page from Paul Krugman's playbook. I prefer economic theory based on how things are instead of rationally conceptualized policy (shooting an arrow) then spending the rest of the time justifying it (painting a target around the arrow) NY Times needs to mention A.O.C.'s background in economics more in order to encourage constructive discourse. I'd ask A.O.C. for her take on the economic theory of the tragedy of the commons since the President Of The United States forced the government to shutdown insisting we build a wall on the boarder. The support for the wall is another example of the tragedy of the commons whereas the demand for undocumented workers in certain industries creates incentive for others to cross the boarder which has led to the increase in illegal residents in the US. On the supply side, many Americans are indecisive picking a vocation for fear the education/training will become obsolete. The number of these useless individuals increases, not through chance but by definition diminishing incentives for this group to invest in developing additional skills in higher demand or outperforming all workers including undocumented workers in low skill work. Put another way, the fastest way Americans can build the wall is by outperforming undocumented workers in low skill industries. This will discourage others looking for work from crossing the Mexican border.
Very high earners have lots of ways to structure compensation to avoid the tax man. When the rates were historically high there was an entire industry dedicated to minimizing taxes. All of this is just red meat thrown to the rabid base.
@RCH
And there isn't such an industry now?
1
"when taxing the rich, all we should care about is how much revenue we raise."
Well, no. We also need to care about how it affects the amount of control the rich have over our political system. Legalized bribery, AKA campaign contributions, would be done on a more level playing field without the vast disparities we now see.
There's also evidence (see "The Spirit Level" by Wilkinson and Pickett) that above a certain average income level, wealth disparities have significant negative effects on health and longevity.
I'm going to wildly speculate that vast wealth disparities also diminish social capital. If I'm really, really rich in a poor neighborhood, I'm going to hire people to protect me and what I own.
No doubt a sociologist could come up with even more reasons than just revenue. It's not just a matter for economists.
Some of the comments miss important issues
Should we tax income or wealth or spending (or all three)? Should higher income or wealth or spenders contribute more money to help those who are less wealthy, spend less or earn less? Is government the best way to collect and redistribute income?
1. why just tax income? What about wealth? So many comments talk about "wealth inequality" but in the same breath talk about raising income taxes. There is a difference between wealth and income. Understand that people! For example, if you have $10-100mm or more in cash in the bank & earn 2.7% tax free, thats $270k to $2.7mm/yr in income but you would pay ZERO even if we raise income tax rates to 100%. Perhaps higher income tax isn't always the answer but a wealth and national sales tax should be considered.
2. People, please have a basic understanding of the tax code! Its very likely that a small small business, paying themselves $100k/yr in salary and the business makes $500k/year, that $500k in income flows back to the owner and is taxed as personal ordinary income at the marginal rates. Yes, there are ways to avoid the tax, but mostly that involves buying more stuff for the business (cars, equipment) or saving it for retirement or putting your kids on the payroll.
3. Please understand that "scandinavian" countries have a higher middle income tax burden than the US, but everyone gets health care and schooling at a drastically reduced price. It's a TRADEOFF
1
Most of us non-expert taxpayers / citizens often have misconceptions that are exploited by politicians -- like about marginal tax rates; explainers like Mr. Krugman should always remind us that not ALL of your income is taxed at the higher percentage (a taxpayer is taxed at the given rate only for income within the bracket range associated with that rate). To the uninformed, it can sound like we are asking someone with a $1 million income, say, to pay $700,000 in taxes!
1
Regarding "Give a guy who makes $1 million an extra thousand and he’ll barely notice it.", I don’t make a million but an extra thousand bucks would have zero effect on my life.
3
Growth doesn't equal improvement in lifestyle. The graph is simplistic. Not adjusted for inflation. Doesn't include the last two years of growth with lower taxes. If you look at unemployment rate and affordability, higher taxes lose.
What most people don't appreciate is how progressive our tax system already is-even more progressive than many of the European countries we hold up as examples when property taxes and other costs are accounted for. When only 5% pay for a majority of all taxes, the system is destined to fail.
The point no one discusses is that paying high taxes is not the problem, it's how the wastefully and unproductively tax money is spent.
3
Thanks, Paul. Have made similar arguments based on historical precedence - great to see the figures back them up.
Congress - you know what to to do.
Voters - we know what to do.
Let's do it.
3
Boy, mention a progressive tax rate and you sure hit the buttons of the right! This provocative column leaves me with several questions:(1) If we taxed wealth rather than income couldn't we do so at a much lower, but still progressive rate and still achieve the same amount of revenue (we probably now have the technological capability to do so), (2) If we taxed all real income rather than current taxable income couldn't we tax it at a much lower, but still progressive rate (ditto on technology), (3) What percentage of the real and taxable income of the rich is taxable as earned income, and (4) If the currently rich decided they no longer wanted to work, couldn't we relatively easily replace them with equally or more qualified people at similar or lower rates of pay? The current limitations on "taxable income" are welfare to the rich that easily outweigh any "welfare state" benefits to the poor.
3
Wait. Is the Right concerned about Ocasio-Cortez being a "young, articulate, telegenic nonwhite woman" or are they concerned because of her stated political positions? This is important because one is bigotry while the other reflects a reasonable policy concern. The flip side of this is worth considering as well. Is the Left energized because Ocasion is a "young, articulate, telegenic nonwhite woman" or are they really energized by her stated political positions? This is important because one is uninformed identity politics while the other reflects a commitment to a socialist agenda that would make most Americans very uncomfortable.
3
@SJG
Correction, it would make only "rich" Americans uncomfortable.
There are two issues that should be tackled:
1. What rate does a progressive tax such as described kick-in?
2. What about all the loopholes in capita gains, carry interest and other tax avoidance schemes. Perhaps those get taxed at different levels depending on one’s overall income.
Great article, but depth is more important that single numbers that are thrown out.
2
I'm in the 1%. I haven't been in the 1% for long -- it's still pretty unnatural to me.
Being "rich" and, especially, being "richer" than those close behind me in the upper middle-class really has very few benefits under current inequality and current taxation regimens. Yes, I have a more expensive house than most. And I have a second home. But I'd have that same house and that same second home if everyone paid much higher taxes. I just wouldn't have paid ten times the houses' 1970s values for them. I'd still be "on top" compared to many, but the distance between them and me would be much smaller. More importantly, life would be so much better for everyone "below" me.
I'm certainly not in the 0.1%.
THOSE are the people who benefit most from our skewed system. To a great degree, their lifestyles -- like mine -- wouldn't be appreciably different under higher progressive taxation. They'd still own the best houses, have private jets, etc. What they wouldn't have is boundless power and a political party in their pocket to perpetuate a system that is killing the country.
8
@Bobn
Thank you.
2
It's sad to say, but the argument about the declining marginal utility of income will hardly move a great many voters who are ignorant of the basic distinction between the percentage of one's total income paid in taxes and the marginal tax rate.
Progressive Democrats with an interest in improving the overall well-being of Americans need to make it clearer that nobody is advocating that the rich pay 80% of their income in taxes! Republican politicians who do know better, however, will be more than willing to take advantage of this fundamental misconception.
3
@MarkW
Agreed that Krugman does a very poor job of messaging here. In his chart of top rate versus growth, for example, we don't know if the top income bracket changed as the rates changed or what share of Americans earned such levels of applicable income, so it's really a meaningless and therefore misleading chart.
Focusing on the headline tax rate alone confuses the issue by introducing the (really not complicated) discussion of how marginal taxes work and doesn't tell you anything because you need to know the brackets and then you need to do some math to figure out what you actually pay.
The effective tax rate for given income levels is what should always be discussed because that's what people actually care about even though the actual implementation of the policy has to be done via marginal tax rates for obvious technical reasons.
1
Just like the misconception of the estate tax being referred to by the right as the death tax which of course would be all inclusive, but he real estate tax affects well less than 1% of the population.
I wonder, if it comes to pass that we manage get a truly progressive president elected in 2020, if PK would consider the post of economic advisor or some such (assuming he were tapped for such a post).
Excellent column that educates readers who don't know much about economics, which is a lot of us.
Please do a follow-up column or two focusing on the impact of this bogus GOP trickle-down theory of the middle class somehow benefitting from the rich personally getting richer.
A long time ago the evidence was in, and neither the middle- or working-classes benefits; many stagnate or lose out in real dollar terms over the years.
Then please talk about the effect on civil society of reducing taxes on the rich--"starve the beast," as they like to quip, on the quality of life in middle class and civil society.
Plus, a lot this accumulated wealth comes from financial investments (merely moving $$ around to gain more money, which is money that is mostly growing personal wealth and not benefitting the economy, such as "investing" in innovation, businesses that generate job growth in this country, etc.
Here is another topic: It is my impression that these equity firms and other kinds of newer investments actually hurt the economy badly. Take Toys R Us, and Circuit City, where "investors" buy up huge businesses, close 50% of the stores and put 1000s of people out of work, then pay themselves all kinds of bonuses until the business is "starved" and run into the ground--all perfectly legal, but lethal to the economy.
Rather than structuring our tax system to benefit only the rich (write offs and loopholes), the tax system needs to be structured to benefit the economy & nation.
3
The key to regaining power for "We, the People" is Campaign Finance Reform. Without that, it will be difficult to do anything meaningful about Climate Change, Health Care, and a host of other issues that corporations and billionaires are currently stymieing with targeted campaign contributions and slush funds.
2
Capitalism is the most just system for economic organizing. Only capitalism.
1
Yes, increasing the headline rate in theory will help inequality, but arguing about the effects of this tax policy is pointless without knowing the technical specifics.
The important lesson to be gleaned from the past few days is that a young Democrat has successfully, and some might say easily, seized and redirected the public's attention to a general topic of her choosing.
Being able to control the message is a powerful weapon not many on the left are adept at wielding.
This comes naturally to AOC, who has accomplished in days what took LBJ years—to be known by initials.
Her political savvy is impressive. The national brand is already being built.
2
From the article: "...the mere thought of having a young, articulate, telegenic nonwhite woman serve is driving many on the right mad ..." It's time to truly start judging people on their merit and abilities. By using the adjectives
young, articulate, telegenic nonwhite woman," it completely diminishes and extinguishes any real skills this representative has. As long as she works for the benefit of everyone in the country, no one should care about her age (young), her verbal skills (articulate), beauty (telegenic), race (nonwhite) , or gender (woman).
3
I am one of those fortunate folks, and I say fortunate because I realize the role of good fortune, who is quite financially comfortable, not gaudy rich though so I would never be in that rarified theoretical tax situation.
Even so, I would not mind paying a somewhat higher tax rate. It would not affect my lifestyle at all. I will admit I enjoy watching my bank account generally trend up year after year. But...not nearly as much as I enjoy giving it away to people and organizations and causes I think worthwhile.
Now, there’s the rub. It’s much more fun picking winners than paying taxes to a frivolous government.
3
The fundamental question here is, who is entitled to a dollar earned by an individual for their work ? The worker or the state ?
If we say the state is entitled to every dollar earned and then decides how much each individual should get, then Dr. Krugman is correct.
But if we say the worker is entitled to what he/she earns, and then "chips in" with all other citizens for shared needs and resources like police and fire protection, sanitation, and roads and bridges, then the government should demand as little as possible to cover these shared needs, and the worker is entitled to what the earn, regardless of the marginal enjoyment of each extra dollar.
The logical conclusion of Dr. Krugman's argument is that if an individual is content with what they have, then the government should take away every extra dollar he/she earns because someone else will enjoy that dollar more.
That doesn't sound very fair.
4
Define rich. And will the definition/income level change in Kentucky or Oklahoma versus New Jersey, Connecticut or California?
These seems reasonable to me, mostly because it is the exact opposite of what the Republicans have been doing since Reagan.
1
BTW it is maximizing expected tax revenues not revenues. Big difference.
@DG
Expected tax revenues are not the same as revenues.
Further it isn't the role of govt to attempt to maximize either.
It should be attempting to maximize real per capita GDP growth-----not taxes.
Admire both AOC and the writer, but I disagree here. Once a person knows half or more of whatever they earn is taken by the State, that kills incentive. The top rate should be around 40%. Above that governments quickly will max out on total tax revenue. Of course John Stuart Mill might agree there is some kind of utility in the satisfaction of soaking the rich. But it's bad economics.
3
@Expat3
No it doesn't. The rich are not motivated by "more money," they are motivated by more recognition of their position and power, how many zeroes are on their bonus check is more important than how much they get to keep.
@Ronny Well it depends on who we say is "rich". Here in the UK the income tax rate is 40% at about USD 58,000 a year. It goes up to a top rate of 45% for incomes above $190,.000. A UK labour government will take top rate to 60%. These thresholds are not close into mega rich, seven figure a year incomes and mainly hit hard working professionals. Not much incentive to work another 10 hours a week when half of it is handed over to the government. Sure you can add a zero or two to these income thresholds, but then the number of taxpayers plummets and your total revenue stalls or even drops.
1
I'm no economist, but surely this is not true:
"Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue."
Maximizing government revenue isn't really what we're after. What we want is to maximize standard of living for all Americans - that's more difficult to quantify, of course. But if a rich person elects not to start a business because of the high tax rate, it might not show up in revenue calculations (say said business would have lost money for the first 5 years), but failure to start the business would result in lost jobs for many. Perhaps this can be captured in terms of revenue, as the lost jobs would have generated tax revenue, but it's very, very complicated, and a high-tax favorable analysis might fail to take into account all the effects.
I'm currently considering a job at a start-up, in part because of potential financial pay-off. But doing so is extremely high risk in the short-term - if I'd have to pay all that pay-off in taxes, perhaps I should just stay where I am. (Note that I don't anticipate making more than 10M, so this specific tax doesn't concern me, but obviously high taxes in general can impact my decision.)
For me, though, I'm inclined to ask, who cares? Taxing people who make 10M plus will bring in very little revenue because there are not enoug hof them.
1
The previous president of France said that the French needed to be more like Americans and not expect so much from the state. Of course, no one listened. The rich in France are fleeing the high taxes of the state. After the government placed a heavy tax on heavily taxed $6.00 a gallon petrol, riots ensued. Taxes can create and destroy with equal measure, usually at the same time. The Founders of this nation harbored a healthy fear of the state with good reason. At 80% taxes the wealthy, who are easily demonized for no apparent reason, will take their money and run.
4
@dudley thompson
Please get informed:
- the French president decreased taxes on the rich (living for most of them in large cities) and increase the tax on diesel (that affects more people living in rural areas) after years of government forcing people to buy diesel.
- Rich French citizens do not flee more France because of high taxes more than other citizens than other countries.
1
While I support fully raising both top rates for wealthy individuals and the corporate tax rate (either by increasing the actual percentage or closing the enormous number of loopholes by which corporations dodge taxes), the extremely high rates of the 50s and 60s had an escape. Companies gave perks that allowed people such as my well-to-do father to have a relatively low personal income while belonging to the country club and so forth. In the current code, these perks are now rightly partially taxed as income. For everyone to subscribe to income taxes, we need to make them seem fair. To me, that means a top marginal bracket of 40-60%.
1
@Wiltontraveler
If the rich truly paid 40 to 60% that would be three to four times as much as they pay now. In Mitt Romney's highest tax years he paid less than 16% of his income.
1
This is all well and good if the purpose of government it to extract as much money as possible from a person's hardwork. What he and most liberal refuse to acknowledge is the people earn more because they produce more for the only people that matter--their customers. They pay because they receive even more value from the work than the cost. While we honor manual labor, the fact is that a top lawyer may make a hundred times more than a janitor for one reason: he produces a hundred times for value. We may or may not agree with that weighting of values, but it's not our money. It is the customers, then it is the workers; it is not ours nor do we have a moral claim to it, no matter how much we'd collectively like to just take it and spend in on what we, not the one who actually worked for it, would like. If we don't agree with the premise of private property, then just take it all--there's no moral difference. They don't "need" it anyway, right?
2
@james s. biggs
This is pure ridiculousness. Your founding your argument in a theory of economics rated in homo-economicus that stated that humans are rational and therefor all market decisions are based on true value. That notion was disproved in the 90's. We're emotional beings and the majority of our decisions flow from that source. So, no, the lawyer is not worth 100 more than the janitor. The value the lawyer manages to extract from society is not in balance with the good he/she might do for society. Wealth is created by manufacturing goods, provision of durable services, and money creation by the state. Society has every right to tax what workers or the state has created, passed on to capitalists that let their money work for them, and redistribute a portion of it back to the source.
The concept of marginal tax rates at or above 70-80% has failed the world to date.
Ms Cortez is a self identified radical who would like nothing more than to cause the economic collapse of the United States. It's her goal. She now has the position to debate it, now debate it. She may wish to donate her lofty salary to the cause. The concept of 70% marginal rate over 10 million pays for Pre-K education nothing more. Tax all income over 10 million at 100%. It won't cover Medicare for all. You and she may have some inner knowledge of tax policy but no knowledge or concept of mathematics.
Mr Krugman has had the opportunity and the platform to present and propose such taxes over his elevated status as an academician and has never offered such advice in any of his dissertations. (Something more to do with production close to consumers)
The radical meets the opportunist.
Wait until the pension payments are due or health care payments for state and local government workers are due. maybe the 70% should start at $50,000 and that's at the local level. Have an honest debate about truth. The pension payments will be staggering. The taxes to pay for local government pensions are not deductible from fed tax. Add that up
Take an idea too far and it will come back to bite you.
2
The greedy rich say it can’t be done. They threaten to move to the south of France. It’s not much money anyway. The latest $1.5T giveaway is real money. We’ll take it back. The country did fine with 70-90% in the ‘50’s and ‘60’s. Let’s start with 50%, heh?
2
@Matt
You have it all wrong, it is the Radical Conservatives, like the Koch Brothers, who want to destroy the American economy, so they can buy up the assets on the cheap.
I am a California licensed tax lawyer, employed by so many Democratic voters to lower their tax burden. To avoid estate tax on their death. To create trusts to move assets out of California so the beneficiary need not pay California’s high income tax.
Everyone wants to tax the rich, until they find out they are now rich. Suddenly they want to pass the bill to another.
Taxes should be as low as possible. A man ought to be able to keep as much as he earns as he can, while paying his share of government. Military, roads, essential services. When we add things like free healthcare and welfare, we are not governing but rather we are engineering society. Which is a bad idea.
Darwin’s laws apply to humans too. We should encourage evolving into self supporting Americans. You know, like our founding fathers. Without that freedom is not a right, rather it is a gift from government.
4
@EWG Anything we do is "engineering society". You can pretend there are underlying principles behind your preferred system like the idea that everyone should pay "equally". What does that mean? Same amount? That would be impossible. Same rate? Sounds good, but the reality is that higher-income people's needs create parts of govt that the poor don't need.
And the bigger problem is that the sort of simple, unengineered system you would like just doesn't work. It ends, inevitably, in oligarchy.
3
@EWG
Our self supporting founding fathers relied on slavery to pay the bills, today it is wage slavery.
What gets me, is that there is this rush to tax the rich, but the talk of a fair corporate tax is no where to be seen.
When Google moves $23 billion offshore to avoid paying taxes (Do No Evil was there motto?) on it Krugman conveniently ignores it.
Why should the onus always fall on the individual over the corporations, especially tech based, that are valued over any individual?
Also what is considered "rich" needs to be redefined based on where you live in the US. Living anywhere in Westchester County, NY or NYC you are in the highest taxes county and state.
Your dollar and salary does not go very far based on the federal definition of "rich".
1
The point that even 70% tax rates would not fund the spending being advocated is not addressed.
3
@john thurmond Then cut the military's budget.
Not to entirely disagree but keep in mind the post world war global economy in the presented timeline where the US had no industrial competition. The timeline shows that tax rates have been forced to fall as competition for production and for wealth has increased.
2
@Tim
Nope, look at Germany. They have tax rates similar to ours. yes a little higher over all but nowhere near what what most republican, who have become naked advocates for corporate greed and wealth, pretend they are. On a per capita basis, Germany out manufactures us by a long yard. What's the difference then? The U.S. has an extremely over bloated defense budget keeping us in over 120 countries around the world and providing very little return to the average citizen in return for being the majority of our tax budget. Keeps rich people in the business of defense extremely wealthy, but saps our ability to provide decent infrastructure, health care, or quality public education the way Germany does.
1
I'm with AOC. As a child of the Eisenhower years when the taxes on the wealthy were 90%, I benefited. Those of us who were kids in WWII remember the stacks of newspaper we saved, the many cans we stomped on to flatten for the war effort and how we all lived poor. We didn't mind too much - we had a war to win. The 50s brought us more stuff at reasonable prices. My family bought a "new' used car to replace the 1937 Terraplane that served as my Dad's milk wagon and family car.
Of course, Trump's gang along with all those 50s babies know little about any of this and we who know are a dying breed. Few seem to worry about spending for our extravagant wars because it has little impact on us (we think). The Military Industrial Complex that Eisenhower warned us about has benefited the economy, but has it benefited the people?
Personally, I am excited about the new, young members of Congress. They are living in yet another world where things are fast going down hill in so many ways. And AOC - I understand she has a degree in economics. All I can say is "you go girl!" Ditto your other colleagues.
9
Nicely stated, and thank you for your input. As a 34-year-old, it’s rare to find people in my social circles, work and travels to discuss this with from your point of view. I appreciate the insight!
How about a formula that correlates income tax to the relationship between management/executive pay and average employee pay, allowing earnings to incentivize a business at all levels?
2
Dr. Krugman and fellow readers,
Correct me if I'm wrong, but doesn't the data presented here in the graph show a correlation between both the Kennedy/Johnson tax cuts and the Reagan tax cuts and spikes in rapid economic growth (not so for the Bush tax cuts though)?
Would be interesting in a few years to see a graph of corporate tax and economic growth including the Trump tax cuts.
2
Tax rates might have been higher, but on what? Gross income?
The past tax code was known for the ability to claim the dog's food as a deduction. The key was taxable income. Krugman does not address that in his opinion piece. And that is reprehensible.
So by omitting it, to what ends is his opinion? Not in a sensible examination of tax policy, but in advocating for an agenda, his belief system.
2
@David Cranston No need to define what is taxed, since by definition a marginal tax rate taxes only that above a prescribed level (i.e. 10 million dollars). The rates below that would and were what everyone else pays. It's called fairness. I assume that you knew that, or is it just "advocating an agenda"?
2
Her first days on the job and A.O.C. already knows more about Taxes than the Republican second in command Steve Scalise.
That may explain why the Republicans have made such a mess of our tax system.
6
What needs to be pointed out in every article on tax rates is that the 70% or 35% or whatever rate is in force is not on ones entire income, but only on the topmost part. It might only be on the top 10% of an individuals income, not on the entire amount. That is where people who oppose these rates don't get it. And when the "alternative minimum tax" was passed, it was meant to make sure everyone paid some tax because they weren't allowed to use all of they deductions. But somehow, some are more privileged than others and get to pay nothing, like the Trumps and Kushner's. In the meantime, some of us retirees who saved like crazy for retirement and had some decent investments have to pay through the nose every year when the law requires us to sell a certain portion of our retirement funds and pay capital gains rates. We have paid alternative minimum tax for years with far less annual income per year than Ivanka has per month.
23
@Julie Carter, The bottom 50% pay no tax. That's about 90 million people. You were saying?
I’ve lived through the times of these high rates, and am pretty gratified to see not one, but two actual Nobel economists, echo, with data, what I have been telling good friends for some time. I was raised in a family which paid taxes at this level, and called the tax code “confiscatory”.
Trickle-down is a hoax from the right, as has been proven time and time again. It is not in capitalist’s nature not to do whatever possible to make more money. Bless their hearts. You may as well expect a dog not to chase a cat.
So, fair warning: faced with a new higher marginal tax rate, they will use every loophole the tax code provides and invent a few new ones, which may stand in the face of being challenged.
Thanks, Paul.
12
I see the "Executive Talent" meme here. Like the people who took Sears and Toy's 'R Us into bankruptcy? And several other retail chains will join them next year. It's GROSS economic mismanagement by the elites as much as executive failure that is devastating the retail landscape (Goldblatt's, Chicago, 1981). The Executive & Donor Class continue to support GOP economic mismanagement because they are comfortable in their gated communities and private jet shares.
They seem quite content to condemn the "unworthy" to sleep under our bridges. This is NOT the country I grew up in.
15
It worked for Republican President Dwight D. Eisenhower and 1950's fiscal conservatives. The high tax rate allowed us to build the Dwight D. Eisenhower National System of Interstate and Defense Highways, and much more. We are still reaping the economic gains from that project.
12
@Keir
Unfortunately, the interstate highway system was the last major infrastructure program America has pursued; and, that was 70 years ago. I guess the rich need their dancing ponies and multiple vacation homes more than we need to fix our highways and bridges.
9
The point AOC (and, surprisingly, you) miss is that the kinds of wealthy people she wants to target with a 70 percent marginal tax rate don't make their income from wages. They make it from capital gains instead. So, if she wants to create a more sustainable revenue flow to the government, she needs to work on getting those rates up to reasonable levels.
But capital gains have different forms. The part that she needs to focus is on speculative capital gains, not investment gains. Short term gains resulting from just flipping securities is gambling writ large, and there's no reason why the taxpayers should have to subsidize that risk-taking with low tax rates for the flippers. Treating these gains as ordinary income is goodness, but only if that rate matches the higher rate AOC wants. In fact, those should be higher than the top marginal rate, and expenses related to them should not be deductible. (This should include carried interest, too.)
Long term capital gains tend to create jobs, infrastructure, and retirement savings, so those need to be encouraged with deductions of related expenses, and lower tax rates, too.
In any event, I encourage AOC in her thinking. We need to readjust our tax system to make it more fair to the taxpayers, and to stop the robber barons on Wall Street from ripping us off.
25
We only need to look as far back as Kansas in 2012 to see a real life case study of republican tax policy in all its theoretical glory. Governor Brownback and the republican legislature passed into law a low individual income tax rate and eliminated state income taxes entirely for pass-through entities (ie small businesses) to spur job creation and investment in businesses. Not only did it not create said jobs nor spur investment in businesses, the state collected $750mm less in income tax ($2.2b vs. $2.9b) over 2014-16 and the state began FY 2017 with a $350mm deficit. Sadly the people who suffered disproportionately were residents of small towns and districts whose districts didn't have strong enough balance sheets to weather unusually low levels of tax revenue, where public services such as safety and schools struggled (many of which had to consider closing or consolidating). In addition, the state diverted funds from infrastructure spending and universities to the general fund and spend down the state's cash reserves. That is the result of a republican tax plan enacted.
21
Krugman and Cortez fail to recognize the main obstacle to such a high tax: that voters would never accept it. The voters in November didn't elect a Congress that was anywhere near as far to the left as people like Cortez and Krugman. They showed that they're not comfortable with Trump and his party, but they didn't endorse a revolution. Krugman needs to realize that the most of the conservatives he scolds and demonizes aren't millionaires, and they just want to keep as much of their money out of the hands of government as possible.
5
@Charlie Reidy
Anyone not a millionaire would never get near the higher rates. And do not forget that the tax bill Republicans passed actually raised the lowest tax rate which does affect lower income people.
7
@Charlie Reidy
No disrespect intended to people on the basis of their educational level Charlie, but most Republicans aren't as well educated as Cortez. If we're talking averages. I only mention it in response to your assertion that most Republicans aren't millionaires. You are, of course, correct. What they are is a group of aspirational people that would like to be millionaires and believe that if they follow a crowd committed to lining the pockets of said millionaires that they may be fortunate enough to join that group. Social aspirations are a powerful driver, so is the process of othering. The republican mantra of "me, me, me" is powerful for people that can't see that society prospers when the bottom of the socio-economic spectrum is lifted and falters when it is ignored. That is something that a quality education in economics provides. Hence some of the disconnect.
1
Ordinary Americans are champions of the rich? Deluded.
How come there is very little use of the fact by the economists and Think Tanks about the fact that there is less correlation between growth rates and TOP tax rates? The graph on Top tax rates and growth by Credit Tax Policy Center, BEA in this article by Prof. Krugman clearly illustrates this phenomenon.
Yes, during the 50s & much of the 60s the US was the world's factory. Jobs were plentiful. I would to like to hear new ideas about how we can bring back the value chain back (automation, subsidized training for higher skills, tax breaks for indigenous value added job creation etc.....) and re-industrialize the nation. We all understand that services do play an increasing role in job creation, but if we can design, manufacture, warehouse and distribute what we consume, and keep all the value added steps within the country, we sure can address the steep job losses due to de-industrialization.
What does it have with taxation? Financial engineering related jobs need to be taxed heavily, while activities that bring back off-shored and import substitution jobs need to be tax subsidized.
1
@Zor
Manufacturing jobs are not inherently better paying jobs than any other job. In the 1950's and 1960's those jobs paid well because of Unions. We can organize any job classification and demand middle class pay; or, we can work to make every job pay middle class wages. We don't have to look backwards to move forwards.
2
@Ronny
1. Unless a country has colonies or subject states that produce the goods for host country's consumption, there has never been a country in history that has retained its premier world power for extended periods while relying on other countries for most of its finished goods.
2. The wages demanded have to be on the basis of value created. Agree that unions play a significant role in the equitable distribution of profits.
3. Germany is a classic example of keeping much of its manufacturing in-house, and regulations for paying respectable wages. It has the built-in infrastructure - education, apprenticeship, government subsidies etc.
4. What are the solutions for displacing China as the world's center of manufacturing? China has accumulated more than $3 trillion in US Dollar reserves that enables it to buy out companies' know-how & market access.
AOC's higher tax rates for the rich are designed to create a fairer country, a place where no one needs worry about health care, the quality of air or water or smashing your axle on a pot hole. It is no coincidence that as the rich plunder our country and government, our life spans are decreasing, so many are dying of opioid addictions and the young are saddled with huge educational debt among so many things that were supported by our government when income inequality was not tolerated.
Our low tax rates on the rich are a product and a symptom of our every person for themselves ethic and predatory economic system. Why so many especially in the GOP support this is a crime, but it seems many in that party believe that a predatory system will benefit them or they admire those who have won at the game of money. Insane.
13
@just Robert,
Where will the funds come for infrastructure? We must tax the rich. That's what built the highways system in the 1950s.
2
Chuck and Nancy complain that the Tax Act lowers taxes for the rich while complaining that the SALT and mortgage interest limitations particularly hurt those in the high-taxed blue states.
What they fail to mention is that latter particularly hits the rich in blue states( i.e., anybody paying more than $ 10,000 in state and local taxes and mortgages > $ 500,000 is pretty well-off). The Dems need to get their stories straight!
7
@pete
Sorry, it hits a lot of middle class people in blue states. Our property taxes alone here in New Hampshire on a $460,000 house we share with three generations just went up to $14,000 plus. (Fortunately we have no mortgage). The no state income tax (on earned income) helps our working age daughter and granddaughter but we retirees who live off of investment income and Social Security take the biggest hit. And we are no where near 1%ers.
As to the rich being harder hit, we know that neither the Trumps nor the Kushner's pay Federal income tax anyway, so how will they be hurt?
2
@pete
Your comment is non-nonsensical. The "Tax Act's" new limitations on SALT and mortgage interest deductions will have the effect of raising taxes on middle to high-income wage earning professionals in high cost of living areas. People like doctors, accountants, lawyers, corporate middle managers, or software engineers who earn good salaries, but who nonetheless are still deriving the majority of their income through wages. In other words, these limitations raise taxes on the upper-income end of people who work for a living. It is no coincidence that such people tend to be Democrats.
At the same time, the act also sharply reduces taxes on those whose incomes are derived primarily from passive sources such as corporate dividends. The biggest breaks are reserved for so called "pass through companies" such as Trump's own organization. Pass through companies pass their income through to their owners. Previously, this pass through income was taxed as ordinary income just like wages. Now however, it is taxed at a maximum rate of 20% (vs. 39.6% previously).
OK, but at least that will benefit small business owners, right? Wrong. If a business' owner actually works at the business (as in great majority of small businesses), then they are excluded. The business' owner has to be a passive investor (like Trump) to claim this benefit. This excludes the (mostly Democratic) doctors, lawyers, accountants, etc. who own their own practices. So it's double whammy for them.