AOC’s 70% Tax Plan Is Just the Beginning

Tax-the-rich plans like Alexandria Ocasio-Cortez's 70 percent proposal aren't just politically popular — they're morally necessary.

Rep. Alexandria Ocasio-Cortez (D-NY) walks through the US Capitol on January 24. Alex Wong / Getty

Earlier this month, Representative Alexandria Ocasio-Cortez, a freshman Democrat from the Bronx who identifies as democratic socialist, created a stir by calling for raising federal tax rates on incomes over $10 million to 70 percent.

“You look at our tax rates back in the sixties and when you have a progressive tax rate system, your tax rate, let’s say from zero to $75,000, may be 10 percent or 15 percent, etc.,” she told Anderson Cooper on CBS’s 60 Minutes. “But once you get to the tippy-tops — on your 10 millionth dollar — sometimes you see tax rates as high as 60 or 70 percent. That doesn’t mean all $10 million are taxed at an extremely high rate, but it means that as you climb up this ladder, you should be contributing more.”

Cooper called Ocasio-Cortez’s proposal a “radical agenda.” Not surprisingly, Republicans greeted AOC’s interview with outrage (and willful misrepresentation of the plan’s distributional effects).

Conservative and centrist pundits also confidently predicted that AOC’s suggestion would be so unpopular with the public that it would help the GOP. National Journal political editor Josh Kraushaar tweeted that “calling for a 70% tax rate on the nation’s most-watched news show” would be “politically damaging for D[emocrat]s,” while libertarian economist Tyler Cowen quipped that AOC’s plan could be dubbed “the Trump re-election campaign.”

Many Democrats agreed. New Jersey representative Bill Pascrell, who serves on the tax-writing Ways and Means Committee, described AOC’s plan as “comical,” and former Senate majority leader Harry Reid dismissed it by citing the supposed constraints of public opinion. “When you talk about 70 percent and all that,” Reid said, “we have to be careful because the American people are very conservative in the sense of not wanting radical change quickly.” With few exceptions, the most that Democrats would say in support of AOC’s idea was that it “should be discussed,” as 2020 presidential hopeful Kamala Harris put it in an appearance on The View.

But despite bipartisan beliefs to the contrary, Ocasio-Cortez’s “radical agenda” is surprisingly popular. When pollsters asked about AOC’s 70 percent tax proposal, 59 percent of registered voters — including 71 percent of Democrats, 60 percent of independents, and 45 percent of Republicans — said they backed it.

The faulty prediction that AOC’s plan spells political disaster for Democrats is just the latest in a long line of wrongheaded conventional wisdom that Americans are reflexively anti-tax. In fact, a “class warfare” tax populism that taps into the public’s resentment of rising inequality is a winning message. Since the 1970s, approximately 70 percent of Americans have consistently said that the rich pay “too little” in taxes. In recent years, a majority has even begun saying that the government should “redistribute wealth with heavy taxes on the rich,” and that sentiment is particularly popular among Democrats, lower-income Americans, and young people.

Instead of shrinking away from calls for tax hikes on the rich, we should lean further into them — challenging the moral underpinnings, rather than just the policy soundness, of the Right’s anti-tax agenda.

Taxation Is Not Theft

The most remarkable fact about the public’s support for steeply progressive taxation is that it’s persisted despite how ineffectively Democrats — and even many on the Left — have made the moral case for soaking the rich. The left-leaning pundits who defended AOC’s plan mostly did so on technocratic, not ethical, grounds. When conservative pundits warned that a 70 percent levy would stifle “innovation” and strangle growth, progressives cited studies showing that higher rates would be good for the economy. The progressive wonks undoubtedly had the better evidence. But as the climate change debate illustrates, even overwhelming scientific consensus isn’t enough.

While Republicans often attempt to justify lower taxes on the rich and corporations by arguing that more money for “job creators” means more money will trickle down to workers and consumers, conservatives’ trump card has always been a moral claim: that taxes steal “your income” and are akin to “slavery.” The potency of this claim has allowed the GOP to stay even with Democrats on the generic question of which party the public trusts most on taxes, despite the fact that the public roundly rejects the specifics of the Republicans’ regressive tax agenda. Even many liberals find steep taxes on the rich “immoral” because they implicitly accept the Right’s framing of taxation as theft.

Democrats have made halting attempts in recent years to challenge the Right’s moral tax narrative. During his 2012 reelection campaign, President Obama ignited a firestorm when he uttered four words in defense of higher taxes on the rich: “You didn’t build that.” The full context of Obama’s words made his meaning clear: the rich’s ability to accumulate wealth depends on the laws and institutions that government has enforced and erected.

Obama’s comments were a somewhat less eloquent restatement of something Elizabeth Warren said in a viral 2011 campaign trail clip. “There is nobody in this country who got rich on his own — nobody,” Warren declared.

You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory — and hire someone to protect against this — because of the work the rest of us did.

Warren’s comments were, in turn, a homespun version of Liam Murphy and Thomas Nagel’s argument in their 2002 book, The Myth of Ownership. The very idea that citizens earn “pre-tax income” that the government then rips from them, the two moral philosophers write, is a form of “everyday libertarianism” that “results in widespread hostility to taxes, and a political advantage to those who campaign against them and attack the I.R.S.”

In reality, government created the laws and institutions — the roads, the education system, and, most importantly, the private property rights it’s willing to defend with violence on behalf of owners — that allow people to “earn” income in the first place. As Murphy and Nagel put it, “individual citizens don’t own anything except through laws that are enacted and enforced by the state.” A different set of laws would produce a different distribution of nominally “pre-tax” income. In the US, for instance, less business-friendly “intellectual property” laws would make technology and drugs cheaper for consumers, while also curbing the wealth of Silicon Valley or Big Pharma millionaires and billionaires.

Therefore, claims of theft by taxation that use “pre-tax” income as the moral baseline are incoherent, because “one can neither justify nor criticize an economic regime by taking as an independent norm something that is, in fact, one of its consequences.”

Making the Moral Case

In puncturing the myth that the income distribution produced by capital-friendly laws is natural and inevitable, progressives can cite not only contemporary social-democratic countries, but also the US’s not-too-distant past. From the mid-1940s to the mid-1960s the US’s top federal marginal income tax rate exceeded 90 percent, and as recently as 1981 a 70 percent marginal rate kicked in at around $312,000 for individuals and $622,000 for married couples in today’s dollars — well below Ocasio-Cortez’s hypothetical $10 million threshold. The mythical era of American greatness that Republicans constantly promise to “restore,” in other words, rested on a regime of progressive taxation that forced CEOs to content themselves with being merely rich, rather than fabulously wealthy.

The Left also has a powerfully simple moral retort to the Right’s bogus “theft” claim: an additional dollar is more valuable to a poor person than to a rich person. Instantly understandable, this claim is also borne out by research. Money tends to “buy happiness,” but only up to a point. Bill Gates and his ilk probably wouldn’t notice if their bank accounts were $10,000 lighter, but most Americans sure would (especially since they’re not likely to even have that much in savings). The difference between being able to buy another yacht and being able to afford health insurance is a clear one, and we should insist that a vote for higher taxes on the rich is a vote for fewer yachts and more saved lives. This is how you make the already shaky appeal of Republican “flat tax” proposals and the Right’s regressive tax philosophy crumble.

The final plank of the Left’s moral case for progressive taxes should come in the form of an attack on inequalities in wealth and capital income. Wealth is even more unevenly distributed than income in the US. As a result, capital gains overwhelmingly flow to the very richest Americans. And to make matters worse, for most of US history, investment income has been taxed at lower rates than labor income, further enriching the wealthy.

The fact that people who work for their money pay a higher tax rate than people whose money works for them strikes most Americans as deeply unfair. When asked if “the tax rate on income from work should be lower than the tax rate on income from wealth” — the opposite of our current tax system — a whopping 75 percent of Americans agree, including 77 percent of Democrats, 71 percent of Republicans, and 84 percent of independents.

Yet for many years, only Bernie Sanders and the Congressional Progressive Caucus seriously pushed to end the preferential rate for capital income. Encouragingly, presidential hopeful Elizabeth Warren recently unveiled a wealth tax proposal that would place a 2 percent levy on Americans with assets above $50 million and 3 percent on Americans with assets above $1 billion. We need plenty more proposals like it. Wealth taxes are a bolder method of combating inequalities in capital, since they can target unrealized capital gains, which help entrench wealth inequality across generations.

By enacting robust progressive taxation — and mounting a moral defense of it that dismantles the “everyday libertarianism” of the Right — progressives won’t just be combating the effects of skyrocketing inequality; they’ll be breaking the grip that the super-rich have on American society.

Capitalism systematically creates wealth and income inequality. But when the GOP (and centrist Democrats) began enacting “supply-side” tax cuts for the rich and business a few decades ago, they set in motion an even more vicious cycle: one where each top-heavy tax cut gave the superrich the money with which to lobby for their regressive policy preferences (including the next top-heavy tax cut). Implementing steep wealth and income taxes would give American democracy a much-needed shot in the arm.

A Political Winner

The conventional wisdom that AOC’s tax proposal was a political disaster is just the latest example of the gulf between elites and the public on tax policy. The same story unfolded with Obama’s “you didn’t build that” pseudo-gaffe in 2012.

Pundits declared that Obama’s words would allow the GOP to paint him as a “big-government Democrat” who’s “actively hostile to American ideals and aspirations.” Mitt Romney attacked him on the campaign trail: “To say that Steve Jobs didn’t build Apple, that Henry Ford didn’t build Ford Motors, that Papa John didn’t build Papa John Pizza. . . . To say something like that, it’s not just foolishness. It’s insulting to every entrepreneur, every innovator in America.” The campaign followed Romney’s retort by releasing commercials denouncing Obama’s comments as un-American (or even anticapitalist) and selling “Built Buy Us” campaign merchandise. Obama’s comments also became the de facto theme of the Republican convention, where attendees paraded with “We Built It” signs and booed videos of Obama repeating the (in)famous line.

But after all that, polls showed that “you didn’t build that” actually helped Obama. Thirty-six percent of Americans said it made them feel more positively about Obama, 32 percent said it made them view him more negatively, and 26 percent said it made no difference. Even a clumsy, moderate attempt at a Myth of Ownership–style defense worked better than all the dishonest fear-mongering the Right could muster.

Just this past year, Republicans were supposed to ride their top-heavy 2017 tax cut to victory in the midterms. Instead, they ran away from them when it turned out that the public overwhelmingly thought the tax bill was written to favor the rich.

And that’s just it: despite the entrenched myth of “pre-tax” income and the seductive misdirection of conservatives’ “taxation is theft” message, the public has consistently rejected the Right’s regressive vision of taxation in practice, and the popularity of AOC’s call for much higher rates on the very rich shows how far off Beltway conventional wisdom on tax politics still is.

Rather than a “radical agenda,” Ocasio-Cortez’s 70 percent proposal is just one modest plank in the type of progressive tax platform necessary to curb the social and political power of the rich. The first step in enacting that agenda is to plainly and unapologetically explaining its elements — and AOC deserves credit for moving the agenda forward. The next step is to connect those proposals with a moral vision for progressive taxation that challenges the Right’s reactionary tax bromides.