Rep. Alexandria Ocasio-Cortez made headlines for endorsing a top income tax rate of 70 percent. The young Democratic socialist claimed this would offer a path forward to pay for pricey items such as the “Green New Deal” and Medicare for all.
What she and other adherents of the “soak the rich” philosophy seldom disclose is such tactics rarely raise the amount of revenue they assume, and even if they did, it wouldn’t come close to covering the full costs of tens of trillions in new spending.
This is why it is remarkable that 200 Democrats have signed on new legislation that imposes the tax burden required to fund expanded retirement benefits on every working American. This bill would effectively create a top combined income, payroll, and investment tax rate of 65.6 percent to pay for Social Security’s solvency.
Introduced by Democratic Reps. John Larson Conor Lamb and Jahana Hayes, the legislation would phase in a combined OASDI (Social Security) payroll tax rate that would reach 14.8 percent, up from today’s 12.4 percent.
In contrast to the left’s rhetoric that tax increases would only fall on plutocrats, the payroll tax is paid in every paycheck by every single person with a job. The bill’s sponsors seek to hike this tax because they know that there’s just not enough money in “wealthy-only” tax increases.
Combined with the current top federal income tax rate (37 percent), Medicare payroll tax (2.9 percent), and top state income tax rate (California’s, 13.3 percent), that adds up to a combined top marginal rate of 65.6 percent faced by some high-income Americans.
If Ocasio-Cortez’s dream 70 percent income tax bracket existed, that would push the combined top marginal rate up to 101 percent. Take a guess what might happen to the economy if it’s actually better for rich folks to not work at all due to taxes.
But even combined tax rates as excessive as that aren’t close to enough to pay for all the proposed expansions to social programs those on the left are pushing. This tax hike would only be enough to shore up one broken program, Social Security, but it doesn’t fix the flood of red ink in Medicare, let alone pay for the estimated $42.5 trillion price tag of democratic socialism.
Brian Riedl, a senior fellow at the Manhattan Institute, breaks down the nearly impossible task of paying for such an expensive agenda. Even (generously) assuming $8.5 trillion in spending cuts from liberal proposals, there aren’t good options for paying for the remaining $34 trillion. The rich and corporations won’t do it: the government would have to seize all corporate profits, and all family wage and pass-through business income above $90,000 ($150,000 married) and pretend that that would not affect the workings of the economy (it would).
The alternatives, an 87 percent value-added tax or an additional 37 percent payroll tax, do not seem so appealing either. In other words, it wouldn’t just be those rich people ruining their priceless paintings on yachts with champagne corks that would foot the bill. It would be everybody at every income level paying vastly more in taxes. As the economy slowly contracted under the pressure of such high tax rates, you can bet that the left would advocate scraping new revenues from American workers over reassessing the size of government.
Paying for the vast array of new government programs dreamed up by some in Congress will require a drastic change in the amount of taxes that everyday Americans pay. The fact that 200 Democrats are on board with a boost to the payroll tax is a stark reminder of that.
Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy education at all levels of government.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.
