Calling Alexandria Ocasio-Cortez's 70% tax on income higher than $10 million an Excess Profits Tax might have its benefits. For those who didn't click on the link, Excess Profits Tax was used during at least the First World War, the Second World War, and the Korean War to both
- Help pay for the wars
- Discouraging profiting too much from the wars (which might encourage corporations to thump the drums of war to increase profits)
A couple historical issues that might arise from labeling Ocasio-Cortez's tax rate proposal this way:
- It might create the impression that this tax bracket only has a temporary life span
- Excess Profits Taxes in the past mostly applied to corporations and businesses in the past, not individuals
Calling this 70% tax bracket an Excess Profits Tax could definitely have its place in the area of rhetoric. $10 million in a year is A LOT and generally a whole lot more than most people seen in their bank accounts during their lifetime. Even my own plan for becoming independently wealthy and living off interest, dividends, and capital gains generally depends on having at least $15 million in the bank (which would generate approximately $75,000/year or $6,250/month at a half percent interest rate).
I can't even imagine how to spend $10 million in a year, let alone make that much in a year or more. Making more than that intuitively feels excessive.
Compared to just over fifty years ago, however, the Ocasio-Cortez 70% marginal income tax proposal for over $10 million frankly comes off as charitable. Back then, The Federal government tax individuals and married couples for 70% on income higher than $100,000. Also keep in mind, the 70% tax rate at that time had been the law of the land for decades.
Ocasio-Cortez's proposal starts this tax rate at a point 100x higher than the Federal government started the 70% tax rate fifty years ago. Taking into account inflation, that $100,000 of 1968 dollars would be equal to about $704,367.82 in 2017 dollars, which is only about 7x more than about fifty years ago, much less than 100x than what Ocasio-Cortez has proposed.
From at least the First World War to Nixon's Presidency, the top income tax bracket was at 70%. In addition, the Federal government levied the Excess Profits Tax on corporations of up to 95% on large wartime profits that would not have been generated during peace time while the First and Second World Wars and the Korean Wars waged. Nixon lowered the top tax bracket to 50% and a whole bunch of other economic experiments (though his Alternative Minimum Tax has its place). When Reagan's reforms went through, the top income tax bracket rate lowered to 33% in 1987.
Internet research yielded this information today because of some discussions with a friend about the lengths that Paul Volcker went to defeat out of control inflation that was the trend through the '70s and lasted until the early '80s. Volcker put a lot of focus on raising interest rates to tame the economy (as contrasted with the Fed after the 2008 Great Recession lowering interest rates to let the economy loose and encourage it to grow). On the flipside, this article makes an interesting argument that increasing taxes on high income earners could have tamed the economy while also reducing the suffering of people in lower income brackets.
The tax higher income brackets while keeping interest rates low or moderated argument leads me to reconsider the argument I've made in my most popular Lextopia essay, "A Case for Increasing Interest Rates and Speeding Up Quantifiable Tightening Just a Little Faster". In that essay, I argued that increasing interest rates would work to decelerate the economy before it forms a bubble pop better than two other factors to help decelerate the economy: increasing taxes and the government reducing its borrowing.
Increasing interest rates would work best, according to my earlier argument, because it would generate real wealth for people who have money in savings while also decelerating the whirlwind borrowing and spending of frackers, other energy producers, and stock buybacks. Based on "The Silicon Bubble Edition" - Slate Money podcast, frackers and other energy producers haven't been making profits lately, mostly funding their business, including labor, by borrowing lots of money.
The same goes for corporations financing stock buybacks. Borrowing costs have been so low, that executing stock buybacks makes for the most profit for shareholders. These facts led me to believe that increasing borrowing costs would cut down on these practices that will eventually lead to over borrowing and cause another borrowing bubble from popping, while also helping savers generate wealth through increased interest rates.
Government borrowing, when done right can help to invest in the people of this country. For the purposes of the argument in my other essay, though, I had only entertained feasible actions done by a rational actor. At that time, Jerome Powell, the current head of the Fed, seems like the most rational actor who has control over these factors. I still believe he remains the most rational and able party to have an influence on these factors (which isn't necessarily a great thing).
I also agree that, at this time, Powell's decision to stay stable with interest rates has its place. Considering the
- Recent government shutdown
- Possibility of a near future shutdown (this time also possibly including a debt ceiling element)
- Trade tensions with China
- other factors around the world
keeping interest rates steady provides some stability for now and some amount of flexibility if the foot needs to be put onto the economic gas pedal.
Nonetheless, as we enter the 2020 Election season, discussing government borrowing and tax rates has become appropriate. I agree with some of government borrowing occurring now, especially if it increases social welfare, improves the environment, and invests in people (especially so they can become productive members of society later).
I'm guessing a lot of the present borrowing goes toward war efforts and homeland security. Homeland security exists in a gray area for me that I don't know enough about to comment on. I don't care for the war efforts, but I also don't agree with entering into an area, wrecking it, then exiting it less stable than when we went into it. My feeling has always been if we break an area, we need to leave it better than we left it. In the end, my issue with government borrowing focuses more on what it gets spent on, not on the fact that it happens. When borrowed money gets spent right, on the People, future profits can go back into paying back the borrowing and also create more capital and profits.
So barring the ability to
- Raise interest rates more (because even though it might reduce borrowing by corporations and wealthy people while increasing real wealth of people with savings, a lot of lower income people who depend on borrowing can face interest rates that destroy their life when they just want to pay bills or
- Reduce government spending
I have come to believe in the validity of taxing higher income people more. A higher tax on them will provide better bracket targeting in putting the brakes on the economy to avoid a bubble popping. At the same time, it will reduce the suffering of lower income and middle income people who depend on borrowing to pay their bills day to day.
History has also shown that higher tax rates on higher income people helps keep government debt under control and the economy stable. When the United States had a higher tax rate on higher incomes, the government had a lower deficit and the country had better control on inflation. The United States spent money and also brought in income to pay back borrowing or recover lost funds. Like in family finance, the United States had better control over debits and credits and the economy when it had higher tax rates on people with higher incomes.
Suffice to say: the government deficit has grown and gotten more compounded since the tax rate trended downward since the Vietnam War. I can come up with valid arguments that social changes have affected the job markets and purchasing markets causing labor issues. Nonetheless, in the end, lowering and keeping taxes low
- At the end of the Vietnam War
- After the Vietnam War
- During neoliberal interventions in South America
- The first and second Iraq Wars (though George H.W. Bush gets some credit for breaking his promise for "no new taxes"
- The longest war in Afghanistan
- The Cold War (the old and possible restarted one)
- In all the fronts of the War on Terrorism
has done a lot for increasing the Federal deficit, benefiting war profiteers, and compounding the future debt that our descendents will have to pay. . .if civilization isn't destroyed by all this war or the Earth destroying us through the climate before we make necessary changes. And all the while,
- The poorer are getting poorer
- The economy has a bipolar existence of inflating and deflating like it has a mind of its own
- Intolerance grows between peoples
- Tensions grow between countries with peace treaties getting torn up, missile reduction treaties getting torn up, illiberal authoritarians take the reins of leadership, and the uber rich insulating themselves from the world, losing or never getting the ability to identify with regular people
- Opioids seeming like a rational life decision as we feel increasing loneliness, alienation, depression, and dissaffection
And the list can go on and on and on, much of it because the rich don't want to give up their wealth. The rich don't want to contribute to a more stable, more supporting, more affirming social fabric. The rich disconnect because they fear the rest of the world, the rest of society, the loss of their wealth. Their wealth blinds them from a true connection with others in the world and a true sense of meaning of what it means to participate and identify with others.
Putting the above into perspective with the Left and Establishment Democrats pretty much being torn asunder at the end of the 1960's and the Right taking advantage of that rift to promote their conservative socio-economic agenda, the Right has done its job keeping the country's social fabric, domestically and in foreign affairs, in tatters, all for the benefit of the Wealthy Right, socially and economically.
The Right, if it truly wants a stable social fabric that helps provide stability and social connection, not just affirmation of their own virtue ethics that justifies
- Selfishness
- Privilege
- Distrust
- And for the rich, their wealth and income
then the Wealthy Right owe it to society to pay higher taxes on their excessive profits. A truly civic republicanism requires liberal values and investment in the People. If the People are to be motivated and involved in civic life, the People need their humanity affirmed, their identities affirmed as human, and to be motivated that this country gives us a worthwhile reason to use our time to engage in civic life. As JFK said, "Ask not what your country can do for you, ask what you can do for your country."
If we keep moving onward the way we are today, in aristocratic, oligarchic societies where the rich get richer and the poor get poorer and suffer more, especially with no concern for the climate,
- The human race will eventually be the biggest contributor to its destruction
- The economy will be out of control forever
- Individual humans will likely be in a near constant state of insecure alienation, disaffection, loneliness, depression, and distrust until civilization falls apart, whether we're rich, poor, or in the middling wealth brackets
So with all that in mind, as someone without much influence, I support the Alexandria Ocasio-Cortez push for a 70% tax rate on annual income higher than $10 million. Honestly, I see that more as a beginning than the end. For now, though, I think this proposal is a good start to get a better control of the economy and the Federal deficit. This higher tax rate can also help reduce the chance of economic bubbles bursting and, if the tax income is used to invest in the survival and development of peoples' education in liberal arts and marketable skills, I can only see the state of society developing in a positive direction.
If you like what you see here and in the past and want to free me up for more, support my endeavors by Buying Me a Coffee!
Posts
