Alexandria Ocasio-Cortez’s proposal to raise the marginal income tax rate for incomes over $10 million to 70% has sparked a huge amount of interest in general and also alarm among the wealthy. Much of the discussion has focused on how much revenue it might raise. But as Vanessa Williamson writes, the main purpose of such a tax is not to raise revenue but to reduce inequality, and that those who focus on the former are missing the point.
Again, the revenue question is the wrong question. Not because talking about revenue plays into a Republican strategy of deeply hypocritical deficit fear mongering¬¬¬¬ — though it does. Not because extracting money from rich people is easy; there are serious technical questions about how to implement taxes on the very wealthy. The problem with using revenue to justify progressive taxation is that over time, an effective progressive tax system should actually raise less and less money.
Progressive taxation should work as a corrective tax, like tobacco taxes or a carbon tax. Sure, tobacco taxes raise some revenue for the states. But their primary purpose is to curb smoking. While a carbon tax could produce a lot of government revenue, the real point is to limit global warming pollution. In essence, corrective taxes try to put themselves out of business; if tobacco tax revenues decline because people quit smoking, or if carbon taxes stop rolling in because the economy becomes fossil-free, that is victory, not defeat.
Taxes on the wealthy discourage a different societal ill: exploitative capitalism. Progressive tax policy is a powerful corrective to economic inequality and wealth concentration. As economists Thomas Piketty and Emmanuel Saez concluded in their seminal paper on U.S. income inequality, “steep progressive income and estate taxation” helped prevent the accumulation of immense fortunes in the middle of the 20th century. In cross-national data, moreover, there is a “strong negative correlation between top tax rates and top 1% income share.” In other words, where top tax rates are higher, the income distribution is more egalitarian – not just post-tax, but even before taxes are taken out.
That’s because progressive taxes blunt the incentives for wealthy people to overpay one another and exploit the less privileged.
The democratic argument was once central to the case for progressive taxation. In 1910, Theodore Roosevelt called for progressive income and estate taxes because, “unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power.” The goal of progressive taxation, for Roosevelt, was “to change the conditions which enable these men to accumulate power which it is not for the general welfare that they should hold or exercise.”
Early proponents of progressive tax policy knew that it was not just a revenue source.
This is important to bear in mind as the debate is only going to get more heated.
It turns out that even at Davos, the idea of taxing the rich more heavily found favor. Watch this powerful video clip from a panel that was held there. It deserves to go viral. (Bonus: Cameo reaction shot of Jane Goodall and her plush monkey.)
‘It feels like I’m at a firefighters conference and no one’s allowed to speak about water.’ — This historian wasn’t afraid to confront the billionaires at Davos about their greed pic.twitter.com/TLHZQPMIwI
— NowThis (@nowthisnews) January 29, 2019