Rep. Alexandria Ocasio-Cortez’s proposal to raise taxes on the rich is catching fire, and the millionaires, billionaires, executives and dictators in attendance at the World Economic Forum in Davos, Switzerland, are nervously tittering and possibly panicking.
“It’s scary,” Scott Minerd, global chief investment officer for Guggenheim Partners, an investment firm with more than $265 billion in assets, told CNBC in an interview from the forum, as he talked about the newly elected New York Democrat’s proposal. He added that he’d likely be impacted.
Ocasio-Cortez wants to raise the marginal tax rate to 70 percent on those who earn more than $10 million a year. The revenue, she says, would help pay for a Green New Deal, meant to avert a global climate catastrophe.
“I don’t think it would help the growth of the U.S. economy,” Michael Dell, the founder of Dell Computers who has a net worth around $30 billion, told a laughing crowd when asked about the progressive tax reform by a Washington Post reporter. He’d prefer to donate money, he said. (That move, of course, comes with a tax break.)
Ocasio-Cortez herself has been gleefully returning fire on Twitter. “Is it getting hot in here, or just the elevating public consciousness around rampant wealth inequality?” she tweeted this week.
But this isn’t about the 29-year-old political wunderkind “clapping back.” Ocasio-Cortez has done something even more remarkable with this tax thing – she’s popularized a wonky tax idea that asks the rich to pay their fair share, ending years of gaslighting from conservatives and the wealthy, who’ve tried to argue lowering taxes on high-income earners is good for everyone.
Other progressive economic policies – think the $15 an hour minimum wage or Medicare for all – have captured the public’s imagination over the past few years. But it’s hard to think of a progressive economic idea that has caught fire as quickly as this one, said Stephanie Kelton, an economist at Stony Brook University, who advised Sen. Bernie Sanders (I-Vt.) during his 2016 presidential campaign.
Part of that has to do with Ocasio-Cortez’s undeniable star power.
“There’s something unique about her in this moment where she’s captured the attention of so many people on the left and the right,” said Kelton. “So when she says something like this it just makes a splash.”
The idea of raising the marginal rate to 70 percent isn’t new. Sen. Sanders talked about raising taxes on the rich during his campaign, though it arguably wasn’t his most resonant pitch.
In fact, from 1936 to 1980, the top rate never dipped below 70 percent. That changed with former President Ronald Reagan, who rode a wave of anti-tax backlash that has grown stronger with each year since, culminating when Congress passed Trump’s tax cut in 2017.
The fantasy that these cuts would benefit ordinary Americans is largely over, said Kelton.
“The policies of the last several decades going back to at least 1981 have largely decimated what was once the American dream, hollowing out communities, the middle class,” she said, adding that people are now unable to afford what was once considered “the essentials”: healthcare and housing.
Though unemployment is at record lows, ordinary Americans are feeling anxious in the face of ballooning student debt, increasingly out-of-reach real estate and the prospect of affording a secure retirement.
“Those anxieties are deep and very really and were ignored,” Kelton said.
Trump tapped into that anxiety with his rhetoric, but not his policy. Ocasio-Cortez is doing both.
She’s also managed to explain marginal tax rates to the millions of Americans who likely didn’t understand the concept.
While some conservatives have attempted to portray a 70 percent rate as the equivalent of you make $10 million and you pay $7 million in taxes, that’s grossly incorrect. (Anti-tax activist Grover Norquist took that rationale to a wildly absurd place earlier this month, with the above tweet.) It is only the first dollar over $10 million that would be taxed at the higher rate.
Ocasio-Cortez has patiently explained the concept to the country again and again. Most recently in an appearance on the “The Late Show” with Stephen Colbert.
“This has been a chance to educate people,” said Dean Baker, senior economist at the professor Center for Economic and Policy Research. “The confusion about marginal tax rates is pervasive.”
Voters, who get the concept, like the idea of raising rates. A survey conducted earlier this month found a majority of voters support raising the rate. Even hard-right conservative Ann Coulter is on board.
It’s important to note that there just aren’t many Americans who earn more than $10 million in income a year. An estimated 16,000 taxpayers would be subject to the higher tax bracket.
While some conservatives argue that raising taxes on multimillionaires’ income would lead them to work more and “create less,” there isn’t much evidence to support that idea. And several prestigious economists have written about and support her plan.
Still, Ocasio-Cortez hasn’t fleshed out the details, so it’s not clear if she intends to also raise taxes on “unearned income,” the money rich people earn from their investments.
Some progressive economists believe that raising the marginal rate would just be part of the way to start getting the wealthy to pay their fair share. Ocasio-Cortez’s idea then is a signal of a larger ethos that’s taking hold and likely part of a bigger plan to shift economic burdens to the well off.
“I don’t think she probably has this in mind as her singular way of addressing income and wealth inequality,” Kelton said.
The billionaires freaking out likely understand that the popularity of this idea is a flashing warning sign: The jig is up.
“By the time we get to the presidential election, this is going to gain more momentum,” Minerd, the investment officer told CNBC. “And I think the likelihood that a 70 percent tax rate, or something like that, becomes policy is actually very real.”