As the 2020 election draws nigh, tax policy may well become a major issue in the campaign. The Washington Examiner notes that President Trump and his advisors are crafting major legislation that will enact a middle-class tax cut. The White House has revealed few details about rates, income levels, and, most importantly, spending cuts to help pay for it. The catch is that the Republicans will have to recapture the House in order to enact it. The proposal will constitute an argument for reelecting Trump and giving Republicans full control of Congress again. Elect us and you will get to keep more of your money.
In the meantime, Rep Alexandria Ocasio-Cortez, the fiery young socialist from New York, is developing legislation that goes in quite the opposite direction. According to Money and Markets, she will propose to hike the top income tax rate from 37 percent to an eyepopping 59 percent. “–the bill is still being drafted and also would increase capital gains taxes, making them equal to income taxes, as well as a move to what they’re calling a ‘mark-to-market’ system. That would require people to pay taxes annually on the appreciation of their investments, real estate, and all business holdings.” Currently, the top tax rate on capital gains is 23 percent.
AOC and her allies are proposing the new tax for two reasons. First, the tax would, in their estimation, raise $2 trillion over ten years to help pay for a variety of new social programs, including Medicare for All and the Green New Deal. Second, it would address what they see as a problem in American society they call income inequality. Rich, successful people make so much more money than middle- and working-class people that AOC finds the state of affairs to be a stench onto the nostrils. It is time to take those fat-cat billionaires a peg or two, indeed a billion or so pegs.
Just as President Trump is betting on a middle-class tax cut to propel him to a second term, AOC, a supporter, and advisor to Bernie Sanders, supposes that a tax increase on “the rich” will run Trump out of the office and replacing him with a president more to her liking. The trick is that Trump not only needs to be replaced, but the Senate needs to flip to the Democrats for the proposal to pass.
AOC and candidates such as Bernie Sanders and Elizabeth Warren are making the same bet that Walter Mondale did in 1984 when he told the Democratic National Convention, “Let’s tell the truth. It must be done, it must be done. Mr. Reagan will raise taxes, and so will I. He won’t tell you. I just did.”
Two things happened after Mondale made that speech, well-received as it was by the media. Mondale lost the 1984 election by a landslide, losing 49 states. Then, in 1986, with the cooperation of some congressional Democrats, President Reagan did not raise taxes, but lowered tax rates and got rid of the tax code of many loopholes, in effect simplifying and flattening income taxes.
Some analysts believe that AOC and people who think as she does is taking the same risk as Mondale did 35 years ago. The strategy of making rich people boogeymen is an ancient one in Democratic politics, going back to the Franklin Roosevelt administration. The gambit tends to work best when economic times are tough, such as during the Great Depression of the 1930s or the economic meltdown of 2007 and 2008. The strategy tends to fall on deaf ears when times are great, such as the 1980s or 2019.
AOC’s income tax hike proposal comes on top of the wealth tax being put forward by Bernie Sanders and Elizabeth Warren. The transformation of the United States into a true socialist people’s republic will not pay for itself.
Two salient facts have to be considered.
First, according to the National Taxpayer’s Union, the top one percent pays roughly 39 percent of income taxes. The notion that the rich do not “pay their fair share” is a myth promulgated by politicians such as AOC.
Second, tax increases on the rich will never pay for all of the promises that AOC, Bernie Sanders, and Elizabeth Warren are making. Bernie has pretty much admitted this fact, though Warren still denies it. Eliminating private health insurance and destroying the fossil fuel industry will come at a steep monetary price.