Making her new girl in DC media tour, AOC showed up on 60 Minutes. The statement she made in the interview that set a conversation going was that she wanted the rich to pay their fair share and income taxes should be raised to 70%. As there is no real party line on the right currently, she found some interesting bedfellows. Ann Coulter cackled with delight and agreed. Coulter agreed and amplified and called for wealth taxes. It is time for America to consider alternative taxation.
Bless her misguided soul, but AOC’s call for raising income taxes on the ‘tippy top’ would not do much. It’s about income inequality she rants while pushing a line from the Green Party circa 2000. Her heart is in the right place and echoes the move Steve Bannon called for in the tax cut package where he wanted the top rate to slightly bump up to 40% as a nod to the populists. If any populist type taxation were to come, it would have to be more surgically applied and jump out of the income framework.
AOC is mouthing what sounds good to her underclass mass voter bank that has zero understanding about taxes. It is not as dumb as land value taxes, which some on the left feel are efficient. It is also something her wealthy donor class overlords would be okay if only applied to income and crafted with plenty of deductions. This was the problem in the pre-Reagan era. The marginal income rates were high but deductions ballooned the size of our tax code. She is not touching capital gains or real estate appreciation so the rich can just laugh in her face at the marginal income tax rate boost suggestion. Let the upper middle and small business owner class suffer and never reach the realm of the 1%.
The other problem is taxation and our national finances. The rich do already pay their fair share. The bottom 40% have negative tax rates. The middle 20% pays a little over 1% as an effective tax rate. The top 20% of earners make just over 50% of the income in America and pay 68% of the taxes. The 90% line starts around $150,000 in income. Is $150,000 in NYC rich? God no. Nor is it rich in other blue metropolitan enclaves. The donor class would kill it immediately. Our national finances are also the joke, and even right wing whites do not get it. Taxes on you do not matter. The debt is what matters. America’s creditors are what matter, and you are not one of them. America has to placate the banks, insurance firms, China, Japan, sovereign wealth funds, etc. It is a debt empire.
If AOC, Coulter and Tucker want to tackle the taxation and fairness issue while not destroying the economy in the process, it must look elsewhere. The issue is not income, as income in unequal but also the way small business owners can be upwardly mobile. An income tax change like this has negative effects. Taxing income would also pull money out of the active economy. If taxes had been 50% for the 96-99% group and 75% for the top 1% a decade ago when Obama came to power, it would have generated new tax revenues of just over $750 billion. Raising taxes on the top 5% would eliminate much of our annual deficit and then be available for redistribution. If you have noticed in the Populist Economist series, most of my proposals (here and here) cost $500-750 billion so implementing this type of tax change would pay for them. The downside is by taxing income we would be taking this money directly out of the economic flow and push the country into a recession if not outright depression.
Coulter’s instincts are right. The media and banks anticipate that the coming taxation answer to our sovereign debt crisis will be a net wealth tax. This could be surgical in who it taxes and not bludgeon the class to create an exodus, which then would force exit taxes or legal battles. Target individuals who have a net worth over $10m or $20m so that they have to pay 1-2% of that amount each year. It would be like the estate tax, except you paid it while living. We could exclude family farms. Warren Buffett complains he does not pay enough in taxes. This end his complaining. Senator Romney would also start paying higher taxes than his income tax bill creates. It would also solve some of our fiscal problems. Slapping a 2% levy on net wealth over $10 million would suck in $500-700 billion again. This time without taking income directly out of the economy. What was Bezos going to do with the $3 billion we would tax him that he isn’t going to lose 25 times over in his divorce?
The other reason a net wealth tax makes more sense is that we live in an asset bubble economy. This has been the nature of the last forty years. Asset valuation growth has created a baron class that income taxation does not touch. We blow real estate bubbles that then become assets the holders use to get loans against to then acquire more assets and wealth. The stock bubbles we have witnessed fuel this wealth inequality. It does not have to be Bezos but the C-suite of any publicly traded firm.
Another taxation route to consider is a VAT, value added tax. This would act like a national sales tax. This actively takes money out of the economy so setting it low is key. While the left would moan that they are regressive, this does not have to be the case. Assemble a two tiered VAT so that it is 1% on low priced items but for luxury items, the VAT would be 2-5%. Our wealthy live in a fashion that would make ancien regime French aristocrats blush, so a little taxation on the yachts and helicopters is a pinch they can endure.
America’s material wealth is so widespread that all of our citizens have smartphones. Do they have money for emergencies? No. Are many just a lay-off away from being poor? Yes. Are necessities inflated in cost? Yes. We need to reorient our economy towards productive endeavors rather than winner take all systems that accrue billions in the hands of few.
It is considered useless to dream these schemes up, but eventually America’s creditors will ask for a reform of finances. At the current rate of geopolitical friction, China can make a few phone calls and start the crisis. Is it too much to ask the Bernie crowd and the Trump populists to create an alliance like in Italy with Lega and Five Star? Sadly, yes it is. The difference in America can be found in AOC’s post-Trump wall address on MSNBC. Like a campus SJW, she ranted and raved about racism and immigrants at the border being more American than natives. This is the entire point of the education and media complex’s identity politics conditioning. This is why the regime funds and tightly controls organizations that advocate for the underclass, non-white voter banks. If they set the left populists and right populists against each other on the most core issue of their identity, no one can unite to clean out the oligarchs.