Wednesday, January 16, 2019

How Much Would a New and Higher Marginal Tax Rate Bracket (at the Federal Level) Bring In?

Alexandria Ocasio-Cortez (AOC) has publicly proposed a very high tax rate on very high incomes.

(Honestly, I’m not picking on her. She’s just the current face of progressives.).

Estimates of how much revenue this would bring in have now been produced by The Tax Foundation. This is a Washington D.C. think tank, that is generally for low taxes and tends to line up with the Republicans. Having said that, they’re not hacks, and are equipped to produce reliable forecasts quickly.

Here’s some ballpark numbers: the Federal government is expected to bring in $3,420B/year in tax revenue in 2019, with other branches of government bringing in $3,120B/year more.

The proposed rate and method of taxation is not quite clear, but an extra income tax bracket of 70% on incomes above $10M seems consistent with what AOC has said. The Tax Foundation runs two different possibilities.

Also, in doing tax analysis, you need to be aware of conventional/static vs. dynamic analysis. In the conventional method (preferred in D.C.), a change in taxes doesn’t change people’s behavior. In the dynamic analysis (preferred by economists), tax changes do change behavior.

Naïve announcements in the legacy media project her proposal to raise $700B over ten years.

What does The Tax Foundation forecast? No more than $300B spread over ten years, and possibly it will actually lose money (if it encourages enough rich people to shift their income out of the forms that are taxed).

So, taking the $300B/year as the most optimistic estimate, we’re talking about a 1% increase in tax revenue. That’s not going to fund much of the progressive wishlist.

BTW: AOC used her economics degree to make Steve Scalise (the # 2 Republican in the House) look foolish the other day, noting that he did a switcheroo by using average tax rates to make a point about her marginal tax rate idea. Of course, it being 2019, internet trolls ruined that whole discussion by implying violent actions.

No comments:

Post a Comment