The Sensible Politics of Soaking the Rich

Everybody hates taxes. That’s one of the unalienable truths in U.S. politics, and it’s been proven again as the April 15 filing deadline approaches. A drop in tax refunds earlier this year, potentially due to the Republican tax cuts in late 2017, infuriated Americans.*

While Republicans have long argued that opposition to taxes is baked into the country’s DNA, both parties see tax increases as an existential threat. In 2015, the Republican pollster Frank Luntz expressed the conventional wisdom, telling Bill O’Reilly that taxes were an “emotional” issue for voters: “Nobody wants to see their taxes go up.” For much of the country’s history, a simple calculus has defined political life: Voters reward politicians when taxes go down and punish them when they go up.

Democrats, long tarred as the party of high taxes, face a growing problem as they propose ambitious and expensive programs like Medicare for All and the Green New Deal. Fox News and other right-wing outlets have latched on to studies estimating that Medicare for All would cost $32 trillion over ten years and that the Green New Deal would cost $93 trillion. On Tuesday, more than 100 Democrats rolled-out the most ambitious single-payer health care bill yet, a sweeping plan that would enroll everyone in a government-funded program in only two years. But one detail, caught by a number of outlets, was missing: How much it would cost.

It’s easy to see why Democrats are under-emphasizing the cost of these plans. They want to focus on the benefits, not the drawbacks. And understating costs—including potential tax increases—could lead to political disaster, as it famously did for George H. W. Bush after he broke his “read my lips” pledge not to raise taxes. Putting a multi-trillion price tag on any pitch to voters is similarly problematic and could ultimately doom these efforts before they get off the ground.

But there is growing evidence that Democrats shouldn’t be so tepid about tax increases or other means of raising revenue for ambitious legislation. Polling has shown that raising taxes on the wealthy is popular with a majority of voters. Given the damage the Republican Party has caused with pass two deficit-busting tax cuts for the wealthy over the past two decades, Democrats can argue that they’re the party of fiscal seriousness not in spite of any plan to soak the rich, but because of it.

This year began with the first political fight over marginal tax rates in decades. Appearing on 60 Minutes, Democratic Congresswoman Alexandria Ocasio-Cortez made the case that the Green New Deal could be paid for by raising taxes to post-World War II levels.

“You look at our tax rates back in the ‘60s and when you have a progressive tax rate system,” she told a skeptical Anderson Cooper. “Your tax rate, you know, let’s say, from zero to $75,000 may be ten percent or 15 percent, et cetera. But once you get to, like, the tippy tops—on your 10 millionth dollar—sometimes you see tax rates as high as 60 or 70 percent. That doesn’t mean all $10 million are taxed at an extremely high rate, but it means that as you climb up this ladder you should be contributing more.”

The right jumped on these comments, disingenuously claiming that Ocasio-Cortez intended to raise the tax rate to 70 percent for all earners, not just those making more than $10 million in a year. For decades, Republican tax policy has been based on the assumption that lowering rates on the wealthy is necessary because high earners will reinvest their earnings in the economy. This economic growth, the argument goes, will alleviate the impact of these tax cuts on the deficit. Instead of giving their money to the government—which will inevitably waste it—the rich will use their wealth to grow the economy, benefiting everyone.

Despite being a bedrock principle of the GOP for the last 40 years, there is no evidence that it actually works. Despite promises from nearly every major Republican figure, the corporate tax cut signed into law by President Trump in December of 2017 has resulted in a ballooning deficit that will likely exceed $1 trillion beginning in 2020.

Paul Krugman and others have made sound economic arguments for raising the marginal tax rate above 70 percent for high earners. “A policy that makes the rich a bit poorer will affect only a handful of people, and will barely affect their life satisfaction, since they will still be able to buy whatever they want,” Krugman wrote, adding that “when taxing the rich, all we should care about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.” Economic growth figures suggest that the economy performed better overall when the marginal tax rate was much higher. Economic inequality, moreover, has exploded in the four decades since Ronald Reagan first cut the top marginal rate from 70 to 28 percent.

This should be good news for Democrats running on Medicare for All and the Green New Deal, who can argue that these programs not only save lives and slow climate change, respectively, but reduce inequality and stimulate economic growth. But the politics are also in Democrats’ favor. In recent years, other polling has consistently shown that a solid majority of Americans believe that the very wealthy do not pay their fair share of taxes and support tax increases for the rich. A Morning Consult poll released in early February found that 45 percent of voters favored raising the top marginal tax rate to 70 percent, while only 30 opposed it. That same poll found that the wealth tax proposed by Senator Elizabeth Warren—a two percent levy to assets over $50 million—was supported by 60 percent of respondents and opposed by only 22 percent. Half of all Republicans also approved of the plan.

But Democrats are largely talking about their bold programs in a fiscal vacuum. That should change. Raising taxes to fund Medicare for All and the Green New Deal isn’t just a moral argument, but an economic one. These proposals are necessary to fix a broken health care system that bankrupts hundreds of thousands every year and an broken capitalist system in which a wealthy minority reaps nearly all the benefits of continued growth. While continued discussion of potential drawbacks will undoubtedly make these programs less popular, Democrats need to unite around a message to counter bad-faith attacks from the GOP.

The answer is to merge a number of the Democratic plans floated by presidential candidates and politicians like Ocasio-Cortez into a larger program aimed at creating a fairer economy, providing universal health care, and decarbonizing the economy—and to be clear about exactly how they plan to pay for it. The politics of taxes are changing. Now the Democrats need to change their message accordingly.

* This article has been updated to account for new statistics from the Treasury Department showing that the average tax refund this year is now slightly higher than last year.