Alexandria Ocasio-Cortez is floating a 70 percent top tax rate -- here's the research that backs her

[Igel]

6. The data are easily available.

It goes like this.

In the '50s, the minimum tax rate wasn't zero and the high-end tax rate was very high.

As time went on, the minimum tax rate dropped to zero. A good 40% of households, after rebates and income exclusions pay no federal income tax.

Whenever the upper tax rates change, they have an effect for a couple of year. Increase them, revenues go up. Decrease them, revenues go down. For those income quintiles. However, by 3 years after the change the effect has vanished, and there's been a regression to the mean. Politicians only haggle over the first year or two--"Oh, noes, look, revenues are down, we're all doomed!" or "Oh, hot-diggity, look at how we've increased revenues!" Because by around year 3 neither claim holds.

Over the decades, regardless of top marginal tax rate, the tax from any given quintile has stayed fairly constant. That's what the group considers "fair". Not others--but since when do you bow you head and say 'yes, lord' when I tell you what I think is fair for you? You're not unique in that. Increase taxes more than the various groups think fair, and they will do things to reduce their tax burden. (If you don't think it's a tax burden, feel free to triple your tax "lightness" and pay more. There's a reason that the bottom two quintiles pay almost no income tax. It's because they think it's a burden, too.)

What's funny is that if you decrease the upper quintiles' tax burden, they will do fewer things to shelter their income and avoid taxes. It's just not worth that much hassle to avoid paying taxes, and often they figure that it's only fair to pay. Again, what they think is fair turns out to be fairly constant over the decades, regardless of the top marginal tax rate. This sounds like heresy, contradicting established true doctrine and sound; but it's what the tax data since the early '50s show. (The group that's convinced that what they pay is really an unfair imposition are now the bottom 2 quintiles. Of course, that's not entirely a reasoned characterization, since back in the '50s FICA was so much lower; FICA basically took over when the federal income tax was cut.)

When I was a kid, I remember being bored over holiday dinners as the grown ups talked about tax shelters. They were all working class, but had invested enough savings (savings were a thing back then among the "working poor&quot that they sheltered their investment income. These days the only tax avoidance strategies I hear from people who make far more than my parents' friends did are talking about their tax preparer, deducting this or that. You have to be pretty well off to find tax shelters as an on-going topic of conversation. Some of that is because of IRAs; some is because there's no point in sheltering with low dividend tax rates.

Now, if this old linguistics and chemistry major can know a simple thing like this, with his one undergrad gen-ed econ class, imagine what kinds of expertise somebody with actual coursework, maybe even a degree, in economics would be able to bring to bear? Somebody aware of how Homo economicus works in theory *and* how real people behave in practice.