Why Ocasio-Cortez's 70% 'soak-the-rich' tax may fail

Newly minted Democratic New York Representative Alexandria Ocasio-Cortez recently proposed imposing a 70 percent income tax on the country’s highest earning citizens to pay for a new green energy plan – an idea that tax experts say doesn’t make much sense.

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Ocasio-Cortez, the self-described Democratic socialist, suggested imposing the 70 percent rate on those with incomes in excess of $10 million during an interview on “60 Minutes” to pay for the so-called “Green New Deal” — which would be a massive investment in clean energy infrastructure, aiming to eliminate carbon emissions in a little more than a decade.

However, experts question the efficacy of such a tax during an era where countries have largely moved away from charging such high rates.

Grover Norquist, founder and president of conservative-leaning tax advocacy group Americans for Tax Reform, noted that a 70 percent rate would be the “highest in the world.”

“[It’s] higher than communist China, higher than everybody else,” he told FOX Business’ Stuart Varney during an interview on “Varney & Co.” “There’s nobody in Europe with a 70 percent individual rate.”

Another problem, according to an op-ed published by Nicole Kaeding, director of federal projects at the Tax Foundation, is that even when marginal rates reach 70 percent, effective tax rates are actually much lower. A 2017 research paper found that in the 1950s, when the top rate jumped to more than 90 percent, the highest-earning individuals were, in reality, still only paying about 42 percent.

Ocasio-Cortez’s own constituents would also feel the pain: In New York, the top combined tax rate would skyrocket to about 82.7 percent, according to an analysis from Americans for Tax Reform.

Another issue is that few individuals actually earn income over $10 million. Kaeding pointed out that those who do would likely try to shield their incomes from the tax in shelters or through other loopholes.

“Raising the income tax rate to 70 percent or higher would be a tremendous misstep for the federal government and taxpayers, with the only beneficiaries being high-priced accountants and attorneys,” Kaeding wrote.

Or — they could move altogether.

In a globalized economy, people – and businesses – are mobile, which has resulted in lower tax rates across all countries belonging to the Organization for Economic Cooperation and Development, Chris Edwards, director of tax policy studies at Cato and editor of www.DownsizingGovernment.org, told FOX Business.

“Every industrial country has figured that out, and their policy decisions refute the soak-the-rich tax dreaming of Rep. Ocasio-Cortez,” Edwards said. “Top income rates have plunged around the world since 1980 under governments of both the political left and right.”

While high-income tax rates weren’t necessarily uncommon during the 20th century, the more recent trend has been toward broadening the tax base and lowering each individual’s respective share of the tax burden. Kaeding said a 70 percent tax on the highest-earning Americans would work to reverse that system.

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The Green New Deal is a push among Democrats to revolutionize the U.S. energy economy: The goal would be to transform the energy sector from one powered by fossil fuels to one driven by clean energy sources.

Ocasio-Cortez’s progressive ideas have garnered a lot of attention since her election. Earlier this week, billionaire Mark Cuban weighed in on her methods – urging the freshman congresswoman to refrain from engaging in partisanship.