Right-leaning group: 70 percent tax suggested by Ocasio-Cortez might have little effect on revenue

Right-leaning group: 70 percent tax suggested by Ocasio-Cortez might have little effect on revenue
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An analysis by a right-leaning think tank found that Rep. Alexandria Ocasio-CortezAlexandria Ocasio-CortezLawmakers fear voter backlash over failure to reach COVID-19 relief deal Why Democrats must confront extreme left wing incitement to violence The Hill Interview: Jerry Brown on climate disasters, COVID-19 and Biden's 'Rooseveltian moment' MORE's suggestion of imposing a 70 percent marginal tax rate on incomes over $10 million might not provide a significant boost to federal revenue.

The Tax Foundation estimated two potential proposals for a 70 percent top rate in its reported released on Monday. The first proposal applies the 70 percent rate to ordinary income, such as wages and business income, while the second applies it to that income plus capital gains and dividends.


Under conventional scoring that doesn't factor in economic effects, the Tax Foundation estimated that a 70 percent rate would increase federal revenue by $291.7 billion over 10 years if it only applies to ordinary income, while it would raise $51.4 billion if it applies to all income.

"The reason why a 70% tax rate on all income over $10 million would raise very little revenue is due to how taxpayers would react to the much higher tax rate on capital gains," the Tax Foundation wrote in its analysis. Because capital gains are only taxed when assets are sold under current law, taxpayers can essentially choose when to pay the tax, the group said.

"We estimate that realizations that would be subject to the $10 million tax bracket would be permanently 77 percent lower than they otherwise would have been," the Tax Foundation wrote. "As a result, federal income tax revenue from capital gains would fall and offset a large portion of the additional tax revenue from taxing ordinary income."

The Tax Foundation's analysis comes as Ocasio-Cortez's idea has garnered considerable debate among lawmakers and policy experts.

The New York Democrat suggested the 70 percent marginal tax rate in a recent "60 Minutes" interview, as a way to help pay for a "Green New Deal" to tackle climate change. A spokesman for the congresswoman told The Hill on Friday that Ocasio-Cortez's comments were "more conceptual" than a specific proposal.

When taking macroeconomic effects into account, the Tax Foundation estimated that a 70 percent rate would raise revenue by $189.1 billion over 10 years if it only applied to ordinary income, and lower revenue by $63.5 billion if it applied to all income.

The potential proposals would raise less revenue once economic effects are incorporated because they would lead to a reduction in hours worked by taxpayers in the bracket, and because the cost of capital would rise for noncorporate businesses, the Tax Foundation said.

The top tax rate was 70 percent as recently as 1980, but has been much lower in recent years. The current top rate is 37 percent and applies in 2019 to income over $612,350 for married couples.

A 70 percent marginal rate is unlikely to become law in the near future, since Republicans control the Senate and the White House. House Democrats are treading carefully on the idea, with some progressives stopping short of endorsing that high of a top rate.

A Washington Post article earlier this month calculated that a 70 percent rate applied to ordinary income and capital gains could raise as much as $720 billion over 10 years. But that estimate did not take into account behavioral changes, and the Post said that the amount of revenue raised would probably be smaller than that because wealthy people would probably find ways to avoid paying the tax.

Michael Linden, a fellow at the left-leaning Roosevelt Institute said that criticisms that a 70 percent rate wouldn't raise much revenue miss the fact that there are also economic and moral reasons to implement a marginal tax rate that high.

He also said that if a 70 percent rate raises hundreds of billions of dollars, that's "not nothing," and that revenue estimates at the high end of the income spectrum are very sensitive to the parameters in analysts' models.