Rep. Alexandria Ocasio-Cortez just proposed a 70% top marginal tax rate for the rich. While critics have been quick to dismiss the prospect, prominent economists – including Nobel-Prize winners – have supported similar ideas in recent years.
Ocasio-Cortez, who at age 29 just became the youngest Congresswoman in history, floated the notion in a 60 Minutes interview with Anderson Cooper that was released Friday. She framed it as one possible way to fund her so-called Green New Deal, an ambitious plan to reduce inequality and eliminate fossil-fuels by 2030. A 70% rate on income over $10 million would only affect less than 1% of households, and could bring in up to $72 billion in taxes per year, according to experts consulted by the Washington Post.
Many quickly denounced Ocasio-Cortez's plan: Anderson Cooper called it a "radical agenda" and former Federal Reserve chairman Alan Greenspan said it was “a terrible idea" that would crimp economic growth. In fact, a 70% marginal tax rate would hardly be unprecedented. In the Eisenhower years, the top U.S. tax rate eclipsed 90% and rates didn't fall below 50% until the Reagan administration.
So can a 70% top tax rate work? Here are five top economists who think so:
In a New York Times op-ed published on Saturday, Krugman fleshed out Ocasio-Cortez's tax proposal, calling it "fully in line with serious economic research." He went on to add that: "What we see is that America used to have very high tax rates on the rich — higher even than those AOC is proposing — and did just fine. Since then tax rates have come way down, and if anything the economy has done less well." The Nobel-Prize winner pointed out that high tax rates for the wealthy were routinely applied in “the United States, for 35 years after World War II – including the most successful period of economic growth in our history."
A former Treasury Department official who is now a director at the Tax Policy Center, Mazur spoke to the Washington Post about Ocasio-Cortez's tax plan on Saturday. While stopping short of a full endorsement, he said the plan was certainly feasible. “The difficulties of monitoring and compliance are huge,” Mazur admitted, “but it could be done and raise a lot of money.”
A Nobel laureate, professor at the Massachusetts Institute of Technology, and one of the world’s leading experts on public finance, Diamond has long advocated for a bigger tax rate on high incomes. In a 2012 paper co-authored with Emmanuel Saez from the University of California, Berkeley, Diamond argued for an optimal top tax rate of 73% in the U.S.
The former head of President Obama’s Council of Economic Advisers has called for the ideal top marginal tax rate to be even higher than what Ocasio-Cortez suggests. Drawing upon historical data, the macroeconomist estimated in a 2011 paper that it should be at more than 80 percent.
The prominent French economist argued in 2013 that higher tax rates on the wealthy would go a long way towards reducing pre-tax inequality. Using data from both the U.S. and U.K., he mapped out how the Reagan/Thatcher revolution drastically cut top income tax rates – and how they have remained at low levels since. “The job of economists should be to make a top rate tax level of 80% at least ‘thinkable’ again,” he wrote.