By Daniel Rahman, Past Senior Editor
The youngest woman ever elected to congress, Alexandria Ocasio-Cortez (known as AOC), has been making headlines across USA and has even been mentioned in Davos at the World Economic Forum for suggesting increasing the US Top marginal tax rate to 70%.
The youngest woman ever elected to congress, Alexandria Ocasio-Cortez (known as AOC), has been making headlines across USA and has even been mentioned in Davos at the World Economic Forum for suggesting increasing the US Top marginal tax rate to 70%. At first glance this policy may seem ludicrous as it is a severe hike from the current top rate of 37% however the more we probe into the policy, the more it seems the logical solution for America’s crippling poverty.
First of all it is key to establish what a marginal tax rate is and how it operates. A marginal tax rate, known as progressive taxation, means that as an individual's income rises they will pay a higher rate of tax. This means that everyone’s first $9,525 will be taxed the same (at 10% under current US law) and then those who earn more will pay an increased rate on their next $9,525.
AOC suggested the new marginal tax rate would be applied to those who earn over $10 million. This does NOT mean that those who earn $20 million dollars will pay $14 million dollars. Instead their first $10 million would be taxed under current policies then their next $10 million would be taxed at 70%.
The policy has met fierce backlash with calls that this is “Venezuelan Socialism” but this is just not true. In fact, USA has higher marginal tax rates under Republican President Eisenhower and averaged a 70% top marginal tax rate for 35 years until the 1980s. This period of US history not only saw some of the best economic growth in the US economy, but it saw significant reductions in income inequality and improvements in living standards. Now, it is true there have been significant changes in the economy since this period so it could be argued this historical data is somewhat irrelevant. However, it cannot be argued such a tax rate has not proven successful and it should not be dismissed so easily as many centrist and right-wing politicians have opted to do.
Many have argued against the policy with the neoliberal economic model claiming that such a tax rate will reduce the incentive for entrepreneurs and investors to create jobs and in turn grow the economy. However this trickle down model has proved ineffective in addressing key issues in the US economy. According to the Pew Research Centre, US real wages and purchasing power have not had a significant rise in over 40 years. Meanwhile in the same time, the top 1% has increased its share of US income from 9% to over 22%. This demonstrates the severe income inequality that could be addressed by AOC’s tax plan. This has led key economists like Paul Krugman to support AOC’s plan. He defended the congresswomen saying she is “just saying what good economists say”.
The new tax revenue that AOC hopes to bring in with this policy would go towards some of her key policies such as ‘Medicare For All’ and a ‘Green New Deal’. These policies aim to provide healthcare to all across USA and to stimulate economic growth while moving towards a carbon neutral and sustainable economy. Although the effectiveness of these policies can and should be debated they are often dismissed as many believe the US government can’t afford them with significant government expenditure. This is simply not true as increasing tax revenue as AOC advocates for would allow the federal government to pursue this agenda and transform the US economy to achieve true justice and equality.
The young congresswoman is now growing as a presidential candidate despite only being in public life for just over a year. Although it is very unlikely she will become the democratic nominee, she does represent a growing progressive movement in the US and could help dictate who will lead the democrats into 2020. A Senator from Massachusetts, Elizabeth Warren, has now put her name forward to become the democratic nominee and many expect Bernie Sanders, a Senator from Vermont, to put his name forward soon. Both these candidates and others represent a more left-wing voice emerging in the US in response to the rise of the right in the current president. This rise of the progressive left is embodied by Alexandria Ocasio-Cortez and challenges the centre-left democrats who would prefer a candidate like Joe Biden, former Vice-President.
AOC’s tax plans may be presented as radical socialism that will destroy the current growth of the US economy but they are simply the logical answer to many of the flaws of the US economic structure. It is unlikely to ever be implemented in the short-term as the Democrats would need to control all 3 branches of government and still many democrats would oppose this measure. Nevertheless, it has awoken a dormant debate in the US over increasing taxation and how to deal with issues over poverty, healthcare and the environment. The congresswoman from New York’s 14th congressional district has already gained significant influence and media coverage and it will be interesting to see if she can be successful in dragging the Democratic Party and more of the electorate to the progressive left. Hopefully, this will create a true left-wing alternative to Donald Trump at the 2020 presidential election but my pessimism leads me to fear we will see a rerun of 2016 with Trump going against a corporate candidate distracting America from the real challenges it faces to its economic, social and political structures
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