How a 70 Percent Tax Rate on the Rich Would Actually Work

For decades now, both of America's major political parties have been dedicated to cutting taxes for the richest people in the country. They've also been wildly successful in implementing a massive disinformation campaign about what taxes actually are and how they really work—so successful, in fact, that when Alexandria Ocasio-Cortez, a freshmen member of the House, said on national TV that the nation's highest earners used to be subjected to a top marginal tax rate of 70 percent, the old guard had a collective aneurysm.

Established, presumably knowledgeable Republicans at all levels of government have since been telling Americans that, if left unchecked, the Democrats will take all of their money. They have good reason to be so desperate, since raising taxes on the rich is a shockingly popular idea across the political spectrum. The well-off and the politicians in their thrall have spent years spreading anti-tax talking points—even going so far as to compare it to slavery—distorting the facts as they see fit.

As a result, there's a lot of white noise that makes serious conversation about taxes nearly impossible. So here, how taxing the rich would actually work for dummies:

So what exactly IS a marginal income tax?

Sticking with Ocasio-Cortez's proposal, the hypothetical 70 percent tax rate applies to every dollar earned over the first $10 million. You as an individual don't move in and out of brackets as you earn more money—the actual dollars are taxed at the rate for the bracket they're in.

So if you make $10,000,001 in a year, first of all, congratulations cause that's insane. And second of all, you'd owe the government 70 cents for that last dollar. If you made $100 million then (after the first $10 million) you'd owe $63 million and still have $27 million left over from just one year.

What's a flat tax then?

It's long been a Republican goal for the U.S. to move to a flat tax system, where everyone just pays the same percentage of their total income regardless of how much money they make. When Republicans like Steve Scalise and Scott Walker claim that Democrats would take 70 percent of all the money a person makes, they're pretending to talk about a flat tax system and not a marginal one.

Still, 70 percent sounds crazy high.

Well, under past Republican administrations it was as high as 90 percent, and that was back when wealth and income inequality were nowhere near as grotesque as they are now. The richest people in the U.S. would still be obscenely rich. Even with his upcoming divorce, Amazon CEO Jeff Bezos is poised to lose half of all of his wealth, not just his yearly income. And that will still leave him with more than $60 billion, a sum that the average American can't come close to spending in even 100 lifetimes.

It's also important to remember that this is just one possibility for taxing the rich. Portland, for example, taxes companies based on the ratio of how much a CEO makes compared to the company's average worker: 10 percent for all companies with a 100 to one difference and 25 percent for any above 250 to one.

I keep hearing "taxation is theft," though.

That's an extremely common libertarian talking point. Taxation is actually a way to democratically control what happens with a country's wealth. As Nathan Robinson writes in Current Affairs, the analogy "only works if the highway robber, after taking your wallet, gave you an old age insurance plan and saved your house from a fire, and also gave to the poor, and also you could vote him out if you didn’t like it, and also he only robbed you if you had money to spare and checked what your income was and only took an amount you could clearly live without."

Won't rich people just leave the U.S. rather than pay those taxes?

This is an extremely good point! We've seen with the Paradise Papers that people will go to insane, international lengths to avoid paying taxes. But low taxes in the U.S. result in a race to the bottom in other first-world nations, too. Canada, for example, is reevaluating its own corporate tax rates to keep Canadian businesses from moving to the U.S.—which was one of the explicit reasons given for lowering the U.S. tax rates in the first place.

But rich people also give a lot of money to charity. If they have less money left over, won't they stop giving as much away?

Actually, they don't give as much as you probably think. There's a sophisticated P.R. machine around what both corporations and wealthy individuals do donate. And as labor reporter Sam Pizzigati has written, the amount they donate doesn't rise along with the rest of their fortunes. On top of that, charities are mostly used to provide the wealthy with massive tax breaks that aren't accessible to people with less money to give away. And unlike with taxes, there's no democratic control over that donated money—it can go to whatever cause the donor wants, like fighting against environmental regulations. As Helaine Olen writes in The Atlantic, higher wealth strongly correlates with an increased likelihood for unethical behavior and a tendency to assume people are rich and poor because that's what they deserve. There's little incentive for rich people to ever do the right thing, and history has pretty much made that clear.