Ocasio-Cortez’s 70 percent tax plan tip of iceberg for Democrat-backed hikes
Freshman Rep. Alexandria Ocasio-Cortez’s, D-N.Y., recent proposal for a top federal income tax rate of 70 percent has garnered significant media attention and debate. But this is just one of many tax hike agendas coming from the left.
Democrats have already changed the rules of the House to make it easier to raise taxes and have repeatedly called for new or higher taxes on the American people and U.S. businesses in the form of taxes on investment, taxes on businesses and/or taxes on individuals.
Cap gains in bullseye
In the aftermath of the Ocasio-Cortez proposal, several Democrats suggested the capital gains tax should also be raised. This would be a mistake – capital gains taxes are a tax on investment and suppress economically productive decisions.
In fact, the nonpartisan Tax Foundation found that matching a 70 percent capital gains tax rate with a 70 percent income tax rate would lose the federal government $63.5 billion in revenue over a ten year period due to negative macroeconomic effects. Raising the corporate rate, as proposed by House Budget Committee Chairman John Yarmuth, D-Ky., would have similarly negative economic effects.
Corporate rate re-hike
Rep. Yarmuth has called for raising the corporate rate from its current 21 percent to 28 percent, or 34 percent after including the average state rate. This is 10 points higher than the 23.7 percent average rate across the 36 developed countries that make up the Organization for Economic Development and Cooperation (OECD). For closer comparison, the United Kingdom’s rate is at 19 percent, China’s is at 25 percent, and Canada’s is at 26.8 percent.
Recent studies find that workers bear a significant portion of the corporate tax. This means that a higher, more uncompetitive corporate rate will cause U.S. capital to be reallocated in a more productive way (often overseas).
This is not hypothetical – a study released by Ernst & Young estimated that the difference between the pre-tax reform 35 percent federal rate and a 20 percent corporate rate (the rate in earlier GOP tax-reform proposals) would have resulted in a net gain of $1.7 trillion in assets for U.S. businesses over the past decade.
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In addition to taxes on capital, Democrats have also proposed taxes on individuals and families.
Individual mandate to return?
Speaker Nancy Pelosi, D-Calif., has promised “replacing” the ObamaCare individual mandate tax penalty will be on the agenda for House Democrats.
This mandate was one of the most regressive taxes in the code before it was repealed in the 2017 tax cuts (which finally became effective Jan. 1).
In 2015, 6.6 million households paid the mandate – 79 percent of these families had annual income below $50,000 per year.
No permanent tax cuts for middle class
In addition, the Democratic majority has already expressed fierce opposition to making middle class tax reduction permanent by opposing a recent amendment offered by Ways and Means Ranking Member Kevin Brady, R-Texas.
This amendment would have made the $2,000 child tax credit (up from $1,000) and the $24,000 standard deduction for families (up from $12,000) permanent for American families.
More broadly, numerous Democrats including Speaker Pelosi have pledged support to rolling back the Tax Cuts and Jobs Act (TCJA). This would see 90 percent of wage earners face higher taxes, with a family of four earning $73,000 in annual income seeing a tax increase of roughly $2,000 per year.
But there’s more
After all this, some Democrats’ ambitions reach even further. In addition to proposing full repeal of the TCJA, Rep. Rosa DeLauro, D-Conn., and Rep. Jan Schakowsky, D-Ill., have called for a 5 percent surtax on Americans earning over $500,000 and a new tax on sugary drinks.
Not to be outdone, self-avowed socialist Sen. Bernie Sanders, I-Vt., has supported a new 6.2 percent payroll tax on all businesses totaling over $10 trillion over a decade and a 2.2 percent payroll tax on families and individuals totaling $2 trillion over the same period.
The Ocasio-Cortez 70 percent rate proposal is just the tip of the iceberg when it comes to Democrat-backed tax hike plans. The recent proposals from the left make it clear they will use their new House majority to call for tax increases on families, individuals and businesses across the board.
Alex Hendrie is director of tax policy at Americans for Tax Reform, a free market advocacy organization dedicated to lower taxes and limited government.