Alexandria Ocasio-Cortez and her pals within the Democratic Party are touting their Green New Deal, which is their vision for a massive wealth redistribution scheme. Of course they’re not calling it a wealth redistribution scheme because that sounds like socialism and if there’s one thing Americans won’t stand for it’s anything that calls itself socialism. But Americans will stand (with their hand over their heart no less) for socialism so long as it’s wrapped up in Totally Not Socialism™ packaging. So to claim that their Green New Deal is Totally Not Socialism™ the advocates of this Green New Deal are calling it an economic stimulus package. One ritual required for wrapping a socialist program in Totally Not Socialism™ packaging is explaining how the programming will be funded by using traditional American methods (because, you see, America has always been anti-socialist so if something was done in the past it obviously can’t be socialist).
Ocasio-Cortez are performing this crucial ritual by pointing out that income tax rates between World War II and Regan’s presidency seldom dipped below 70 percent and even reached as high as 90 percent for the “wealthiest” Americans. So funding this stimulus package doesn’t require socialism, it merely requires going back to America’s (totally not socialist) halcyon days! Needless to say their supporters are lapping up their bullshit and eagerly asking for more because they’re ignorant about the difference between statutory and effective tax rates:
Yet this historical narrative is both simplistic and wrong. It relies upon a confusion between the statutory tax rate (i.e., the number that’s on the statute books) and the effective tax rate (i.e., the percentage of income that people actually pay once exemptions, deductions, and other tax-code incentives are accounted for).
Although statutory rates were extremely high between World War II and the Reagan-era tax cuts, practically nobody actually paid the taxman’s full sticker price on their earnings. Instead, a plethora of intentional tax exemptions, deductions, and legal income shelters ensured that wealthy individuals paid a much lower effective tax rate.
How much lower are we talking about exactly? Let’s take an example from 1963, the last year that top rates exceeded the 90 percent high water mark. A single filer in the $1 million bracket ($8.2 million today) faced a rate of 91 percent for every dollar earned over $200,000. While the statutory rate dropped for earnings below $200,000, it did not drop much. The 72 percent rate’s threshold kicked in at $44,000 (about $360,000 today). A 50 percent rate applied to single-filer earnings above $16,000 (about $130,000 today), with several other rate jumps as you attained higher income thresholds in between.
Finding a person who can obtain power without being corrupted is almost impossible. Finding a person who is willing to tell their benefactor to fuck off is even harder.
Those wealthy Americans that Ocasio-Cortez and her pals are claiming they’re going to soak? It turns out that they’re the ones who pay their biggest campaign contributions, the lobbyists who host their lavish dinners, and the human resource personnel who offer them absurd salaries to become lobbyists after they become bored with politics. So there’s no way that Ocasio-Cortez or almost any other politician is going to fuck them over.
The difference between the statutory and effective income tax rates is the key to how politicians keep their base supporters and benefactors happy. They promise their base supporters that they’ll soak the rich and redistribute the seized money to them. Since their gullible base supporters are ignorant of how taxes actually work for the wealthy, they fall for it hook, line, and sinker. Meanwhile, their benefactors are happy because the same politicians who passed the higher statutory income tax rate also created a large number of tax-incentives that allow anybody who falls into the new higher rate category to avoid paying the published rate.