February 10, 2019
by Steve Stofka
When I was growing up in New York City, each kid’s name was shortened to one syllable, two at the most. New York is a busy town; people didn’t have time to pronounce long names. Guillermo became Will or Bill. An exotic name like Anastasia was shortened to a rather pedestrian Ann. Melodic names like Florinda became Flo. In a sign of the changing times, N.Y. Representative Alexandria Ocasio-Cortez has became known as AOC. That’s a generous three syllables!
She has proposed a 70% Federal income tax on Adjusted Gross Income over $10 million. That’s a straight 70% haircut on only the income above that threshold. Deductions, credits and favorable tax treatment for capital gains could apply to income below $10 million but everything above that is a bada-bing-bada-boom 70%.
How much revenue would that generate? I used IRS sample data from 2016, the latest available (Note #1) and calculated an extra $218 billion collected on 15,000 returns for tax year 2016 (Note #2). This would have been an additional 14% over the $1550 billion collected in individual income taxes that year (Note #3). It would make up for the corporate taxes that are not being collected because of the 2017 Tax Act.
If AOC’s proposal were passed by the House, it would not make it out of the Senate Finance Committee, which is controlled by Republicans. If it did become law, it would incentivize the accountants and lawyers of the super-rich to craft clever solutions to avoid the tax. Most of them can buy citizenship in another country. They can put income in tax havens (Note #4). They can make hefty political campaign contributions to buy loyalty in Congress.
The rich complain about taxes. Yes, they do pay much of the income taxes collected. It should be all of the income taxes. The 16th Amendment was “sold” to the American people as a tax that would apply only to the rich, the top 1% of incomes. When the amendment was passed in 1913, half of the population worked in farming and thought that the tax would never impact their lives. It didn’t until a few months after the U.S. entered World War 2.
Under FDR, the tax base increased ten-fold and now affected 42% of the population. FDR called it the “greatest tax bill” (Note #5). The American people didn’t think so. Many were not paying their income taxes. As the fate of nations lay bloody on the altar of history, FDR regarded tax delinquency as a personal disloyalty. He turned to economist John Kenneth Galbraith who suggested that employers should be forced to become the tax collector for the government. In 1943, Congress passed legislation requiring that employers withdraw taxes from their employees’ paychecks. Employing more than 7% of the workforce, the Federal government was the largest employer (Note #6). Before employees could feed their families or pay their rent, the government had its taxes.
It’s time for Democrats and Progressives to undo what they did under FDR. World War 2 ended 75 years ago. Let’s return to the original intent of the 16th Amendment and impose most of the income tax burden on the rich.
1. 2016 IRS tax data by adjusted gross income
2. A screenshot below of the IRS spreadsheet with my calculations of revenue collected.
3. A breakdown of 2016 federal revenue
4. The Rolling Stones, Bono, and Mark Knopfler of Dire Straits took advantage of tax havens to avoid paying hefty U.K. taxes on royalties
5. Highlights of IRS history
6. Federal Employees CES9091000001 series / PAYEMS (All employees) series in the FRED database
4 thoughts on “Pay Up”
If only the US did what the UK did after WWII and started single-payer health care……l but at least they started social security. Better than nothing i suppose!
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After WW2, the AMA mounted a huge campaign against single payer health care and blocked it. They continue to block it. In an effort to “get it all,” Sen Ted Kennedy blocked a compromise single payer system offered by Nixon in the early 1970s. Before he died, Kennedy said it was the worst legislative mistake he had ever made. His worst personal mistake was abandoning Mary Jo Kopechne in the water at Chappaquiddick.
Does replying to your blog thru email work better for you than sending a text? I realized I could cut and paste from the text that I use to toggle back and forth to your email.
Blog: Very well written — one of your most interesting. I actually thought you were more conservative.
Chart legend at end of Notes would be more understandable if you put dollar amounts except adjusted gross income are in thousands, instead of saying “-don’t use 10 million”. It really confused me, but Steve helped me figure it out.
Small things: P1,S2-Past tense in S1 to present and then past tense in S2 (w/ semicolon) seems awkward. I don’t know if it would work better to start paragraph with a present version of S2 like “NY is a busy town and people don’t have time to pronounce long names”. Then follow with past tense of your personal story in S1,S3? Just details…
Sent from my iPhone
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Editing suggestions probably clutters up the comments section but do whatever is easiest. The legend in the upper left corner of the chart says that all dollar amounts are in thousands.