As candidates rush to appeal to the base in anticipation of the 2020 Democratic presidential race, they all seem set on using the “eat the rich” approach. But as they compete to see who proposes the highest tax rate, they also ignore history — or at least, what it teaches us.
It all started with congresswoman Alexandria Ocasio-Cortez, who claimed that tax rates “back in the 60’s” were “as high as 60 or 70 percent.”
When she made this claim, she was trying to justify her energy policy, which has the goal of reducing carbon emissions to zero in just 12 years. But because her plan involves massive subsidies to what’s known as the renewable energy industry, it would require an equally massive source of revenue to fund it. In other words, Cortez wants to make her deal work by increasing the tax rates.
Unfortunately her claim was inaccurate. Not because tax rates weren’t high in the past, but because raising taxes never work. Why? Well, because throughout history, it didn’t matter if tax rates increased or not. In the end, the federal government always collected the same percentage.
As demonstrated by Andrew Syrios for the Mises Institute, from the President Dwight D. Eisenhower days (when there were twenty-four different tax brackets and rates reached 91 percent) until now, the U.S. government has consistently collected between 16 and 20 percent of the GDP in taxes each year. And that’s because marginal rates are only applied on earnings that meet a threshold. And what do people do to avoid paying higher taxes? They explore the law so they never make the cut.
Higher Taxes Aren’t Enough, Why Not Print More Money Too?
If Cortez, Sen. Elizabeth Warren, Sen. Kamala Harris, or Sen. Bernie Sanders had done their homework, they would know that while promises to tax the rich may get them a standing ovation from the masses, when applied, these policies seldom make a dent.
And while they may argue that increasing the tax rates on the wealthiest is as American as apple pie, it doesn’t mean that increasing higher income taxes will produce greater revenue. At least, that’s what the past several decades have shown us.
Many U.S. government officials noticed that reality over the years, choosing to forego pushing for major tax increases and resorting to money printing instead to cover for their extravagant programs. Needless to say, fooling around with the money supply not only devalues the dollar over time, which makes it an additional tax on the poor. But it also puts the U.S. in a dire financial situation as the national debt now stands close to $22 trillion.
If the goal is to further worsen our prospects, continue to devalue the currency, and add extra financial burdens on those who are already struggling, then Democrats running for president should go even further than just push for a 70 percent tax on the rich by openly supporting the Federal Reserve, which continues to expand balance sheets on a whim.
Image credit: ElizabethForMA