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What Alexandria Ocasio-Cortez's Tax Plans Could Mean For Growth And Inequality - YouTube
Channel: CNBC
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Democratic proposals to raise
taxes on the wealthy
[5]
have caused a stir as
the party vies to challenge
[8]
President Donald
Trump in 2020.
[11]
Presidential hopeful Senator
Elizabeth Warren has
[13]
her wealth tax plan
applying to people with more
[16]
than 50 million dollars
in assets. All your
[18]
assets, wherever located.
[21]
And we're gonna
keep counting. Freshman
[23]
representative
Alexandria Ocasio-Cortez
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has sparked fears with
the billionaire class with
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her proposal to put
a 70 percent marginal tax
[31]
rate on earnings above
10 million dollars. As she
[34]
told CBS 60 Minutes. As
you climb up this ladder
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you should
be contributing more.
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Senator Bernie Sanders also
proposed an estate tax
[45]
increase on people inheriting
more than three and
[47]
a half million. Most of
the tax would come from
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people with more than
one billion dollars at
[51]
their death.
[53]
The gap between the top
1 percent of the U.S.
[55]
population and the rest
of the country continues
[57]
to grow.
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CEO pay is about
300 times average worker pay.
[62]
That's up from only 20
times in the 1960s calling
[65]
to close the chasm
between the ultra wealthy and
[67]
the working class is
a potent political message
[70]
that worked for
Senator Bernie Sanders. This
[72]
inequality is worse today
than at any time since
[76]
1928. We are moving
in exactly the wrong
[79]
direction. And even at
times for Trump in the
[82]
2016 presidential race.
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Do you believe in raising
taxes on the wealthy. I
[87]
do. I
do including myself.
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The Great Recession and
its aftermath helped to
[92]
make populism more
appealing across the
[94]
ideological spectrum. Plus
the U.S. government is
[97]
spending more money
than it takes in.
[99]
Conservatives have
generally proposed cutting
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spending and services
to tackle this issue.
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Liberals typically say the
wealthy can pay more.
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So is there a
historical precedent for doing
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that? The U.S. has
had much higher top marginal
[112]
tax rates in the
past never dipping below 70
[115]
percent from 1936 to
1980 compared with 37
[119]
percent now. There's no
clear evidence that the
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tax burden on the
wealthiest Americans dinged the
[124]
economy then.
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What is clear is
that the richest Americans have
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taken a larger section of
the pie since that top
[131]
tax rate dropped. From 1980
to 2014 the top 0.01
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percent so the richest
1 in 10,000 individuals
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approximately 23,000 individuals
in the country
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did experience a strong
rise in income and in
[146]
pre-tax
income approximately
[148]
four hundred fifty percent
of their income grew
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over this over this
period. Whereas when you look
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at the bottom 50
and the distribution the income
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growth of this segment
was very, very low almost
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close to zero. It
was basically 1 percent.
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And when you look at
the bottom 20 percent the
[165]
income growth
was negative.
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But a higher
marginal rate doesn't necessarily
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mean that the rich
pay that much more. The
[172]
conservative leaning Tax
Foundation points out
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that the top 1
percent of the population actually
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didn't pay 70 percent
in those years. Their
[180]
effective tax rate the
total tax they pay over
[183]
all of their income was
much lower. In fact they
[187]
paid only about 6
percentage points more of their
[190]
income in federal state
and local taxes in the
[192]
1950s than they do today.
[195]
This dramatic decline of
top marginal tax rate
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didn't actually result into
a dramatic decline in
[203]
an effective tax rate.
And the main reason is
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because of the nature
of the tax exemptions, the
[209]
nature of the
tax deductions, the different
[212]
treatment of capital
income taxation that might
[215]
be favored in the
tax schedule and all these
[218]
pieces together tend to
determine what is the
[222]
effective tax rates
in the economy.
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So if the top marginal rate
was to go back to 70
[227]
percent how much money
would that raise? The only
[229]
honest answer is
nobody knows. The Washington
[232]
Post estimated a
Ocasio-Cortez's proposal could
[235]
raise north of seven
hundred billion dollars over
[237]
10 years. But the
Tax Foundation pointed out that
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behavioral effects meaning
the rich figuring out
[243]
ways to avoid paying
the full tax would
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significantly lower revenue.
They say it would
[248]
raise less than
three hundred billion dollars.
[250]
Still sounds like a lot
but not enough to pay for
[253]
the major programs. Many
of the Democrats are
[255]
talking about. Tax avoidance
as a big and real
[258]
concern when it comes
to raising rates on the
[260]
wealthy so much.
[261]
If the objective of the
of the policy is to raise
[264]
the effective tax rate
then the policy should be
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structured in a way
to avoid loopholes to treat
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as much as possible
different sources of income
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in an equal fashion.
[275]
However the argument for
taxing the rich isn't
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just about raising
government revenue. Economists
[280]
who study income
and wealth inequality also
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warned about the potential
for various sorts of
[285]
political economic
and social catastrophes
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if the issues are
not addressed. The wealthy have
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preferred lower tax rates
that means less money
[294]
for education. People
have identified links
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between income inequality
and the Great Recession
[300]
when you have that
much money without productive
[304]
investment sloshing around
it creates this kind
[307]
of casino economy that
puts everyone at risk.
[312]
Critics of growing inequality
worry not only about
[314]
exacerbating disparities in
access to education
[317]
and economic and social
mobility but also fret
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about how wealth
concentrates political power.
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Higher taxes on the
rich is not necessarily just
[327]
about redistribution
it's about inequality
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itself and the problems
it has. The preferences
[332]
of the rich are
dramatically more represented in
[337]
the policy making process
than the preferences of
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the non rich.
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I think Warren and Sanders
would of course like to
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use that line to redistribute.
But I think it is
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important to recognize
the difference that there
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is it's not just
about redistribution it's about
[352]
inequality itself.
[354]
Economists Emmanuel Saez
and Gabriel Zucman who've
[357]
advised Warren on his
tax plan write that "an
[359]
extreme concentration of
wealth means an extreme
[362]
concentration of economic
and political power."
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They also note that
raising taxes on the wealthy
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is only one way
to address inequality. Other
[371]
avenues would include
restricting things like CEO
[373]
pay, tougher regulation
of monopolies and
[376]
programs to help
boost the poor.
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Inequality in general is
not necessarily a bad
[380]
thing. But the problem
is that inequality of
[382]
outcome today becomes
inequality of opportunity
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tomorrow through the
transition and the
[388]
transmission of economic
advantages from one
[390]
generation to the other.
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Generally speaking you see
a greater level of
[394]
opportunity in countries
with lower level of
[396]
income inequality sure.
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This is a
fairly established economic correlation.
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Peer nations to the
United States like Australia,
[404]
France, Germany, Japan and
the United Kingdom all
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had top marginal rates
of 45 percent in 2017.
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Some countries like
Austria, Belgium and Israel
[414]
go even higher. The U.S.
stands at 37 percent. Of
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course this doesn't include
state and local taxes
[420]
that also hit the
rich but European countries
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have other taxes beyond
just income tax as well
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to pay for their
more robust social services.
[428]
Opponents of higher taxes
on the wealthy argue
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that raising taxes
will discourage entrepreneurs
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to innovate and succeed.
They also say a bigger
[435]
tax burden will hit
economic growth and question
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how much it will
really do to reduce inequality.
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It would be harmful to
the economy and I'm not I'm
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not saying that collecting
more tax revenue is
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harmful to the economy.
I'm saying that we have
[447]
to compete in
a global theater.
[449]
But there is also
evidence that inequality may be
[451]
hurting broader
economic growth.
[453]
The reason is simple: The
rich just don't spend as
[456]
much of their income
as the poor. And overall
[458]
there are many more
poor and middle class income
[461]
people spending money. In
a 2017 speech Federal
[464]
Reserve governor Lyle
Brainard said "inequality
[466]
could damage the
economy through lower consumer
[469]
spending". She said
"some research suggests that
[472]
widening income and
wealth inequality may damp
[474]
consumer spending in
the aggregate as the
[477]
wealthiest households are likely
to save a much
[479]
larger proportion of
any additional income they
[482]
earn relative to
households and lower income
[484]
groups that are likely
to spend a higher
[486]
proportion on goods and
services." She pointed in
[489]
part to a
2016 International Monetary Fund
[492]
working paper
that suggested aggregate
[494]
consumption dropped by about
three and a half
[496]
percent from 1998 to
2013 due to inequality.
[500]
So it really seems like
you can have your cake and
[503]
eat it too with a
high top marginal income. It
[509]
reduces income inequality.
It also doesn't seem
[512]
to hurt economic growth.
[514]
And maybe maybe it
even spurs. The debate about
[517]
the effects of higher
taxes on the wealthy is
[519]
unlikely to go away
between now and November
[521]
2020. Polls have
found Americans broadly favor
[525]
raising taxes on the
wealthy like this Fox News
[528]
poll. On incomes
over 10 million bucks.
[530]
Those that are in
favor of that 70 percent.
[533]
Even some business titans
from Warren Buffett to
[536]
Jamie Dimon have said
they are willing to pay
[538]
more in taxes. Democrats
are trying to defeat a
[540]
billionaire businessman president
who backed tax
[543]
cuts. Critics say
those cuts gave
[545]
disproportionate benefits to
corporations and the
[547]
wealthy instead of
the working class.
[550]
We don't know
how much Trump individually
[552]
benefited from the tax
bill he signed because he
[554]
hasn't released his tax
returns to the public.
[557]
There may be some
wealthy taxpayers paying more
[559]
with the new tax law.
[561]
But remember this: Do
you believe in raising
[563]
taxes on the wealthy? I
do I do including myself.
[568]
Well, overall he didn't.
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