Billionaires who hate Alexandria Ocasio-Cortez's 70% tax on the super-rich are adamant it will hurt the economy — but history suggests otherwise

  • Rep. Alexandria Ocasio-Cortez of New York has touted a plan that would tax Americans earning more than $10 million at a marginal rate of roughly 70%.
  • The proposal was immediately met with consternation from the billionaire class, which argued that it would hurt the economy overall.
  • However, historical evidence shows the US economy has been strong during past periods when the ultra-wealthy marginal tax rate was at or above 70%.
  • Peter Diamond — Nobel laureate in economics and one of the world's most respected public-finance experts — crunched the numbers and found that the optimal tax rate for top earners is 73%.

When New York Rep. Alexandria Ocasio-Cortez first unveiled a plan to hike taxes for the super-wealthy, the outrage was harsh and swift.

The proposal — which calls for the marginal tax rate on income above $10 million to be significantly increased to 70% — faced immediate opposition from high-ranking GOP officials. Other pundits took to social media and went to extreme means to discredit her proposition.

42 PHOTOS
States where Americans pay the highest in state income taxes
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States where Americans pay the highest in state income taxes

California

State income tax: 1% to 13.3% 

Maine

State income tax: 5.8% to 10.15%

Oregon

State income tax: 5% to 9.9%

Minnesota

State income tax: 5.35% to 9.85%

Iowa

State income tax: 0.36% to 8.98%

New Jersey

State income tax: 1.4% to 8.97%

Vermont

State income tax: 3.55% to 8.95%

Washington, DC

State income tax: 4% to 8.95%

New York

State income tax: 4% to 8.82%

Hawaii

State income tax: 1.4% to 8.25%

Wisconsin

State income tax: 4% to 7.65%

Idaho

State income tax: 1.6% to 7.4%

South Carolina

State income tax: 0% to 7%

Connecticut

State income tax: 3% to 6.99%

Arkansas

State income tax: 0.9% to 6.9%

Montana

State income tax: 1% to 6.9%

Nebraska

State income tax: 2.46% to 6.84%

Delaware

State income tax: 2.2% to 6.6%

West Virginia

State income tax: 3% to 6.5%

Georgia

State income tax: 1% to 6%

Kentucky

State income tax: 2% to 6%

Louisiana

State income tax: 2% to 6%

Missouri

State income tax: 1.5% to 6%

Rhode Island

State income tax: 3.75% to 5.99%

Maryland

State income tax: 2% to 5.75%

North Carolina

State income tax: 5.75%

Virginia

State income tax: 2% to 5.75%

Oklahoma

State income tax: 0.5% to 5.25%

Massachusetts

State income tax: 5.1%

Alabama

State income tax: 2% to 5%

Mississippi

State income tax: 3% to 5%

Utah

State income tax: 5%

Ohio

State income tax: 0.495% to 4.997%

New Mexico

State income tax: 1.7% to 4.9%

Colorado

State income tax: 4.63%

Kansas

State income tax: 2.7% to 4.6%

Arizona

State income tax: 2.59% to 4.54%

Michigan

State income tax: 4.25%

Illinois

State income tax: 3.75%

Indiana

State income tax: 3.3%

Pennsylvania

State income tax: 3.07%

North Dakota

State income tax: 1.1% to 2.9%

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Meanwhile, at Davos — an annual gathering for the world's wealthiest and most powerful elite — the backlash came in droves. Business Insider spoke to three industry-leading finance professionals who all balked at the idea of a 70% marginal tax and expressed concern over a negative economic impact.

But underlying all of that fervor was one undeniable truth: The US has taxed the ultra-wealthy to a similarly high degree throughout history, and the economy has hung in there just fine.

In fact, it's thrived.

The chart below shows this dynamic in action. There are several key observations to be gleaned:

  • The US economic growth rate has hovered near record lows over the past decade, even though ultra-rich tax rates have also been historically low.
  • From 1957 through the 1970s, the tax rate was at 70% or above. Yet the economy was markedly stronger during that period than it is now.
  • In fact, the 35 years following World War II were the most economically prosperous in US history — and the tax rate was at or above the 70% region proposed by Ocasio-Cortez.

Real GDP vs. Ultra-wealthy tax rateBusiness Insider / Joe Ciolli, data from Tax Policy Center / BEA

Not convinced yet? Perhaps findings from Peter Diamond — Nobel laureate in economics and one of the world's most respected public-finance experts — will do the trick.

Along with inequality expert Emmanuel Sez, he co-authored an academic study in 2011 entitled "The Case for a Progressive Tax: From Basic Research to Policy Recommendations." And while the findings were quite complex, one number stuck out: 73% — the figure they arrived at when calculating the optimal tax rate for top earners.

That's right in line with Ocasio-Cortez's proposal.

If you haven't yet had your fill of expert commentary from the genius class, consider the fact that Nobel Prize-winning economist Paul Krugman penned an op-ed for the New York Times on this very subject, citing many of the same arguments.

There remains staunch opposition to the tax hike

Despite the Nobel-level credentials possessed by the aforementioned experts, there are still serious questions around what the ideal tax rate is for Americans who make more than $10 million a year. While Diamond's 2011 report has long stood as the benchmark, new research has come out to challenge its findings.

Perhaps the most notable example of this is a 2018 study conducted by Prof. Alejandro Badel of Georgetown University and his two colleagues, Mark Huggett and Wenlan Luo. They ran what they describe as a "quantitative human capital model" and arrived at 49% as the optimal top tax rate.

52 PHOTOS
Average tax refund in every U.S. state
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Average tax refund in every U.S. state

Texas

Average refund: $3,206

Number of refunds: 10,087,693

Total income tax refunded: $32.3 billion

Louisiana

Average refund: $3,115

Number of refunds: 1,611,412

Total income tax refunded: $5 billion

Connecticut

Average refund: $3,099

Number of refunds: 1,396,609

Total income tax refunded: $4.3 billion

Oklahoma

Average refund: $3,098

Number of refunds: 1,300,577

Total income tax refunded: $4 billion

New York

Average refund: $3,059

Number of refunds: 7,712,210

Total income tax refunded: $23.6 billion

New Jersey

Average refund: $3,013

Number of refunds: 3,479,321

Total income tax refunded: $10.5 billion

Wyoming

Average refund: $2,989

Number of refunds: 214,649

Total income tax refunded: $641.6 million

North Dakota 

Average refund: $2,983

Number of refunds: 277,422

Total income tax refunded: $827.4 million

Florida

Average refund: $2,933

Number of refunds: 7,854,538

Total income tax refunded: $23 billion

Mississippi

Average refund: $2,922

Number of refunds: 1,018,429

Total income tax refunded: $2.97 billion

California

Average refund: $2,911

Number of refunds: 13,594,703

Total income tax refunded: $39.5 billion

Washington D.C.

Average refund: $2,900

Number of refunds: 277,399

Total income tax refunded: $804.5 million

Illinois

Average refund: $2,900

Number of refunds: 4,973,653

Total income tax refunded: $14.4 billion

Maryland

Average refund: $2,861

Number of refunds: 2,329,288

Total income tax refunded: $6.7 billion

Massachusetts

Average refund: $2,850

Number of refunds: 2,704,250

Total income tax refunded: $7.7 billion

Alaska

Average refund: $2,843

Number of refunds: 276,887

Total income tax refunded: $787 million

Nevada

Average refund: $2,830

Number of refunds: 1,111,952

Total income tax refunded: $3 billion

Georgia

Average refund: $2,832

Number of refunds: 3,606,774

Total income tax refunded: $10.2 billion

Alabama

Average refund: $2,802

Number of refunds: 1,650,125

Total income tax refunded: $4.6 billion

Virginia

Average refund: $2,771

Number of refunds: 3,129,030

Total income tax refunded: $8.7 billion

Arkansas

Average refund: $2,759

Number of refunds: 989,288

Total income tax refunded: $2.7 billion

Tennessee

Average refund: $2,726

Number of refunds: 2,465,816

Total income tax refunded: $6.7 billion

Utah

Average refund: $2,681

Number of refunds: 1,033,141

Total income tax refunded: $2.8 billion

Washington

Average refund: $2,681

Number of refunds: 2,749,362

Total income tax refunded: $7.4 billion

Arizona

Average refund: $2,672

Number of refunds: 2,244,925

Total income tax refunded: $6 billion

Kansas

Average refund: $2,665

Number of refunds: 1,044,275

Total income tax refunded: $2.8 billion

New Mexico 

Average refund: $2,657

Number of refunds: 724,549

Total income tax refunded: $1.9 billion

South Dakota

Average refund: $2,651

Number of refunds: 321,372

Total income tax refunded: $852 million

West Virginia

Average refund: $2,649

Number of refunds: 649,049

Total income tax refunded: $1.7 billion

Kentucky

Average refund: $2,648

Number of refunds: 1,590,274

Total income tax refunded: $4.2 billion

Delaware

Average refund: $2,648

Number of refunds: 365,749

Total income tax refunded: $968.4 million

Rhode Island

Average refund: $2,643

Number of refunds: 436,490

Total income tax refunded: $1.1 billion

Pennsylvania

Average refund: $2,643

Number of refunds: 5,071,264

Total income tax refunded: $13.4 billion

Colorado

Average refund: $2,636

Number of refunds: 2,014,233

Total income tax refunded: $5.3 billion

North Carolina

Average refund: $2,629

Number of refunds: 3,580,471

Total income tax refunded: $9.4 billion

Nebraska

Average refund: $2,615

Number of refunds: 711,103

Total income tax refunded: $1.8 billion

Indiana

Average refund: $2,612

Number of refunds: 2,577,994

Total income tax refunded: $6.7 billion

Iowa

Average refund: $2,602

Number of refunds: 1,141,151

Total income tax refunded: $3 billion

New Hampshire

Average refund: $2,602

Number of refunds: 558,359

Total income tax refunded: $1.4 billion

Missouri

Average refund: $2,601

Number of refunds: 2,220,029

Total income tax refunded: $5.7 billion

South Carolina

Average refund: $2,569

Number of refunds: 1,719,299

Total income tax refunded: $4.4 billion

Hawaii

Average refund: $2,564

Number of refunds: 535,763

Total income tax refunded: $1.4 billion

Michigan

Average refund: $2,560

Number of refunds: 3,776,668

Total income tax refunded: $9.7 billion

Ohio

Average refund: $2,517

Number of refunds: 4,570,589

Total income tax refunded: $11.5 billion

Minnesota

Average refund: $2,516

Number of refunds: 2,112,212

Total income tax refunded: $5.3 billion

Idaho

Average refund: $2,457

Number of refunds: 561,133

Total income tax refunded: $1.4 billion

Wisconsin

Average refund: $2,436

Number of refunds: 2,236,886

Total income tax refunded: $5.4 billion

Montana

Average refund: $2,401

Number of refunds: 372,817

Total income tax refunded: $895 million

Oregon

Average refund: $2,398

Number of refunds: 1,431,924

Total income tax refunded: $3.4 billion

Vermont

Average refund: $2,392

Number of refunds: 254,192

Total income tax refunded: $608 million

Maine

Average refund: $2,336

Number of refunds: 509,896

Total income tax refunded: $1.2 billion

Average tax refund by state
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There's also the matter of what the world's high-earning financial elite thinks about the Ocasio-Cortez's proposal. Sure, they're more inclined to care about this since it directly affects them, but they also make some compelling arguments around how detrimental the economic impact could be.

Moelis & Co. founder and CEO Ken Moelis is a good example. Business Insider spoke to him at Davos last month, and he didn't mince words.

"If you impose a 70% tax rate on that type of wage earner, you're going to crush the economy," Moelis said.

Scott Minerd, the chief investment officer at $265 billion Guggenheim Partners, adopted a similarly skeptical tone. In his Davos interview, he harped specifically on the impact higher taxes will have on productivity.

"The frightening thing about high marginal tax rates is that it leads us into a low productivity economy," he said. "And we have a lot of headwinds already in this country."

He continued: "For instance, the growth in the working age population is declining dramatically. If you layer on top of that high marginal tax rates, you could actually build an economy that has zero growth potential."

Meanwhile, Bob Prince, the billionaire co-CIO at Bridgewater Associates — the world's biggest hedge fund — is less concerned about the damage an ultra-wealthy tax increase will have. His view is more agnostic and centered around the idea that a tax hike won't be enough to spur any change.

"I don't think it would solve any problems," he told Business Insider at Davos. "The reason this is emerging as a topic is because of populism, income inequality. And they're really rooted in much deeper issues that a 70% tax rate is not going to address."

In the end, if this recap of the various arguments surrounding Ocasio-Cortez's proposed tax is any indication, it's clear the road to reform will be arduous. There are smart, analysis-driven arguments on either side, which makes the situation that much more unpredictable.

The only certainty is that will be a hot-button topic for months, even years, to come. And as a citizen, the best you can do is be fully informed.

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