In sum, the GND is a socialist initiative disguised as an environmental one—an increasingly common phenomenon. And it’s noteworthy how often these sorts of pie-in-the-sky proposals fail spectacularly notwithstanding enormous government funding. Though President Obama pushed through 500 percent increases in federal subsidies for solar energy—from $1.1 billion to $5.3 billion between 2010 and 2013—this “didn’t stop the largest U.S. solar panel manufacturer, SolarWorld, from filing bankruptcy [in 2017] despite $115 million in federal and state grants and tax subsidies since 2012, along with $91 million in federal loan guarantees,” writes Veronique de Rugy of George Mason University’s Mercatus Center.20 And recall that a $535 million federal loan guarantee wasn’t enough to keep solar panel manufacturer Solyndra from filing for bankruptcy. And Obama fell short—by 600,000 cars—of his pledge to get a million plug-in electric cars on the road by 2015.21 And the list goes on.
Despite all this absurdity, as of February 2019, sixty-seven House Democrats had signed onto AOC’s resolution to recognize the duty to create a Green New Deal and pushed for a vote on the House floor.22 Sentiment in the Senate seems much different, however. When Senate Majority Leader Mitch McConnell forced a procedural vote on the GND, not a single Democrat supported the motion—forty-three voted “present,” and four voted against it.23
THE FALLACY OF SOAKING THE RICH
AOC also supports a wacky progressive economic idea known as Modern Monetary Theory (MMT). MMT holds that a country that controls its own currency can’t go broke; it can continue to pay down its debt as long as it is denominated in that currency. Since the U.S. prints its own currency and issues debt in dollars, its debt isn’t like household debt—it can ostensibly pay it down without relying on taxes to fund the debt issuance.24 What could better represent socialists’ warped view of economics? Who says there’s no such thing as a free lunch, as long as you have a magical money printer? In a survey of forty-two top economists by the University of Chicago Booth School of Business, respondents overwhelmingly opposed the basic tenets of MMT. Thirty-six percent disagreed and 52 percent strongly disagreed with the statement, “Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt.” Likewise, 26 percent disagreed and 57 percent strongly disagreed with the statement, “Countries that borrow in their own currency can finance as much real government spending as they want by creating money.”25
AOC unveiled another socialist initiative during an interview with Anderson Cooper on CBS’s 60 Minutes, floating the idea of a 70 percent marginal tax rate on people earning more than $10 million a year. Shockingly, even the arch-liberal Cooper called the proposal “radical.” Some Democrats brushed aside her idea, but former Senate majority leader Harry Reid showed at least some of the objections were a matter of political strategy, not principle. “When you talk about 70 percent and all that,” said Reid, “we have to be careful because the American people are very conservative in the sense of not wanting radical change quickly.”26
Alarmingly, one poll showed that 59 percent of registered voters support the plan, including 71 percent of Democrats, 60 percent of independents, and 45 percent of Republicans.27 If the poll is accurate, it indicates the Democrats’ class warfare tactics are working. Even with evidence pouring in that the Trump tax cuts greatly stimulated economic growth and reduced unemployment to its lowest level in fifty years, including for minorities, the left is undeterred.28 Substantial increases in the standard of living of all groups, including those Democrats purport to care most about, don’t satisfy them. Their appetite for government spending and class conflict is insatiable, and their contempt for Trump precludes their support for his policies regardless of how effective they are. Indeed, the Trump presidency is playing out according to a rule stipulated by conservative economist Stephen More: “The better the economy performs under President Trump and the more successes he racks up, the more unhinged the left becomes. It’s a near linear relationship. And it goes for the media as well.”29
To downplay the novelty of sky-high tax rates, advocates of “soaking the rich” often note that from the mid-1940s to the mid-1960s, the top federal marginal income tax rate was 91 percent, and prior to President Reagan’s 1981 tax cut it was 70 percent. Phillip Magness of the American Institute for Economic Research, however, explains the crucial difference between the statutory tax rate (the percentage the statute requires taxpayers to pay) in those years and the effective rate (what taxpayers actually pay after deductions and exemptions). “Although statutory tax 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,” writes Magness. “Instead, a plethora of intentional tax exemptions, deductions, and legal income shelters ensured that wealthy individuals paid a much lower effective tax rate.”30 The effective average tax rate for people earning $1 million in 1963 was actually around 40 percent.31
Common sense dictates that no free person will work hard just so the government can confiscate 91 percent of his earnings. “The takeaway from the history lesson of the 1950s is not the golden age of high taxes and prosperity that supporters of the Green New Deal imagine it to be,” writes Magness. “Rather, the tax policy of this period strongly suggests that high statutory rates are only sustainable when they are accompanied by massive legal tax shelters that are written into the tax code by design.… What this implies for Ocasio-Cortez and her supporters is that a return to 70 percent-plus top marginal rates would likely trigger a disastrous fiscal contraction for the United States” unless large loopholes are restored.32
Recognizing that these marginal rates were stifling economic growth, Democratic icon President John F. Kennedy proposed a major tax cut that his successor, President Lyndon Baines Johnson, steered through Congress. Both the Kennedy and Reagan tax cuts, like the current Trump cuts, dramatically stimulated economic growth and increased tax revenues. The same holds true for the tax cuts of President Warren Harding in 1921 and the further cuts implemented by his successor, Calvin Coolidge.33 With these cuts, the economy grew 59 percent from 1921 to 1929.34 Sadly, the days of pro-growth Democratic leaders like JFK are long gone.
Even drastic increases in marginal tax rates will not suffice to finance the Democrats’ spending wish list. Brian Riedl of the Manhattan Institute estimates that the costs of the GND and the Democrats’ other big-item spending proposals could double federal spending from its already horrific levels. Democrats are proposing an astronomical $42 trillion of additional socialist programs including the single-payer healthcare plan “Medicare for All” ($32 trillion), a federal jobs guarantee ($6.8 trillion), student loan forgiveness ($1.4 trillion), free public college ($800 billion), infrastructure ($1 trillion), family leave ($270 billion), and Social Security expansion ($188 billion).35 Note that these figures don’t even include the extravagant costs of all elements of the Green New Deal.
Proposed new taxes on the rich couldn’t pay for a fraction of these programs. The spending hikes would yield an annual budget deficit of $5 trillion in today’s dollars, which would be borne by the middle class. Riedl further calculates that even if Democrats realized all the spending cuts and offsetting savings they claim are possible, they’d still need to collect $34 trillion from American taxpayers, possibly requiring a European-style value-added tax of 87 percent.36
Such prohibitive foolishness illustrates the hypocrisy in the leftists’ professed heart for the poor. Equally dishonest is their claim that their programs could be funded by stingy rich people who don’t pay their fair share in taxes. In fact, if you confiscated all income above $1 million, you couldn’t balance the current fiscal budget, let alone finance a new spending spree. And if you doubled the highest tax rates from 35 percent and 37 percent to 70 percent and 74 percent, even if people’s incomes remained constant and they didn’t devise new tax avoidance ploys, you still couldn’t raise enough to pay half the
current budget deficit. AOC’s 70 percent tax plan, again assuming no adverse impact on income production, would only raise about $50 billion annually.37 The plan’s purpose is clearly not to raise adequate revenue to pay for the GND but to virtue signal that AOC wants to punish the rich villains who supposedly blight our nation.
THE VERY ANTITHESIS OF LIBERTY
When it comes to spending, it’s clear socialism’s advocates aren’t operating in the real world—this is monopoly money to them. But their ideas can’t be dismissed out of hand because influential people are proposing their ideas and defending them. New York Times columnist Paul Krugman argues that AOC’s plan aligns with enlightened economic thought. “When taxing the rich, all we should care about is how much revenue we raise,” writes Krugman. “The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.”38 Let’s set aside, for a moment, the obvious moral objections to the notion that the government has the natural right to confiscate as much income from people as it wants. Krugman approvingly cites economists who argue that the optimum tax rates for raising revenue on the rich are from 73 to 80-plus percent.39 As AOC’s plan tracks with these recommendations, Krugman maintains she’s not the buffoon conservatives claim she is.
But Krugman ignores historical evidence demonstrating the correlation between lower marginal rates, increased growth, and often, increased revenues. He’s willfully blind to the devastating impact of large tax increases on the economy.40 One needn’t be an expert in human behavior to understand that the rich aren’t indifferent to additional earnings, if for no other reason than their desire to transfer their estates to their heirs. Studies show they employ tax avoidance strategies to circumvent rate increases and that they pay more in taxes when incentives to hide income are reduced.41
Krugman also omits the gap between AOC’s tax hike proposals and the cost of her spending plans. He disregards the reality that raising tax rates to these exorbitant levels wouldn’t make a dent in our current budget deficit, even assuming it wouldn’t impair productivity. Leftists like Krugman are cavalier about private property and the rights of people to earn in a free market. They are more inclined to villainize and punish the wealthy than afford them legal protection. Krugman’s argument that the government should tax at whatever rate yields the most revenue—apart from any other considerations—contradicts America’s founding principles. Why should maximizing revenue be the only goal?42 Why not devise a fair rate that finances essential government functions rather than extracting every last dollar from income producers to punish them and to finance progressive wish lists? As you see, leftists no longer champion civil liberties. Their priority is to maximize their power to achieve goals they, not the people, believe are best, which is the very antithesis of liberty.
It’d be bad enough to deprive people of fundamental liberties in exchange for government benefits. But the socialists’ promised benefits will not—and cannot—be delivered. AOC might believe the government can magically decree jobs for everyone, but that’s impossible. “This idea reflects a complete ignorance of the fact that wealth is created, not something that exists in stagnant perpetuity, and that jobs exist to generate that wealth,” writes Christine Goss. “No one, not even the rich, can pay for something if they don’t create the revenue to do so.”43 Simply put, the government doesn’t create wealth; people and businesses do.
The same magical thinking underlies socialist healthcare proposals. There’s no way to guarantee free healthcare to all without a drastic drop in quality, access, and choice, along with increased costs and waiting times. Fantasists can make these promises and memorialize them in legislation, but what good is the promise of universal healthcare if, as in many socialist countries, the quality is so bad that people are forced to travel to capitalist countries to get treated?
This disconnect between theory and reality now permeates the Democratic primaries, where AOC’s proposed 70 percent tax triggered a bidding war. Senator Elizabeth Warren suggested a “wealth tax” on the super-rich that would target their assets rather than income. Thus, households with more than $50 million in assets would pay a 2 percent tax on their net worth each year and those with over $1 billion would pay 3 percent.44 Good luck enforcing that—the rich are experts at devising methods to reduce their taxable net worth by saving less and concealing their assets or moving them to foreign countries. According to an OECD study, “[C]ountries with wealth taxes have tended to collect relatively similar amounts of revenue over time even as the overall wealth in their countries increased at much faster rates. This suggests taxpayers either found new ways to get around them or that legislators and tax collectors weren’t keeping pace with annual growth.” Anticipating such avoidance schemes, Warren proposes to expand the IRS—as if it’s not big enough already—to conduct wealth tax audits and devise ways to indirectly value certain assets.45
Warren also presented a plan for universal childcare in which families with income below 200 percent of the poverty line would pay nothing, and no family would spend more than 7 percent of its income on such care. Creeping childcare costs can surely be an obstacle to employment for some parents, but as usual, leftists like Warren go too far, ensuring that these vast government subsidies will increase childcare prices. Such programs should be limited to the needy and those for whom childcare costs would deter employment. Existing programs provide support through the earned income tax credit, the child tax credit, and the child and dependent care tax credit. AEI experts suggest it’s better to expand existing programs targeted to the neediest rather than establish a new universal program. Warren’s program would cost $700 billion over ten years,46 supposedly to be financed by her wealth tax. Some leftists consider her plan too modest and advocate publicly financed childcare from kindergarten through high school, on the public education model.47
Obviously not wanting to be bested in the socialist sweepstakes, Senator Bernie Sanders proposed a highly progressive estate tax, which would apply a 45 percent tax on estates valued from $3.5 million to $10 million, 50 percent on those from $10 million to $50 million, 55 percent from $50 million to $1 billion, and 77 percent on those above $1 billion. By contrast, Republicans propose to eliminate the estate tax, which has always been a socialist redistribution scheme that involves double taxation and makes death a taxable event. It is an assault on private property that deprives property owners of assets on which they’ve already paid taxes and impedes their ability to transfer them freely upon death. It discourages savings and investment by incentivizing people to spend money to keep the government from confiscating it. It imperils family-owned businesses, restricting their ability to add jobs and forcing some 28 percent of them to sell or close upon the taxpayer’s death. It also generates needless administrative waste and legal and accounting fees.48 One study in 2017 found that only 27 percent of those required to file an estate tax return ended up with any estate tax liability.49 Sanders also proposed to eliminate all $1.6 trillion in student debt held by Americans by levying a tax on Wall Street banks.50
“GOD FORBID THE RICH LEAVE”
One high-profile liberal belatedly discovered that soaking the rich can deter economic growth and revenue collection. New York governor Andrew Cuomo said he was “serious as a heart attack” about stopping the slide in the state’s revenues. While he didn’t concede that the rich pay more than their fair share, he acknowledged that the top 1 percent of tax filers pay 46 percent of the state’s personal income taxes. Then he said something fairly shocking for a New York liberal: “Tax the rich. Tax the rich. Tax the rich. We did that. God forbid the rich leave.”51 Cuomo admitted the prospective loss of these taxpayers would substantially reduce state revenues, which is as close as a liberal ideologue can get to admitting the rich are overtaxed. “I don’t believe raising taxes on the rich,” declared Cuomo. “That would be the worst thing to do. You would just expand the shortfall.”52
New York is not the only state precariously dependent on a smal
l percentage of rich taxpayers. Less than 1 percent of California’s taxpayers pay almost half of the state’s income tax revenues. “California cannot afford to lose even a few thousand of its wealthiest individual taxpayers,” writes Victor Davis Hanson. But new federal tax laws that limit state and local deductions—meant to eliminate the phenomenon in which taxpayers from low-tax states effectively subsidize those in high-tax states—will cost wealthy Californians substantially. “If even a few thousand of the state’s one-percent flee to nearby no-tax states such as Nevada or Texas, California could face a devastating shortfall in annual income,” notes Hanson. “A California reckoning is on the horizon, and it may not be pretty.”53
Democrats are also pushing a $15 minimum wage law, again placing their quest to look compassionate ahead of the interests of the people they claim to protect. As with other proposed government expansions, Democrats are going big. Rep. Bobby Scott and other Democrats introduced the Raise the Wage Act, which would more than double the current federal minimum wage of $7.25 per hour by 2024.
Studies show that minimum wage increases are not an effective anti-poverty tool, according to Employment Policies Institute.54 Only 4 percent of hourly wage workers make the minimum wage or less.55 In 2016, Heritage Foundation experts estimated that a minimum wage hike of this magnitude would destroy seven million jobs and particularly harm workers, businesses, and economies in areas with low costs of living.56 Younger and less-educated workers and small businesses would be harmed most.57 The labor costs for a small business with ten minimum-wage employees would increase by $170,000 per year. If it were making 5 percent annual profits, it would have to increase sales by $3.5 million per year—an extra $67,000 every week.58 But as the Heritage Foundation’s Rachel Greszler notes, this is not a realistic scenario, and such businesses would either have to cut back working hours or fire some workers altogether, which would render many employees worse off than before.59 Some 150 businesses have already had to lay off workers, reduce hours, increase prices, or go out of business because of local and state minimum wage increases.60
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