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Here’s everything wrong with Alexandria Ocasio-Cortez’s delusional tax reform ideas

Updated: Mar 24, 2023

By: Ryan Ellis

Over the weekend, a video made the rounds of “Democratic socialist” congressional candidate Alexandria Ocasio-Cortez appearing on “The Daily Show” with Trevor Noah. In the interview, Noah asked Ocasio-Cortez how she planned to pay for her big government agenda, most notably so-called “Medicare for all,” aka socialized medicine.

Her answer was a fourfold plan that at least has the virtue of being somewhat intellectually honest: raising the corporate tax rate, putting in a “Buffett tax” on millionaires, a carbon tax, and a massive defense spending cut.

Each of these is deserving of its own analysis, but it’s important to note that even this large tax increase and defense spending cut plan wouldn’t be enough to pay for what she’s proposing. According to the Mercatus Center, “Medicare for all” would add nearly $33 trillion to federal spending over the first decade. Even a doubling of all personal and corporate income tax revenues from today’s levels would be insufficient to pay for that, much less the comparatively modest agenda proposed by Ocasio-Cortez. Nonetheless, let’s look at what she is laying out.

Start with a carbon tax. This is the favorite source of new revenues these days on the Left, as it pinches incense to the dual deities of big government and environmental woke-ness. Even a few fellow travelers on the Right (a very few) have been tempted by its siren call. But a carbon tax would have a destructive impact on our economy.

The carbon tax proposed last week by Rep. Carlos Curbelo, R-Fla., would, by its own accompanying report’s admission, shrink the economy and kill jobs. It would enlarge federal tax coffers by a net $800 billion in the first decade alone. And that’s without getting into the harmful policies a carbon tax aids, such as energy regulation, labor union political empowerment, and deep-state make-work jobs.

The next interesting Ocasio-Cortez tax hike plank is to impose a so-called “Buffett tax” on millionaires. The idea here is that people of high earnings should pay some minimum amount of their income every year in federal income tax (Ocasio-Cortez floats a 15 percent level). What this fails to account for is that the new tax reform law, which Ocasio-Cortez would like to see repealed, actually increased the portion of federal taxes paid by millionaires even as average effective tax rates declined for everyone. According to Congress’ nonpartisan Joint Committee on Taxation, the total share of federal taxes paid by millionaire taxpayers rose from 19.3 percent to 19.8 percent of all federal tax revenues thanks to the tax law. This is thanks in large part to the new cap on state and local tax deductions, which mostly pinches wealthier taxpayers, a cap Ocasio-Cortez paradoxically wants to see lifted.

This so-called “Buffett rule” is based on a political fiction. According to the IRS, the top 1 percent of taxpayers have an average income tax rate (that is, income tax divided by income) of about 27 percent, despite only earning 13 percent of the country’s income. As a side note, this same top 1 percent pays 38 percent of all federal income taxes. Ocasio-Cortez is advancing a solution in search of a problem.

Finally, Ocasio-Cortez proposes raising the corporate income tax rate from 21 percent to 28 percent, noting that this is still lower than the 35 percent pre-tax reform rate. Well, the pre-tax reform rate was the highest corporate income tax rate in the developed world, so it’s good she doesn’t want to go back to that. But a 28 percent rate (plus state corporate taxes, which must be accounted for in international comparisons) would leave us uncompetitive with our major trading partners. According to the OECD, we would have a higher rate than Canada, Mexico, Japan, China, the United Kingdom, and Germany — virtually our entire trading partner lineup. The only trading partner we’d beat on rates is socialist France. All of the competitive advantages around the world we gained in tax reform would be lost. Once again, we’d have the ugly sight of U.S. companies contemplating “corporate inversions” and other tax strategies to get out from under anti-competitive U.S. corporate rates.

Tax reform thankfully put those days behind us. Because of our new 21 percent corporate income tax rate, we have a lower tax rate than all of our trading partners except the United Kingdom. We beat out those other countries and we’re in a position to swipe their jobs and capital, not the other way around. Raising the corporate tax rate would be the end of all that.

The final “pay for” Ocasio-Cortez advances is a big cut in defense spending. How does that look today? According to the Congressional Budget Office, budget authority for defense in 2018 is $700 billion, or about 3.5 percent of our economic output. The lowest defense spending has gotten in living memory (in the period after the Cold War and before the War on Terrorism) was 3 percent of GDP. Surely, Ocasio-Cortez is not contemplating a defense budget based on this? Yet it begs the question how low she wants to go, and what will our country’s ability to engage in anti-terrorist activities look like. Many budget conservatives are rightly concerned at the blank check mentality Republicans tend to have with defense spending, but even those of us who fall into that camp know we have to spend something in an age of terrorist attacks from the militant Islamic world.

At most, these three big tax increases and one big spending cut would pay for about one-tenth of the cost of Ocasio-Cortez’s “Medicare for all” socialized medicine scheme. She either knows this and is hiding the ball on her true tax hike/hollow military intentions, or she doesn’t know this and needs to be mugged by reality.

Read more here.

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