Bernie Sanders and the Soak-the-Rich Myth by Jason Riley
http://www.wsj.com/articles/bernie-sanders-and-the-soak-the-rich-myth-1445379556
Bernie Sanders has been asserting more forthrightly than any of his Democratic rivals that pretty much every domestic problem—from aging infrastructure to student debt to teenage acne—could be solved by raising taxes high enough on the super rich. Rarely do interviewers perform the public service of challenging his math, which is why the Vermont senator’s exchange Sunday with George Stephanopoulos of ABC News is noteworthy.
Mr. Sanders said that he is open to raising the current 39.6% top marginal income-tax rate to as high as 90%. The self-proclaimed “democratic socialist” also explained how he would increase the death tax “so that [Donald] Trump and his billionaire friends and their families will end up paying more.” Mr. Stephanopoulos replied that the numbers still don’t compute. “To pay for all of your programs, you’re going to have to do more than tax the top 1%,” he said. “How far below the top 1% are you going to go with tax hikes?”
The senator’s initial response was denial. “That’s not true that we have to go much further below [the top earners],” said Mr. Sanders, insisting that he could fund everything from tuition-free college to infrastructure repair simply by eliminating corporate tax breaks and implementing a financial transactions levy. When pressed, however, the senator conceded that his spending proposals require much more revenue than the Learjet set could produce. “Guaranteeing paid family and medical leave,” he allowed, would “require a small increase in the payroll tax,” and he then agreed with Mr. Stephanopoulos that the tax “would hit everybody.”
Not to pick on Mr. Sanders, whose campaign rationale is premised on the notion that President Obama has been too fiscally conservative for the country’s good. Hillary Clinton isn’t convinced that a majority of voters, including within her party, share the senator’s perspective, so she’s trying to stay to his right. But Democratic primary voters aren’t making it easy for Mrs. Clinton, and she played to the bleachers in last week’s Las Vegas debate by making Sandersesque promises to “make the wealthy pay” for all of her domestic priorities.
The irony is that liberals who want the federal government to secure more revenue for redistribution ought to favor a tax code that’s less progressive. Time and again, history has shown that the rich pay more when the top marginal rate is reduced. The income-tax rate on high earners fell to 24% in 1929 from 73% in 1921. Over that same period both the amount and fraction of taxes paid by the rich increased, while the amount and proportion of taxes paid by low earners went down.
By 1962, the top marginal rate had shot back up to a confiscatory 91%, which may have prompted a smile from a young Bernie Sanders but not from President Kennedy, who noted at the time that “it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise revenues in the long run is to cut the rates now.” The Kennedy tax cuts, which reduced the top rate to 70%, passed after his assassination. Once again, tax receipts rose and the deficit shrank after the code was made less progressive.
The Reagan and Bush tax cuts of the 1980s and 2000s continued this pattern. In both decades, the rich reported much more taxable income after the top rate was reduced. By contrast, an increase in the top marginal rate in 1990 under George H.W. Bush was followed by a reduction in the fraction of taxes paid by higher earners. The reason liberals find this history unpersuasive is because their soak-the-rich rhetoric is more about politics than about economics. Class warfare gets Democratic voters to the polls, which takes priority.
During a 2008 presidential debate, moderator Charlie Gibson of ABC News quizzed Barack Obama over his proposal to raise taxes on investment income, and the candidate’s response was instructive. “ Bill Clinton in 1997 signed legislation that dropped the capital gains tax to 20%,” Mr. Gibson said. “And George Bush has taken it down to 15%. And in each instance, when the rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28%, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?”
Mr. Obama’s answer was that raising the capital-gains tax is necessary “to make sure . . . that our tax system is fair.” Like the Democrats who hope to replace him, Mr. Obama’s abiding belief is that sticking it to the affluent is the “fair” thing to do, even if it produces no additional revenue. Of course, Mr. Obama ultimately got his desired tax hikes on the rich. He has spent his presidency promoting economic equality over growth—and doing much damage to both. If elected, today’s Democratic front-runners can be counted on to do more of the same.
Mr. Riley, a Manhattan Institute senior fellow and Journal contributor, is the author of “Please Stop Helping Us: How Liberals Make It Harder for Blacks to Succeed” (Encounter Books, 2014).
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