A friend sent me an email the other day, complaining about the 70 percent marginal tax rate floated by Democratic Representative Alexandria Ocasio-Cortez and the new wealth tax proposed by Democratic Senator Elizabeth Warren.
Ocasio-Cortez first mentioned the 70 percent rate in response to a question from CNN’s Anderson Cooper about how she proposes to pay for programs like a Green New Deal that could cost trillions of dollars. Higher tax rates, she suggested, might be one part of the answer.
Then Warren released a video explaining that her “ultra-millionaire tax” could raise nearly $3 trillion over 10 years, money that she says could be used to pay for programs like universal child care, a Green New Deal and student-debt forgiveness.
Oh, I forgot to mention, my friend is wealthy enough to get hit by both.
I’ve argued elsewhere that we can pay for a Green New Dealand that the obsession with finding a dollar of new “revenue” to offset every new dollar of spending is the wrong way to approach the federal budgeting process. My views belong to the macroeconomic school of thought known as Modern Monetary Theory — MMT, for short.
I’ve debated those views here at Bloomberg Opinion, and they are beginning to gain a foothold in policy circles. But there is a long a way to go before politicians and the journalists who interview them stop demanding a road map to the source of funding for every new spending proposal.
My wealthy friend doesn’t want to pay for your child care. He doesn’t want to help pay off your student loans. And he sure as heck doesn’t want to shell out the big bucks for a multi-trillion-dollar Green New Deal.
So where does that leave Democrats, who insist that they need the rich to pay for their progressive agenda? Here’s what I told him.
“I am with the Democrats. I want to see us build a cleaner, safer, more prosperous world. I agree with billionaire hedge-fund manager Ray Dalio, who argues that inequality has become so extreme that it should be declared a “national emergency” and dealt with by presidential action.
“And I worry very much that it may prove impossible to raise taxes on the ultra-wealthy (who have enormous political power). Then what? The planet burns, our third-world infrastructure falls into total disrepair, and our society becomes ever more bifurcated until the tensions reach a boiling point and…. The pitchforks are coming.
“The problem is that every politician is confronted with the question, “How are you going to pay for it?” What these journalists are really asking is, ‘Who’s going to pay for it?’
“The question is designed to stop any meaningful policy debate by dividing us up, and get us fighting over where the money is going to come from. Since none of the headline politicians has really figured out how to respond — by explaining that when Congress approves a budget, the Treasury Department instructs the Federal Reserve to credit a seller’s bank account — they all end up trying to answer it by pointing to some new revenue source.