The Crippling Cost of 70% Tax Rates

Alexandria Ocasio-Cortez’s proposal would smother investment and innovation, leaving America poorer.

Newly elected Rep. Alexandria Ocasio-Cortez spent her first few weeks on Capitol Hill calling for a 70% top marginal income-tax rate, and suddenly the debate over optimal rates has reopened. To support her charge, some liberals are citing a 2011 study by economists Peter Diamond and Emmanuel Saez, which advocates for confiscatory upper-range tax rates. But a quick look at their analysis reveals grave caveats that only an advocate of higher taxes could possibly overlook.

Messrs. Diamond and Saez admit that taxes can have detrimental long-term effects on growth. Yet they ignore the long-term effects of marginal tax rates on growth. Their analysis assumes there is no effect on growth when the government taxes, redistributes and consumes income that Americans otherwise would have invested. Read more here.