Rep. Ilhan Omar wants to tax the rich at 70 percent – here’s why you shouldn’t freak out

Everything you think you know about taxes is probably wrong.

Everything you think you know about taxes is probably wrong. Associated Press

How much do you think you should have to pay in taxes?

Whatever number you land on, you probably aimed for something that sounds fair and financially comfortable. Maybe 15 percent? Or 20?

Now say you’re a billionaire. How does 70 percent sound? Or 80? Or 90?

To United States Rep. Ilhan Omar, a Minnesota Democrat, that doesn’t sound unreasonable at all. Tax rates like that could pay for big Democratic ideas like Medicare for All.

“There are a few things that we can do,” she said during an interview on activist Zainab Salbi’s show, Through Her Eyes, on Tuesday. “One of them is we can increase the taxes that people are paying who are extremely wealthy in our communities. Seventy percent, 80 percent, we’ve had it as high as 90 percent. So, that’s a place we can start.”

Take a moment before you freak out about Omar wanting to tax the rich at 90 percent. While she noted that we have gone “as high as 90 percent” before, she’s more in line with New York Rep. Alexandria Ocasio-Cortez’s 70 percent plan. (Omar rather pointedly clarified this distinction on Twitter, after Yahoo News splashed the 90 percent figure across a headline.)

And she’s right -- we have gone as high as 90 percent. Higher, in fact. President Franklin D. Roosevelt hiked up the tax rate to 94 percent for those making over $2.6 million in 1943 to help raise money for the war effort. Eisenhower lowered the rate in 1964… to 77 percent. The highest marginal rate today is 37 percent, which applies to people who make over $500,000.

If it sounds oppressive to let the government take $7 million of a $10 millionaire’s hard-earned money, that’s not exactly what a 70 percent marginal tax rate would do.

Ocasio-Cortez’s hypothetical tax rate applies to every dollar you earn over your first $10 million. Consider this scenario laid out by GQ magazine: If you made $10,000,001 last year, lucky you -- the 70 percent tax rate would only apply to that last dollar, amounting to a whopping 70 cents. If you’d made $100 million, you’d owe $63 million, and you’d still have $27 million left. That’s enough to buy Ricky Rubio's North Loop penthouse 20 times over.

If you didn’t know the specifics of the marginal tax rate, don’t feel too bad. Many don’t, in part because when conservatives criticize plans like these, they conveniently leave out the details. Consider former Wisconsin Governor Scott Walker’s Twitter take on Ocasio-Cortez’s proposed tax rate:

“Explaining tax rates before Reagan to 5th graders: ‘Imagine if you did chores for your grandma and she gave you $10. When you got home, your parents took $7 from you.’ The students said: ‘That’s not fair!’ Even 5th graders get it.”

The fifth-graders didn’t get it, because what Walker is describing is a flat tax, a fact that Ocasio-Cortez pointed out to him.

“Imagine if you did chores for abuela & she gave you $10,” she tweeted. “When you got home, you got to keep it, because it’s only $10. Then we taxed the billionaire in town because he’s making tons of money underpaying the townspeople.”

Reactions to Omar’s interview have ranged from incredulity to outrage, but the 70 percent marginal tax rate is actually a fairly popular concept, one that consistently scores high in public opinion polls. Fifty-nine percent of registered voters supported it, according to a survey by The Hill and Harris X. It won favor with 71 percent of Democrats, 60 percent of independents, and a whopping 45 percent of Republicans.

Which means it’s time to stop referring to this idea as an audacious liberal pipe dream and instead see it as a reasonable option in a nation where the top 1 percent of Americans made more than 26 times as much as the bottom 99 percent in 2015. As Ocasio-Cortez said of her plan on 60 Minutes earlier this month: “If that’s what radical means, then call me a radical.”