This month, the newly minted Democratic Congresswomen from New York, Alexandria Ocasio-Cortez (D-NY) suggested levying a 70% tax rate on the rich. After stagflation in 1970s, many had assumed we’d reached a consensus that extraordinarily high marginal tax rates are unsustainable. So why do these ideas keep popping up? Social psychology may help explain why. A recent academic study finds that support for redistribution by taxing the rich to give to the poor is likely driven by several psychological motives including not only compassion but also envy.
In an interview with Anderson Cooper on 60 Minutes Rep. Ocasio-Cortez explained:
You know, it— you look at our tax rates back in the ’60s and when you have a progressive tax rate system. Your tax rate, you know, let’s say, from zero to $75,000 may be ten percent or 15 percent, et cetera. But once you get to, like, the tippy tops—on your 10 millionth dollar— sometimes you see tax rates as high as 60 or 70 percent. That doesn’t mean all $10 million are taxed at an extremely high rate, but it means that as you climb up this ladder you should be contributing more.
Rep. Ocasio-Cortez says the money would be spent on the “Green New Deal” to end use of fossil fuels within 12 years. This would be an ambitious goal, particularly since about 80% of the energy we all currently use in the U.S. comes from fossil fuels. Raised revenue could also go toward her proposal for government-supported health care, and government-paid college. Paul Krugman blessed the idea with his New York Times piece, “The Economics of Soaking the Rich,” saying he believed such a high rate was “optimal.”
What motivates these beliefs of “Soaking the Rich”? Of course, no one can know with certainty what are Rep. Ocasio-Cortez’ true motivations. However, social psychologists in “Support for redistribution is shaped by compassion, envy, and self-interest, but not a taste for fairness,” investigate broadly what motivates people to support income redistribution. In short, they find that envy, compassion, and self-interest drive support for high taxes on the rich. Notably, they find that people who are compassionate are significantly more likely to support redistribution and give charitably. However, envious people support income redistribution but are not more likely to give charitably. This suggests that one way to know if a person’s desire to soak the rich is due to altruism or resentment is to find out if they choose to volunteer or give charitably in their private lives.
The researchers measured support for income redistribution using agreement with statements like “wealth should be taken from the rich and given to the poor” and “the government should increase taxes to give more help to the poor” and “inequality in the distribution of wealth is unjust.” Participant answers to these questions were averaged together to create an average preference for redistribution.