Why Does Alexandria Ocasio-Cortez Support a 70% Top Marginal Tax Rate? What Psychology Says About How Envy and Compassion Motivate Tax Preferences

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.

Socialist Experiments

In the summer of 1982, after the Cato Institute’s week-long seminar at Dartmouth, I drove to Boston with one of the other attendees. Touring the city, we encountered a protest rally on Boston Common. I don’t remember just what the rally was about – probably the “nuclear freeze” or a general protest against nuclear weapons, which was a strong movement then. As we watched, a young woman approached and handed us flyers calling for socialism. “Like in Russia and China?” I asked her.

Socialist Catastrophe in Venezuela

Journalists are now reporting regularly on the crisis in Venezuela, with shortages of everything from toilet paper to food and now daily street protests. What the news reports too often miss is, Why? Why is a formerly middle-class, oil-rich country now so desperately poor?

Forced Labor In Venezuela — and In Postwar Britain

As Venezuelan socialism descends into tyranny, hunger, and chaos, a milestone came in July when a government ministry announced Resolution No. 9855, under whose provisions, quoting CNBC, “workers can be forcefully moved from their jobs to work in farm fields or elsewhere in the agricultural sector for periods of 60 days.” Amnesty International says the decree “effectively amounts to forced labor.” Strongman Nicolas Maduro has likewise imposed harsh legal penalties on businesses that close down their operations.

It all echoes the Directive 10-289 (all workers “shall henceforth be attached to their jobs and shall not leave nor be dismissed nor change employment,” with businesses similarly bound) from Ayn Rand’s novel Atlas Shrugged. Readers may assume that Rand based her fictionalized directive on the track record of the sorts of dictatorships that outlaw political opposition. But in fact elements of forced labor have cropped up in socialist experiments even in nations with strong track records of constitutional government and civil liberties, such as postwar Britain.

Cuba, Venezuela, and the Eternal Shortage of Toilet Paper

Marketplace Radio takes a look at the challenge of filming movies and television shows in Cuba, focusing specifically on Showtime’s “House of Lies” starring Don Cheadle. The episode is titled “No es facil” – “It’s not easy.” The title appears to be a description of doing business in Cuba, and also of filming a show about doing business in Cuba. As Marketplace’s Adrienne Hill and show creator Matthew Carnahan explain:

Socialism Destroys Venezuela as its People Feel the “Bern”

Venezuela no longer can feed or care for its people. Yet many Americans have forgotten what socialism really is. Sen. Bernie Sanders campaigns as if Karl Marx was just another Santa Claus.

Real socialism largely disappeared decades ago. The collapse of the Soviet Union and its Eastern European satellites effectively ended the age of collectivism.

Nevertheless, oil-rich Venezuela since became a flamboyant exponent of socialism. Its travails should remind us how America’s power is built upon a prosperous economy. Prodigal spending at home and promiscuous intervention abroad are undermining our nation’s economic foundation.

Like most Latin American nations, Venezuela never enjoyed a genuine market economy. After years of misrule, Lt. Col. Hugo Chavez attempted a coup in 1992. He failed, but six years later frustrated Venezuelans elected him president, leading to his “Bolivarian Revolution.” Before his death in 2013 he nationalized industries, provided bountiful social benefits, spent wildly on domestic and foreign ventures, turned the state oil company into a fount of political patronage, and imposed price controls.

Chavez’s successor, Vice President Nicolas Maduro, is no more competent but less charismatic. Today the economy is in virtual collapse. With oil revenues declining the regime no longer can mask its many failures.

Older Generations Flip-Flopped on Big Government, Will Millennials Do the Same?

National exit polls show that Democratic presidential candidate Bernie Sanders has captured many of the hearts and minds of the young Democratic electorate. Fully 70-80% of young Democrats, under the age of 30, are casting their ballots for Sanders over Hillary Clinton in state primaries and caucuses.

Many young people are drawn to Sanders’ vision of Democratic socialism. First, they don’t associate socialism with Soviet-style command and control economies with long bread lines and political repression. Instead, millennials associate the basic concept of socialism with Scandinavia. They like the idea of these countries’ large social welfare programs where government plays an active role in providing for people’s needs. Indeed, young people are the only cohort in which a majority—52%—support a “bigger government providing more services” compared to 38% of Americans overall.

Are young people the first generation to support activist government in their youth? Not in the least.

The Fundamental Fallacy of Redistribution

The idea that government could redistribute income willy-nilly with impunity did not originate with Senator Bernie Sanders. On the contrary, it may have begun with two of the most famous 19th Century economists, David Ricardo and John Stuart Mill.   Karl Marx, on the other side, found the idea preposterous, calling it “vulgar socialism.”

Mill wrote, “The laws and conditions of the production of wealth partake of the character of physical truths.  There is nothing optional or arbitrary about them… . It is not so with the Distribution of Wealth.  That is a matter of human institution only.  The things once there, mankind, individually, can do with them as they like.”[1]

Mill’s distinction between production and distribution appears to encourage the view that any sort of government intervention in distribution is utterly harmless – a free lunch.  But redistribution aims to take money from people who earned it and give it to those who did not.  And that, of course, has adverse effects on the incentives of those who receive the government’s benefits and on taxpayers who finance those benefits.

David Ricardo had earlier made the identical mistake. In his 1936 book The Good Society (p. 196), Walter Lippmann criticized Ricardo as being “not concerned with the increase of wealth, for wealth was increasing and the economists did not need to worry about that.” But Ricardo saw income distribution as an interesting issue of political economy and “set out to ascertain ‘the laws which determine the division of the produce of industry among the classes who concur in its formation.’

Lippmann wisely argued that, “separating the production of wealth from the distribution of wealth” was “almost certainly an error. For the amount of wealth which is available for distribution cannot in fact be separated from the proportions in which it is distributed… . Moreover, the proportion in which wealth is distributed must have an effect on the amount produced.” 

The third classical economist to address this issue was Karl Marx.  There were many fatal flaws in Marxism, including the whole notion that a society is divided into two armies – workers and capitalists.[2]  Late in his career, however, Marx wrote a fascinating 1875 letter to his allies in the German Social Democratic movement criticizing a redistributionist scheme he found unworkable.  In this famous “Critique of the Gotha Program,” Marx was highly critical of “vulgar socialism” and considered the whole notion of “fair distribution” to be “obsolete verbal rubbish.”  In response to the Gotha’s program claim that society’s production should be equally distributed to all, Marx asked, “To those who do not work as well? … But one man is superior to another physically or mentally and so supplies more labor in the same time, or can labor for a longer time… . This equal right is an unequal right for unequal labor… It is, therefore, a right to inequality…”  

Just Say No to Socialism, Hillary

This week Hillary Clinton became the second prominent Democrat to refuse to answer the question, “What’s the difference between a socialist and a Democrat?”

In July MSNBC host Chris Matthews stumped Democratic national chair Rep. Debbie Wasserman Schultz (D-FL) with the question. Asked three times, Wasserman Schultz first looked blank, then evaded: “The relevant debate that we’ll be having this campaign is what’s the difference between a Democrat and a Republican….The difference between a Democrat and Republican is that Democrats fight to make sure everybody has an opportunity to succeed and the Republicans are strangled by their right-wing extremists.”

On Tuesday Matthews asked Clinton the same question. Clinton could see it coming, and she did say of socialism, “I’m not one.” But pressed to explain “What’s the difference between a socialist and a Democrat?” she too retreated to boilerplate:

I can tell you what I am, I am a progressive Democrat … who likes to get things done. And who believes that we’re better off in this country when we’re trying to solve problems together. Getting people to work together. There will always be strong feelings and I respect that, from, you know, the far right, the far left, libertarians, whoever it might be, we need to get people working together.

Hey, thanks for the “libertarians” plug, Madam Secretary! But seriously, why is this a hard question? Here’s a clear answer:

“Socialists believe in government ownership of the means of production, and Democrats don’t.”

Would that be a true statement? If so, why don’t Clinton and Wasserman Schultz just say it?


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