You may have heard that over the weekend newly minted Congresswoman Alexandria Ocasio-Cortez said in an interview with 60 Minutes that there’s precedent for wealthy Americans at the “tippy tops”—in this case, those earning over $10 million—to pay a marginal tax rate “as high as 60 percent 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,” she said.
Conservatives claim that such taxation is unfair to rich people. And though presumably the Minority Whip should know better, Rep. Steve Scalise seemed to indicate that such a rate would mean the government would “take away” 70 percent of a high (to be clear: astronomically high) earner’s income. But that’s not how income tax works in the U.S. That’s because our income is taxed at “marginal” rates, as the Congresswoman alluded to in her interview.
What does this mean? It means that different levels of income are taxed at progressively higher rates for the same individual. What you likely refer to as your tax bracket is not the effective rate that you’re paying on all of your income. It’s the rate you’re paying at your highest level of income, the money you earn above the tax bracket thresholds. For example, take 2019’s tax brackets for individuals (you’re taxed at each rate if you earn over the amount listed next to it):
- 10 percent: $0
- 12 percent: $9,700
- 22 percent: $39,475
- 24 percent: $84,200
- 32 percent: $160,725
- 35 percent: $204,100
- 37 percent: $510,300
If you earn $161,000 this year, for example, you’re not going to be taxed at 32 percent for the entire amount. You’ll be taxed at each of the preceding four brackets as your income goes up, and will be taxed 32 percent on the amount earned over $160,725 at the federal level:
- 10 percent of the first $9,700
- 12 percent of the amount between $9,701 and $39,475
- 22 percent of the amount between $39,476 and $84,200
- 24 percent of the amount between $84,201 and $160,725
- 32 percent of the amount over $160,725
And so on, if you earn more than that example. What Ocasio-Cortez proposed, then, is another tax bracket of 70 percent at income over $10 million, not 70 percent on all income if you earn $10 million or more. And hewing to Ocasio-Cortez’s example, who earns over $10 million per year? According to a 2016 report from the Economic Policy Institute, the wealthiest one percent of U.S. households bring in at least $389,436 annually, though the average is closer to $1.15 million. So we’re talking about a percentage of one percent.
In 2019, the top marginal tax rate is 37 percent. Historically, that’s fairly low. You can go back to 1981 to find a 70 percent marginal rate, and that’s on income over $108,300 for an individual, per the Tax Foundation. Before that, for a period, earners at the “tippy top” were taxed over 90 percent. Ocasio-Cortez’s statement (it’s not a policy proposal at this point) is in line with progressive economic proposals.
In sum, the federal government isn’t coming to take away 70 percent of a tippy top earner’s money.