The inspiring Alexandria Ocasio-Cortez recently shocked the Democrats by endorsing marginal income tax rates as high as 70 per cent. The response from progressive economists such as Paul Krugman has been overwhelmingly positive. In a recent column, he pointed out that in the context of low bargaining power, rent-seeking by elites and the necessity of revenue-raising in the context of high US government debt (104 per cent of GDP – and more if you count sub-national debt), a top tax rate of 70 per cent is eminently reasonable.
As Krugman and many others have noted, top marginal tax rates of 70 per cent or more were normal in the post-war period – also known as the “golden age of capitalism” due to the combination of high growth with low inflation, unemployment and inequality. Since then, successive waves of tax competition have suppressed both income and corporation taxes, leading to a situation in which the UK, the fifth largest economy in the world, levies corporation tax (19 per cent) at a lower level than Afghanistan (20 per cent).
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