Barron’s: 70 percent tax rate will be awesome

“What a Top Income-Tax Rate of 70% Would Mean for the Economy” (Barron’s) is a bit surprising, considering that the publication is targeted at the same rich investors that would get hit by any tax rate increases. The author points out that the no-extra-tax states aren’t able to gather up all of the rich bastards:

Top-earning Americans have shown surprisingly little appetite to move from high-tax jurisdictions, such as California (top state-tax rate: 13.3%) and New York City (top state and local rate: 12.7%), to states with no income tax. The people who tend to leave California and New York for Nevada and Texas are poor and middle-class workers in search of affordable housing, rather than rich people seeking lower taxes, according to Lyman Stone’s analysis of data from the U.S. Census and the Internal Revenue Service.

Ergo, a person who is getting hit with an 83.3 percent income tax (70% federal plus 13.3% California) will just pay it. As with the article points out that we already have some super high tax rates in the U.S. …. on the poor:

Making matters worse is that “means-tested” benefits are withdrawn as income rises. The net result is that the poor and middle class often face effective marginal tax rates equivalent to or higher than what Ocasio-Cortez has proposed for the rich. According to data from the Congressional Budget Office, a typical married couple with two children pays an effective marginal tax rate of 78% as wages rise from $30,000 to $60,000, while a single parent with one child pays an effective marginal tax rate of 69% as wages rise from $22,000 to $42,000. These implicit taxes are huge disincentives to work and affect many more people than tax proposals aimed at the top 10,000th of the distribution. 

(The rate actually reached over 100 percent during the Obama Administration when mortgage payment relief was factored in; see the above link to The Redistribution Recession book review.)

See also John Cochrane’s calculation that, due to property tax liabilities, the top marginal tax rate in the U.S. is already over 70 percent, and his analysis of optimum rates.

I still think that this is a pipe dream unless capital gains taxes are also raised to 70-83 percent. Otherwise people can just come up with ways to convert ordinary income into capital gains, as was conventional in the 1950s. (And can it really work to have 70-83 percent capital gains taxes in the U.S. when “socialist” Denmark maxes out at 42 percent (Deloitte) and when London is at 10 percent (see

Readers: What do you think it means when even Barron’s is saying that maybe a 70+ percent tax rate will be optimum? (Of course, as someone who earns less than the proposed income threshold for this new rate, I personally think that a rate of closer to 100 percent would be fair!)

13 thoughts on “Barron’s: 70 percent tax rate will be awesome

  1. (I think you meant to link to )

    Speaking as an “only slightly rich” bastard — certainly in the 1%, but with no super-yacht — tax rates definitely influence my behaviour. For example, I’ve moved to a no-income-tax state, and tax was a significant factor in the decision. It was nearly Puerto Rico, but my specific situation doesn’t fit very well into their 4% tax rate regime.

    I’ve been mighty tempted to stop being a member of productive society even at today’s tax rates. A significant increase would make it a no-brainer. Like many wealthy people (and certainly anyone in the rarefied air of that Barron’s article, which I am not), I also have the luxury of multiple passports. If I wanted to continue operating businesses in an era of even-more-confiscatory US tax rates, then I’d give serious thought to renouncing.

    That’s just one data point, but I think it’s fair to say that humans respond to incentives! Anyone who says otherwise just lacks imagination.

    The article uses the presence of lots of rich people in New York to argue that rich people don’t mind paying taxes. Perhaps the more obvious alternate explanation is that they simply have access to much better tax attorneys and strategies than the editors at Barron’s? See e.g.

    • Hi phik, make that two data points. Best regards from Puerto Rico. Glad to see someone is still working.

  2. I know a rich lady who used to live in a gated neighbourhood in Nairobi. She and her husband had extra armed security, but at night they locked up the house and then locked themselves up in their suite. She could not walk the dog in the neighbourhood as rich folks doing just that did get shot dead. I do not think she was paying a 70% rate of tax.

    I know 70% is a lot of cash, but I am sure the number of places where there a high quality of life, low crime, together with nice weather etc can just tell people ‘cough up or go someplace less nice/more risky’, and still get paid. Is the US nice enough to make the same proposition to rich folks? I would not know, but I do doubt people can just up and leave (logistics), or that they can find unlimited other cheaper places (with the same standard of living) to go to.

  3. Federico: folks subject to this new rate don’t have to move. They can just leave profits in a corporation and not pay any personal tax until it is time to sell the shares. Then there will be capital gains tax, perhaps decades later. See Warren Buffett and any other Berkshire Hathaway shareholder.

    Separately, there aren’t nice places to move with a tax rate lower than 83.3 percent? What is wrong with the EU or UK? Or Switzerland?

  4. I don’t know that Barrons is much of an authority for anything — kind of like getting the opinions on tax policy from someone who publishes his views in an astrological tip sheet & do wealthy people really get their financial advice from a publication that costs a dollar for 8 weeks of financial wisdom from one Matthew Klein?– but I think it is dubious that people will not change their behavior in response to economic incentives. Also very few people in any society are productive and it seems like a bad bet to penalize those people in the hope that they will nonetheless continue to generate wealth and ideas for society. Moreover historically high tax rates have led people to make very unproductive investments like tax shelters, which was part of the logic behind the Reagan tax cuts. As for the NY point, this is the first year that state and local will not be deductible so we will have to see but I know of two high earners who have redomiciled to Florida and and it would seem illogical for others not to follow suit.

  5. I could see nothing in the linked CBO site that points to an effective marginal tax rate of 78% for a typical married couple. In fact, the median effective marginal tax rate for nearly all income levels below 450% FPL is below 40%.

    • John: the high “tax rates” on Americans with low income are due to the loss of means-tested welfare benefits as their incomes increase. Earning over $85,000 per year, for example, can make a family of 4 no longer eligible for public housing. Going from $0 to earning $50,000 per year results in a higher rent for the same government-owned or government-allocated apartment.

  6. You’re right about one thing. Taxes on capital gains and dividends would have to be increased along with taxes on ordinary earned income. Something would also have to be done about GRATs, which are mentioned in the NYT article about Trump.

    However, I see a lot of other false and odd statements. Surely everyone knows state taxes are deductible on federal tax returns. So 70% plus 13% shouldn’t actually result in 83% marginal tax returns, unless there’s some sort of AMT issue.

    Also, Casey Mulligan’s book sounded like nonsense. The recession started before unemployment benefits were extended. The recession also existed in many other countries around the world, some of which actually reduced redistribution. The government-induced reduction in the labor supply did not result in higher wages.

    Finally Jack’s notion that “very few people in any society are productive” is absurd. Clearly farm workers have to be productive, or else we’d all starve to death. The notion that the highest paid people are most productive is contradicted on a regular basis. There was news yesterday of the death of Jack Bogle, who essentially demonstrated that some of the highest paid people in the world do nothing useful at all.

    • “I see a lot of other false and odd statements. Surely everyone knows state taxes are deductible on federal tax returns. So 70% plus 13% shouldn’t actually result in 83% marginal tax returns, unless there’s some sort of AMT issue.”

      Good advice, Vince, for anyone who owns a time machine and can travel back to 2017. Unfortunately, for those who are not equipped, state and local taxes are no longer deductible (except for a token $10,000 that would barely cover property tax on a crummy 50-year-old suburban house here in Boston).

      California and New York were trying to do a workaround where loyal Democrats would make deductible charitable donations to their beloved legislature, instead of paying non-deductible “tax”. Unfortunately, the IRS rained on that parade:

      So 70+13.3 does actually = 83.3.

      (During my recent trip to the Bay Area, friends who’d been complaining for years that tax rates were too low expressed unhappiness regarding the Trumpenfuhrer’s new-for-2018 tax code. Due the $10,000 limit on deducting California state and local tax, their own tax obligation is going up, which is what I thought they said that they wanted. But now it seems that they didn’t want this after all!)

  7. I guess that you have a point there. Most of the coverage at the time had to do with property taxes. I didn’t realize that state income taxes were involved. That means that there’s no need for AOC to introduce any legislation. A couple more of Trump’s tax cuts will have those high income people in California, New York, etc. paying 70% marginal rates!

  8. Vince: There are probably a lot of folks just like you who didn’t fully appreciate the impact of the new law. Maybe there will be more state-to-state moves over the next few years as people realize that they’re actually paying 13.3 percent, for example, rather than only about half (sticking taxpayers in low-tax states with the remainder of their California, New Jersey, or New York bill). Time to invest in real estate in one of the no-income-tax states:

  9. Zero effect is nonsense, I know three separate couples + one individual who moved out of CA right after their startups sold. I liked to joke with them that they were spending a few years dead for tax purposes. Only one thought that was funny.

    They reasonably thought they might only get a 5-10 million dollar payday once in their life. Moving the capital gains tax from CA’s 33% capital gains to 25% saves $700,000 on $10 Million. They moved to WA (25%), TX (25%), PA(26.8%), and NV(25%).

    Also they usually had 1-2 year retention bonuses, taxed as income. WA, CA, and TX have 0% income tax, PA has 3.07%. They were getting ~ $500K bonuses, and would be paying 10% extra income tax to CA. (the top rate is 13.3%, the > 53K bracket rate is 9.3%). 50K is a nice little bonus.

    The Nevada one moved just across the boarder near Tahoe and flys his plane back to the Bay Area for board meetings. Texas one moved back to CA, Pennsylvania one stayed put, Washington one moved to New York City.

    None of this is doomsday, but people will do things for money.

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