January 27th 2019
Alexandria Ocasio-Cortez lit a match under the collective arses of American plutocracy and their ‘umble servants in the right wing media last week by proposing a new top marginal income tax rate of 70% on income over ten million.
One assclown, purportedly one of Trump’s top economic people, got on TV to ‘explain’ that a little girl selling lemonade at a dollar a pop would have to turn around and give 70 cents to the government. Oh, the horror!
Well, the wealthy class hire the very best fools and liars to safeguard their interests, don’t they? Since right wing economists don’t know anything about the actual economy and prefer to scare folks instead, let’s explain what really happens to that little girl in the hellish socialist landscape of Alexandria Ocasio-Cortez.
In the real world, the one where kids set up lemonade stands, it’s usually a one-day thing. If it’s a warm day and the kid has a good location, she might sell 20 or even 30 cups of lemonade. She pockets all the money which she will proceed to blow on ALEX toys or, if she’s responsible, save toward a cruiser bike. Mom and Dad, who provided the stand, the lemonade, the cups and the water, are just happy to acquaint their kid with the notion of working to earn money. Unless the kid happens to be African-American and has some really vile neighbors who try to shop her for selling food without a permit (yes, this has happened) officialdom will take no notice. The IRS will not be coming around to seize her glitter and her plush toy unicorns.
So what are the circumstances under which the kid might have to shell out 70% on a cup of lemonade?
Well, none, actually.
In the real business world, she has to buy the lemons, sweeteners and cups, pay the water bill, amortize out the cost of the stand, pay various permits, plus social security and unemployment, and pay rent on the place she sets up her stand. After she’s done all that, she’s maybe making 30 cents on each lemonade sold. The overhead is all deductible, and she doesn’t have to pay taxes on that.
So if she was in the 70% bracket on income, she would be shelling out 70% of 30% on each dollar of revenue, or 21%. That’s still pretty steep, and she would have to cut back on the pink glitter fingernail polish. That seems an awfully cruel thing to do to a little girl.
But it turns out that even Republicans aren’t that malevolent. You see, under the present tax schedule (and AOC isn’t proposing any changes there at this time) she doesn’t pay any tax at all on the first $9,699 of her income from sales.
To make $9,699, she would have to sell 32,330 cups of lemonade. Assuming she takes Sundays off, that’s a bit over 100 cups a day. That would be quite an accomplishment, especially if she lives in, say, Milwaukee, where January sales might be less than brisk.
When she sells that 32,331st cup of lemonade, she’ll will owe income tax. The tax rate is 10%, so she would actually owe seven cents.
But there’s a personal deduction. $12,200 for a single taxpayer. There’s higher brackets for married and head of household, but we’re talking about a non-empancipated minor here.
So after she is sold 40,773 and one third cups of lemonade, she finally has a federal tax liability! Seven cents! Alert the bankruptcy lawyers!
Let’s suppose she made $520,000 from her lemonade stand. At this point, even Kramer would have trouble imagining that it’s just one little girl at one stand. She would be busier than the Deadwood whore house on payday!
So she’s opened new stands and hired people to run them. On the other hand, she’s enjoying economies of scale, so it’s likely she still makes 30 cents on each lemonade sold. Even if the money is coming in without her lifting a finger for most of it.
There’s all kinds of legal and otherwise tax dodges available for someone who is hitting the current top bracket of $510,000, as she has, but let’s suppose she’s very grateful to President Trump for giving her this incredible opportunity, and wants to pay every dime that she’s liable for on paper. Her federal tax burden would be $159,544. To get to that point, she will have sold 1,700,000 cups of lemonade. An enterprise that vast would be fully automatic, and it’s probably been six months since she even touched a lemon. She has people to do that for her. My god how the money rolls in! All she has to do is phone her head accountant once a week. And she’s paying a federal income tax of about nine and a third cents per cup. Mind you, she’s very patriotic and doesn’t want to take further tax relief, even though her account is telling her she can cut her tax liability in half through legal means.
So when does this hypothetical 70 cents per cup of lemonade kick in?
Well, it never does. She can sell up to two and a third million cups of lemonade per year and federal tax is about 9-10%. But when she sells that 2,333,334th cup, watch out! That’s when Alexandria Ocasio-Cortez pounces! That’s when the dread 70% marginal rate kicks in. For each cup beyond that, she will owe 21 cents. Not 70 cents. 21.
Keep in mind she already pulled in ten million bucks and is working a half-hour a week on her business if she’s conscientious. She got college covered, paid her parents’ mortgage, and a couple of new cars, and she still has plenty left over to buy the local plush unicorn toy store franchise. She can afford to pay twenty one cents per cup of lemonade sold!
Most economists like Alexandria Ocasio-Cortez’s plan. It’s not as steep as the 70% top marginal rate under Reagan (which started in the $190,000 range) or the 93% under Eisenhower, a time of unparalleled growth in America. Paul Krugman thinks the top rate should be 80%, and some economists have gone further, suggesting a tax of 100% on annual income over $100,000,000.
So when some weird right wing fruitcake solemnly declares that Alexandria Ocasio-Cortez is trying to turn America into Venezuela or Cuba, show them this, and ask them why they don’t mention other failed economic hellholes like Kansas or Wisconsin, which enjoy every low tax rates, even on lemonade.