The World Economic Forum took place in Davos over the last few days and a whole bunch of interesting
Stuff came out of it some really really interesting commentaries about the situation in Venezuela
Happened at which we may talk about a little bit later in the week, but that's not what I want to talk about today
Michael Dell of Dell computers was asked about his view on this idea floated by congresswoman
Alexandria Casio Cortez to have a top marginal tax rate of
70%. And Michael Dell, not surprisingly, said he doesn't support it which is totally fine
I mean he stands to be taxed a lot with something like that, but he also claimed that it doesn't work
He actually says tell me
someplace where such a high top marginal tax rate worked and I'm gonna play the video for you and it is just so
delightful to see Michael Dell instantly schooled by MIT professor Erik Brynjolfsson
Who explained that hold on a second?
It actually has worked in the United States. And this is just so good
Let's take a look at the entire moment from the panel
Michael Dell being asked the question then saying well where has anything like that worked and then the professor explains to him?
Well, it's actually worked in the United States where you've built your business
There are growing calls to address these inequalities that particularly the wage inequality
with more taxes in particular in the United States
There's been a call by congresswoman Ocasio Cortes to tax
People earning over 10 million and a 70% tax rate. The current top rate United States is 37 percent
michael, doe do you support this I
Just want to say I'm thrilled the dirt Wow
Well, look, I mean, you know, my wife and I set up a foundation
About 20 years ago
and we would have contributed quite a bit more than a 70 percent tax rate on my
income on my annual income and
I feel much more comfortable with our ability as a private foundation
To allocate those funds than I do giving them to the government. All right
I'm not supportive of that and
I don't think it would help the growth of the US economy. Oh, that's interesting
And can you say a little bit more about why why you don't think. Well name a country where that's worked ever
United States
Briefly in the eighties. No, no
From about the 1930s through about the 1960s the tax rate averaged about 70 percent at times
It was up as high as 95 percent and those were actually pretty good years for growth. So
I don't have a strong opinion on that proposal a lot, but the devil is in the details
but I think it's
There's actually a lot of economics that suggest that it's not necessarily going to hurt growth
Yeah
So so let's talk about the facts
Right because as Professor Brenda Wilson is saying there he's not taking a position on the particular proposal of Alexandra Ocasio cortes
Which I don't even think rises to the to the level of a proposal
She floated the idea of the 70 percent top rate didn't even mention at what tax bracket at what income level it would kick in
It is undeniably true
regardless of what your opinion is of
such a tax policy that
The United States has a long history of high top marginal tax rates
It doesn't mean that the government takes 70 percent of tons of people's money
It means that very high earners pay a high marginal tax rate only on the income they earn above certain thresholds
It's also true that the US has had many periods of growth and prosperity and low unemployment
While they also had some of those high marginal tax rates. So it's not
incompatible to have
economic prosperity and
high top marginal tax rates on very rich people people with high income
That's not an argument about the morals and ethics of such a proposal, right?
You could be for it or against it on a number of different basis
but what we what we know is that we have had that type of
Taxation in the US and it didn't destroy the economy. It's simply true
Then you get to part two of the argument
which is that actually we can assess whether
That is a good policy for an economy to put in place
We know that multiple studies point out
That high marginal tax rates on top earners are good for the economy if your goal is to maximize
Government revenue there are many studies including one from MIT
Among many but the MIT one is one that we've looked at more closely
Which says that 73% is the top marginal tax rate where you maximize total tax revenue.
Taking into account that if you go up to a hundred percent tax rate people stop working, right?
When you take into account that other very high numbers can incentivize people to leave the US and try to find
Lower tax places to live or whatever. Where you kick in that top tax rate
Whether it should be at a million, five million, 20 million
whatever the case may be that
Is more up for debate and their different views on it and it is really easy on this issue to get different positions confused
There's whether we think it's right morally to take from the rich. Okay, we can debate that
Then you get to the actual economic issues. One is: Has this worked before? The answer is yes
It has I mean quite it it just it has if the goal is to maximize government revenue
We have some idea about what that top
Marginal tax rate should be and it should probably be in the low 70s. The most popular argument I've seen lately
Against such a proposal is 'if you do that rich people are going to leave the country and the government is going to lose out
on all their tax revenue because they won't be in the US and they won't be paying taxes here anymore.'
That might be the case with some
People but the reality is that first of all if you move out move out of the US you don't just stop paying taxes
Okay, a lot of people don't understand this it's complicated. But if you're a U.S. citizen who earns money from a U.S.
Corporation and you move abroad you still have to file an American tax return. You still have to pay taxes
You can reduce your tax liability
With things like the foreign earned income exclusion
With the foreign housing deduction that exists but most of these American rich people mostly rich dudes
They're not actually ready to relinquish their U.S. citizenship, assuming that they find another place to get citizenship
Which is really the way to stop paying taxes in the United States
So this wealthy flight horror story that you hear from the right
It's just not super realistic in large numbers. And it also ignores the fact that a lot of these rich people have friends and family
Mostly in the United States and even if they could avoid all American taxes by going elsewhere
Not all of them are going to abandon the one place that they've lived their entire lives where everyone they know
Lives. So it's merely a horror story
That is not realistic and it's not a good argument for tax policy one way or the other
But Michael Dell just schooled in real-time
This is what should be done to Trump and to Sarah Huckabee Sanders when they tout these lies. I just love it
Let me tell you about today's sponsor. ZipRecruiter hiring can be very time-consuming
You post a job on a bunch of online job boards, you get a bunch of the wrong resume resumes
Then you have to sort through all of those resumes just to find a few people with the right skills and experience
Those job sites that overwhelm you with the wrong resumes are not smart
The smart thing is to go to ZipRecruiter.com/Pakman because unlike other job sites ZipRecruiter finds
Qualified candidates for you. It's powerful matching technology will scan thousands of resumes
It will identify people with the right skills and education and experience and then it will actively invite them to apply to your job
So that you actually get qualified candidates quickly
No wonder ZipRecruiter is rated number one by employers in the U.S.
from hiring sites on trust pilot with over a thousand reviews and right now my
Listeners and our viewers can try ZipRecruiter for free at this exclusive web address. ZipRecruiter.com
/Pakman and if you love this show show your support and
Show your support for ZipRecruiter by going to ZipRecruiter.com/pa
kman One more time that is ZipRecruiter.com/pakman. It's the smartest way to hire