Democratic socialist Alexandria Ocasio-Cortez, who upset U.S. Rep. Joe Crowley, D-NY, in the Democratic primary, is calling for raising $2 trillion in revenue over the next ten years by having the “ultra-rich and corporations” pay their fair share of taxes. She claims to have met with “Nobel Prize winning economist” (Paul Krugman likely) to get intellectual reinforcements for her proposals to use those funds to pay for universal health-care, universal education and a totally green economy.
Of course, her spending proposals would cost far more than $2 trillion. More importantly, Ocasio-Cortez’s ideas are wrong to the core.
The Trump tax cuts, like Kennedy’s and Reagan’s before, raised the growth rate in our economy, this time to more than 4 percent annually.
The tax cuts works because people generally do more of what is taxed less and avoid things that are heavily taxed. That’s the argument used for taxing cigarettes and soda pop. So why does Ocasio-Cortez think that, if raising taxes leads to less soda consumption, why would it lead to more economic growth? Simple. She doesn’t think. Ocasio-Cortez doesn’t understand history and she doesn’t understand geo-politics. That latter point is something she admitted.
Tax cuts drive growth. They lead to more free cash on the part of producers which allows them to invest in equipment and technology and, yes, people. The result of this, as seen in the recent past, is growth rising from 2 percent to more than 4 percent.
Our economy roughly stands around $20 trillion dollars in total. Therefore, a 2 percent growth rate leads to $400 billion dollars while a 4 percent growth rate adds a whopping $800 billion to the economy. In terms of government revenue, that’s about a 21 percent average so the 2 percent growth rate drives about a $100 billion in federal receipts while the 4 percent growth rate leads to an additional $200 billion.
If this socialist, who looks headed to Congress, has her way, we will see growth sink back to 2 percent annually so revenues to the government will go down, not up as her model-building Nobel prize winning economist would suggest. As a practitioner in the black arts of economics for 30 years, I can tell you that Nobel prize winning economist are often, (in fact more often than not), wrong in their understanding of what the economy will do. Even so, it’s disturbing to see a probable member of Congress take the same path that Venezuela embraced. Venezuela was once the most prosperous nation in South America and is now the poorest. Ocasio-Cortez’s preaching of the utopian vision will hurt everyone–no exceptions.
Steve Beaman is the Chairman of The McGraw Council and the author of The Path to Prosperity.