When Alexandria Ocasio-Cortez suggested this month that the United States should tax income over $10 million by 70 percent, it galvanized something unusual: a broad and substantive national conversation about the design and purpose of federal tax policy.
No, I’m just kidding. It kicked off a lot of screaming about socialism, especially on cable news.
From the cacophony of communist callouts, however, a subtler argument emerged. Entrepreneurs and center-right economists insisted that raising taxes dramatically on the rich would undo America’s ability to spark innovation and attract entrepreneurs who want to start companies and solve big problems.
In the abstract, their case is clear. “If income taxes are high enough, start-ups stop happening,” said Paul Graham, the founder of Y Combinator, the country’s preeminent start-up incubator.
Read: Is the U.S. due for radically raising taxes for the rich?
That perspective is backed by some research. A 2018 paper by Charles I. Jones at Stanford University Graduate School of Business found that raising the top marginal tax rate to 75 percent would “reduce innovation and lower GDP per person in the long run by about 6 percent.” Another recent paper found that the introduction of the income tax in 1909 suffocated innovation in the next 100 years. The conservative economists R. Glenn Hubbard and Douglas Holtz-Eakin each published papers earlier this century arguing that raising taxes on the rich “discourages entry into self-employment” and makes self-employed people less likely to hire workers.