Wait, did Bernie Sanders win the election? By Scott Sumner

Let’s go back a couple years to see just how radically this country has changed. Jeb Bush is running for president, proposing a tax reform with a top marginal tax rate (MTR) of 28%. Marco Rubio is proposing a top rate of 35%, and that’s viewed as being pretty mean to the rich:

A revised 15%/35% structure would likely leave everyone unhappy: Those who are currently taxed at the top rate of 39.6% (taxable income in excess of $413,200 if single, 464,850 if married jointly) will not be thrilled at their rate dropping a mere 4.6%, particularly when previous plans by Bowles-Simpson and Romney had proposed a top rate ranging from 25-28%.

So even the bipartisan Bowles-Simpson budget reform plan called for a much lower top rate.

The eventual GOP nominee (Trump) called for a top rate of 25%, far below the 43.4% top rate enacted by President Obama. After winning all the branches of government, you’d sort of expect the GOP to propose at least a token reduction in the top rate.

Now the Wall Street Journal reports that the GOP plans to raise the top federal income tax rate to 49.4%:

The House GOP’s reform proposal for individual taxes is a mess, but now we learn it also includes a stealthy 45.6% marginal tax rate on some high earners. This dishonest surcharge betrays the GOP’s purposes of growing the economy and simplifying the code, and Republicans ought to kill this gift to the left that will be slapped on more Americans when Democrats return to power.

[I added the additional 3.8% income tax to the regular income tax, something our media always forgets to do.]

Now let’s consider a wealthy person in California. Under Obama that person faced a top rate of roughly 50%, combining state and federal incomes taxes. Under the new GOP plan, the top rate for Californians would soar to 62.7%, a rate one associates more with Thomas Piketty or Bernie Sanders, rather than the Ronald Reagan GOP. (The UK has a top rate of 45%, for instance.) Pinch me, is this really happening?

One of my commenters, who likes the proposed tax bill, specifically approved of the fact that it slashes taxes for businesses while raising them on high wage earners, which he suggested were largely “parasites”. I think it’s a silly to argue that business owners are somehow better than high wage earners, but let’s say that this view is out there in America.

One thing that some commentators noticed about the past election was that lots of working class people identified more closely with populist billionaires than with highly educated professionals (who they regarded as snobs). Now the GOP is producing a tax plan that slashes the MTR for working class people and also for billionaires like Trump, while raising rates on very highly paid professionals. Coincidence?

We’ve had a lot of discussion of the fact that both the rich and the poor increasingly vote against their interests. Maybe not their actual interests, but against what intellectuals regard as their interests. One famous example is the book “What’s the Matter with Kansas?”. You could ask the same about the Upper East Side of Manhattan.

Consider this possibility. If people in California and New York keep voting Democratic, even though many would benefit from lower taxes on the rich, then eventually the GOP starts to write them off, and no longer legislates in ways that favor those groups. I wonder if this is starting to happen already.

In politics, things never stand still. When I was young, West Virginia was extremely Democratic and California was Republican. Given how these two states now vote, the GOP increasingly wants to “deregulate” industries like coal and “regulate” industries like high tech. The policies follow the voters, not the other way around.

What about the flip side of this? Will the Dems move in the other direction? I’m not sure, but it’s clear that if they don’t then highly paid professionals and tech firms are going to start getting hit from both directions, and their situation is likely to become much less pleasant.

In other words, maybe we are about to have two socialist parties, one leaning liberal and the other nationalistic.

PS. An article in Forbes denied the existence of this top rate increase. But after reading all five pages, all the author did is convince me that he doesn’t understand the distinction between marginal and average tax rates.

PPS. This Tyler Cowen post on taxes is excellent.