The last Democrat to win a U.S. presidential election, Barack Obama, ran in 2012 on a platform of raising taxes for top earners to nearly 40 per cent. Now, a new crop of Democratic presidential hopefuls is signalling that they want to go even further.
Massachusetts Sen. Elizabeth Warren is floating a two per cent tax on all assets of people with a net worth of more than $50 million — a moonshot plan that could face legal challenges for hitting investments, homes and cars, not just income. Vermont Sen. Bernie Sanders is pitching a steeply higher inheritance tax on large estates.
Others targeting higher income earners include California Sen. Kamala Harris, who has proposed rolling back the recent GOP tax cuts for wealthier families to pay for tax rebates for middle- and lower-income earners.
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The eruption of high-end tax proposals is a shift for Democrats, who have traditionally not centred their presidential bids around tax hikes — particularly at this early stage of a campaign. It underscores the party’s march to the left and candidates’ desires to tap into the Wall Street-rattling energy of liberal voters.
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“If you’re looking for a bumper sticker, ‘tax rich people’ is a pretty good bumper sticker,” said Howard Glickman of the centrist Tax Policy Center.
Beyond its messaging power, taxing the wealthy also gives Democratic contenders a way to propose paying for their sweeping progressive agendas.
Sanders put it simply last week: “We need additional revenue if we’re going to provide health care for all, rebuild our infrastructure, make public colleges and universities tuition-free.”
The rush to tax the rich has prompted criticism from others eyeing the White House — namely billionaires Michael Bloomberg, a former Republican who is considering running as a Democrat, and former Starbucks CEO Howard Schultz, who is mulling an independent run for president.
Schultz says he was driven from the Democratic Party by Rep. Alexandria Ocasio-Cortez, the rising star who’s issued her own call for a 70 per cent income tax rate on people making more than $10 million. Democratic strategists worry Schultz could peel off a small but vital slice of affluent voters and help U.S. President Donald Trump get re-elected in a three-way race.
But to progressive Democratic contenders, the criticism from billionaires like Schultz proves their point.
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“The billionaires are writing the rules around here. And guess what: all those rules favour the billionaires,” Warren said in an interview.
Republicans, meanwhile, are eager to cast the Democratic tax proposals as damaging to an economy that has steadily grown since Trump took office.
Texas Sen. John Cornyn, a senior GOP member of the tax-writing Finance Committee, described Warren and Sanders’ tax plans as playing off “the politics of personal envy.” He predicted economic blowback from reversing the current tax laws muscled through by Republicans in 2017.
The $2-trillion tax bill Trump signed into law was a boon for many wealthy Americans, with low-and middle-income Americans receiving smaller cuts.
While many Democrats have previously backed higher taxes for the wealthiest Americans, they’ve rarely made the issue such an early focal point of their campaigns. Obama shied away from tax increases during his first run for office, as did almost every Democratic nominee since Walter Mondale in 1984 pledged to raise voters’ taxes and lost to then-president Ronald Reagan in an historic landslide.
But polls now show that voters are happy to see higher-end taxes, to a point. In April 2018, Gallup found that about six in 10 Americans thought the wealthy didn’t pay their fair share of taxes. A Fox News poll last week found seven in 10 Americans supported raising taxes on people making more than $10 million a year and 65 per cent on those making more than $1 million. But support plunges when family income drops, with only 44 per cent backing higher taxes on those making more than $250,000.
“What’s happened sometimes in these debates is the ‘on the wealthy’ gets left out in some people’s minds,” said Democratic pollster Mark Mellman. “The question is to what extent you can control the interpretation” of tax increases.
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Democrats seem to have learned that lesson, at least with the 70-per cent rate from Ocasio-Cortez, a New York Democrat, and a Warren proposal that would only hit an estimated 75,000 households in the United States — the upper echelon of U.S. wealth.
“It’s clear that the people they’re targeting are the very, very, very well-off,” said Alan Viard of the conservative American Enterprise Institute.
But Viard and other critics warn that the higher Democrats go, the less revenue they may actually get. That’s because the wealthy can shift around assets to avoid new levies. And Warren’s proposal, because it taxes more than income, may not comply with the Constitution, which was amended to allow the federal government to tax income, not wealth.
Glickman said that Warren’s tax may be the most politically viable, because it targets such wealthy individuals. But it may be the toughest to implement. Several European countries have recently eliminated wealth taxes because they are so hard to administer, and the value of the mega-rich’s holdings so hard to pin down, Glickman said.
Economists advising Warren’s campaign project said it will raise $2.75 trillion over 10 years, but Glickman was skeptical.
“When that much money is at stake, rich guys are going to go out and hire really smart tax lawyers,” he said.
While Warren has enthusiastically embraced her tax plan’s impact on the wealthy, Harris’ early messaging has focused more on boosting middle-income earners with a $500 a month refundable tax credit to households earning less than $100,000 a year.
Harris would pay for this partly by eliminating the Trump tax cuts for households earning more than $100,000. That could be politically risky because this group, while comfortable, is largely not the mega-rich.
© 2019 The Canadian Press