The Big Democratic Fight Over How to Tax the Rich

(Bloomberg Businessweek) -- The Democratic presidential field is growing larger by the week, but the early fault line in the party’s primary has already emerged: wealth.

Elizabeth Warren spent her inaugural trip to Iowa as a likely 2020 candidate bashing bankers and billionaires, and soon after she proposed a first-of-its-kind wealth tax (2 percent on net worth above $50 million; 3 percent on billionaires). Bernie Sanders, another likely contender, is pushing a sharp increase to the estate tax. And though she isn’t running for president, New York Rep. Alexandria Ocasio-Cortez turbocharged the Democrats’ fixation on wealth by using her media stardom to advocate income tax rates as high as 70 percent.

The sudden eagerness to tax the rich—justified on both moral and economic grounds—marks a pronounced shift from the recent past, when many Democrats feared that Republicans would exact an electoral toll by branding them “job killers” intent on “redistributing wealth.” Those fears have fallen away as Democrats embrace the notion of targeting extreme wealth, not just through higher income taxes, but also with Warren’s innovation of taxing wealth directly. “There’s a greater confidence in 2019 than there was 5, 10, or 20 years ago that you can target extreme wealth and extreme income and win that argument on both political and economic grounds without a very potent rebuttal from Republicans,” says Gene Sperling, a top economic official in the Clinton and Obama administrations.

The Big Democratic Fight Over How to Tax the Rich

Recent polls back up that assertion. A Feb. 4 Morning Consult survey found that 61 percent of all voters support Warren’s wealth tax, including 74 percent of Democrats and half of Republicans. Ocasio-Cortez’s proposal to tax income over $10 million at a 70 percent rate was less popular: 45 percent of voters overall said they support it, but it still drew the backing of 60 percent of Democrats.

Democratic pollsters and policymakers say several factors explain the shift in sentiment driving the calls to soak the rich. First is the Trump factor: Having a billionaire in the White House who’s despised by the party’s rank and file has poisoned their associations with wealth and power. Second, voters impatient after decades of stagnant wage growth are embracing more aggressive measures than in the past. “The theory driving the ascendant wing of the Democratic Party is that moderate solutions simply don’t go far enough to meet the challenges we face,” says Jared Bernstein, a former chief economist to Vice President Joe Biden. Adds Sperling: “This is a real shift, rooted in the actual economic experience of tens of millions of families.”

A third factor is the changing nature of the Republican voter. As Trump showed in 2016, the country-club Republicans who once dominated the party are no longer its central force. “There’s been a big shift in the GOP from a more affluent base to a more white, working-class base,” says Geoff Garin, a veteran Democratic pollster and president of Hart Research Associates. “Those white, working-class voters are among the likeliest to believe that rich people are not carrying their share of the tax burden.”

Another factor is that the early field of declared or likely Democratic candidates is dominated by Warren, Sanders, and other outspoken liberals, while former moderates like Kirsten Gillibrand, Kamala Harris, and Cory Booker, attuned to the leftward shift in the party, are choosing to emphasize liberal positions on a range of issues, including wealth. That could change if more moderate figures enter the race, such as Biden, Beto O’Rourke, Terry McAuliffe, or Michael Bloomberg (the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News).

In the meantime, Warren in particular has “shown a penchant for driving the conversation,” says Brian Fallon, a top strategist for Hillary Clinton’s 2016 presidential campaign who isn’t involved with any candidate this cycle. That conversation has emphasized what Warren considers to be the political, moral, and economic dangers of concentrated wealth. “Capitalism without rules is theft,” she said in a Jan. 30 interview with Bloomberg TV. “I believe in capitalism. I see the wealth that can be produced. But let’s be really clear: Encouraging companies to build their business models on cheating people—that’s not capitalism.”

So far, Democratic advisers say, voters across the political spectrum, and especially in the Democratic column, are embracing Warren’s diagnosis of what ails the American political economy. “You’ve got a level of wealth concentration that interacts with pay-to-play politics, and that’s something that continues to build on itself,” says Bernstein, who supports the move to extract greater tax revenue from high earners.

The antipathy toward the wealthy among Democratic voters only intensified when the billionaire Howard Schultz, the former Starbucks chief executive officer, announced in January that he was considering an independent bid for the presidency. Most Democrats were enraged at what they consider his reckless sense of entitlement and fear he could be a spoiler who’ll cost them the White House—a worry borne out in recent surveys. “Our polling shows that right now his candidacy strengthens Trump’s chances of being reelected,” says Scott Tranter, co-founder of Optimus, a data-science and technology consulting company that’s studying the effects of independent candidates on the 2020 race.

As more candidates enter the race, the charged debate about wealth could recede, or it could be eclipsed by the special counsel’s report on Russian interference in the 2016 election. But right now the issue doesn’t appear likely to fade. Behind the scenes, potential presidential hopefuls and their advisers are scrambling to figure out how to meet the new mood in the party. “My sense from various conversations is that Democrats want to go further than they have in the past to attack the concentration of wealth and power,” says Bernstein. “And what’s more, they believe that to do so is a winning political strategy.”

--With assistance from Sahil Kapur.

To contact the editor responsible for this story: Jillian Goodman at jgoodman74@bloomberg.net

©2019 Bloomberg L.P.