John Delaney understands investing. Before entering politics, he made a fortune by founding finance companies that raised $ 20 billion in capital for businesses.
Rep. Alexandria Ocasio-Cortez, a fiery first-term New Yorker in the new House Democratic majority, seized headlines by suggesting a 70 percent top rate on the highest incomes. But the party’s presidential candidates have different ideas.
To finance his spending plans, Sen. Bernie Sanders of Vermont has proposed raising the top personal and capital gains rates to 54 percent — a much higher increase in the latter. He would lift the top estate tax rate to 65 percent.
When Sen. Kamala Harris of California called for big federal investments in teacher salaries this week, she identified higher estate taxes as her financing source. When Sen. Elizabeth Warren of Massachusetts proposed expanded affordable housing and universal child care, she tapped estate taxes and a new “Ultra-Millionaire Tax.”
By levying 2 percent each year on assets of families worth more than $ 50 million, and another 1 percent for those worth more than $ 1 billion, Warren would tax capital gains as they occur without waiting for assets to be sold, as current law does. By preserving the existing capital gains tax, she would tax gains both ways.
Delaney considers her “wealth tax” vulnerable to constitutional challenge as confiscation of property. His plan to equalize income and capital-gains rates — with exceptions such as investments in economically distressed “opportunity zones” — faces a different sort of opposition.
Some Democratic economists equalization would increase the “lock-in” effects that deter asset sales. Fewer assets sold means fewer realized profits to tax.
“Pushing the rate up past 30 percent is estimated to cost the government revenue, so what is the point?” asked Larry Summers, a top advisor to Presidents Bill Clinton and Barack Obama. Another former Obama economist, Betsey Stevenson, suggests eliminating the “step-up” basis for inherited assets that now allows vast amounts of capital gains to escape taxation permanently.
There’s also intraparty political disagreement. Clinton’s 2016 pollster Joel Benenson still prefers income tax hikes on the wealthiest Americans as “easiest to understand because everyone pays income tax.”
Yet his veteran counterpart Stan Greenberg notes that ordinary families pay their own wealth levies through local property taxes. Greenberg envisions a simple, potent question for voters: “Why is profit taxed less than earned income?”