'Tax-the-rich' policies are all the rage in the US

These days, Democrats are all about raising taxes on the rich. Rep. Alexandria Ocasio-Cortez (D-N.Y.) floated the idea of returning to a 70-percent marginal income tax rate.

Sen. Bernie Sanders (I-Vt.) has proposed lowering the estate tax exemption to 2009 levels, while raising the rate to a maximum of 65 percent on estates over $1 billion. Senator Elizabeth Warren has put forward a 2-percent wealth tax on households with a net worth over $50 million, with a 3-percent rate on billionaires. Together, the proposals mark a sizeable shift in Democratic policy, but what will the voters think?

ADVERTISEMENT

All of the tax-the-rich proposals are likely to play well with the public, especially with the Democratic base. Progressive taxation is popular, and most Americans think the wealthy are paying too little in taxes. Among the Democrats, these views are even more strongly held.

Rank-and-file Democrats have also become measurably more negative about wealth in recent years. In a July 2018 Gallup poll, only 43 percent of Democrats thought the United States benefits from having a class of rich people, down 9 percentage points from 2012.

And, while a belief in the American dream tends to reduce concern about inequality, less than a third of Democrats expect they will ever be wealthy, compared to 36 percent of Republicans. 

In principle, the plans could even appeal to a substantial minority of Republican voters. Even as their party leaders passed a major tax cut for wealthy people and corporations in 2017, a third of Republican voters thought taxes on corporations should go up, and a quarter thought those making over $250,000 a year should pay more. Low-income Republicans are especially likely to be won over by tax-the-rich policies.

Recent surveys confirm that there is remarkably bipartisan public appetite for the Democrats’ new proposals. Warren’s wealth tax proposal garnered 61 percent support overall, with 74 percent of Democrats and half of Republicans favoring the plan.

Ocasio-Cortez’s call for higher income tax rates performs very similarly: 59 percent overall approval, with 71 percent of Democrats and 45 percent of Republicans supporting the idea. A poll of Sanders’ estate tax expansion may be slightly less popular coming out of the gate: A recent survey found support among half of voters, including 59 percent of Democrats and 43 percent of Republicans.

As the proposals get more attention, however, the partisan split is likely to grow larger. Republican leaders will be working overtime to remind their base that Republicans oppose tax increases. In fact, conservatives are already raising doubts about the plans’ potential impact on federal revenues and overall economic growth.

Such concerns are ill-founded; there is no consistent relationship between top tax rates and overall economic growth, and revenue should be a secondary consideration in the case for progressive tax policies.

Nonetheless, voters tend to adopt their preferred party’s policy recommendations, so Republicans are likely to turn away from new taxes on the wealthy.

That said, the GOP’s limited success in convincing its base about the merits of their signature legislative achievement, the Tax Cuts and Jobs Act, suggests that a divide will remain between Republican elites and their base when it comes to taxes on the extremely wealthy. It is surely a wedge that Democrats will seek to exploit in 2020.

Those electoral considerations are key to explaining why Democratic leaders have suddenly rushed to raise taxes on the wealthy. Sure, we live in an era of staggering economic inequality. But that has been true for many years now. Two other factors are likely motivating the new tax-the-rich fervor.

First, the rising generation of voters is much more racially and ethnically diverse and too young to recall the Cold War, making them comparatively immune to the anti-tax rhetoric that was so effective in the Reagan era: the "dog-whistle" politics and the relentless red-baiting that constricted the American left for decades.

Second, Democrats are gearing up for an election against an unpopular president famous for his shady business practices and for firing people. There could hardly be a more opportune moment to run against the rich.

Vanessa Williamson is a senior fellow in governance studies at The Brookings Institution. She studies the politics of redistribution, with a focus on attitudes about taxation.