Twenty years ago, Democrats were so cozy with Wall Street that a former Goldman Sachs banker ran the Treasury Department, and President Bill Clinton signed laws gutting regulations meant to rein in the financial industry. Fast-forward to the present, and the Democratic Party is in the midst of a rebranding. Party elites are no longer openly courting the ultra-rich — they want to tax them.

Sen. Elizabeth Warren set the groundwork for a debate in the 2020 presidential primary with her ambitious plan to annually tax estates worth more than $50 million. Former Rep. Beto O’Rourke endorsed the idea a few months later. Sens. Bernie Sanders and Cory Booker came out with an alternative approach to tackling inequality, with plans to expand the existing estate tax (which, under President Donald Trump, has become a shell of its former self). The party’s leftward shift got a further boost from Rep. Alexandria Ocasio-Cortez, who earlier this year proposed a controversial 70% marginal income tax rate.

These proposals represent a significant transformation from even the last presidential primary. And the idea of a wealth tax is popular right now; a recent survey showed 60% of U.S. voters, including over 80% of Democrats, support an extra tax on households worth more than $50 million.

So why is it gaining traction now?


The idea of taxing wealth is not new: The United States taxes wealth at death in the form of the estate tax. Local jurisdictions also tax property, which Americans typically use to accrue wealth. But unlike a property tax, most wealth taxes are broad in scope. They include stocks, bonds, vehicles, art, jewelry, boats, and planes, minus any debts.

The concept caught on in Europe, but it’s since fallen out of favor, in part because the taxes have been easy to evade. Some countries included exemptions to their wealth taxes, and it is simply easier in Europe to avoid taxes by moving abroad. In 1990, 12 countries in Europe had a wealth tax; today, only three do.

More recently, the idea to tax wealth caught fire in the United States thanks to French economist Thomas Piketty and his unexpected 2013 bestseller, Capital in the Twenty-First Century. The book — which argued that the returns on capital have historically outpaced the returns on labor, causing rampant inequality — resonated in the post-Great Recession era, when stock prices rose dramatically while wage growth remained minimal.

The 2017 Trump tax cuts raised the stakes of the debate on wealth and taxes. Most Americans don’t think they’re getting a tax cut; they believe the wealthy and corporations are the only ones benefiting, according to a recent CBS News poll. This has given Democrats an opening to push for new ways to combat inequality, drawing a direct contrast to what Trump and his heirs won’t have to pay under the new tax law.

Candidates are no longer just debating whether to tax the super-rich — but by how much

Warren signaled her support for the concept of a wealth tax as early as 2014, when she spoke alongside Piketty at a panel moderated by HuffPost. Then, in the ramp-up to her 2020 campaign, Warren released a plan to levy a 2% tax on fortunes over $50 million, with an additional 1% added to assets over $1 billion.

According to an analysis by economists Emmanuel Saez and Gabriel Zucman — both of whom, it must be said, acted as advisers to Warren — her wealth tax would raise $2.75 trillion over 10 years, with $0.3 trillion coming from the billionaire surtax alone. In order to avoid the European problem of expatriation, Warren proposes a 40% “exit tax” on wealth over $50 million. Approximately 75,000 American households would be taxed under her plan.

Still, the wealth tax has plenty of critics. Former Starbucks CEO Howard Schultz, who is exploring an independent bid, has called the policy “ridiculous.” Some economists cast doubt on whether Warren’s tax would actually raise much revenue. Meanwhile, other detractors worry it would be hard to assess the value of high-priced assets — not to mention that it’s potentially unconstitutional.

The question of assessing value is largely administrative: Critics argue it would be too difficult to value expensive assets like art and stakes in privately held companies on an annual basis. The constitutionality concerns, however, are somewhat up in the air.

The Constitution forbids the federal government from imposing a “direct tax” — generally, a tax imposed on a person or property, as opposed to a transaction — except in proportion to population. This is what led to a federal income tax being struck down by the Supreme Court in 1895. In response, Congress and the states passed the 16th Amendment, allowing a direct income tax regardless of apportionment. But the Supreme Court has never clearly outlined what defines a “direct tax,” potentially opening up the wealth tax to a legal challenge.

Warren’s team responded to critics by releasing letters from prominent law professors who argue that the proposed tax is constitutional. She has also proposed significant increases in funding for the IRS and audits to counter evasion.

Despite the logistical and legal hurdles, the focus on combating wealth inequality is not going away as a political issue in the Democratic primary. Candidates are no longer just debating whether to tax the superrich, but by how much and how to do it. The proposals to expand the existing estate tax have similarities to Warren’s plan (except the estate tax is assessed only at death, not annually). Currently, only those who inherit more than $11 million pay estate tax. Sanders wants to lower that threshold to $3.5 million. Rates start at 45% under Sanders’ plan and rise to 77% on wealth over $1 billion. Booker has proposed returning the estate tax to its 2009 rate of 45% on inheritances over $3.5 million, with surtaxes raising the top rate to 65%.

Amid skyrocketing income inequality and wages that have stagnated until very recently, 2020 candidates view taxing wealth as a political winner. The tax is also a simple political idea as far as taxes go; it hits a clearly defined group and doesn’t affect the vast majority. Wealth inequality hasn’t exactly broken through as a campaign issue in past years. The wealth tax might just change that.