Democrats want to tax the rich. Here's how these plans would work (or not).

Among the Democratic candidates for the presidency, it is the rallying cry of the moment: to tax the rich. This idea is at the heart of the campaigns of Senator Elizabeth Warren and Senator Bernie Sanders. A former candidate, New York Mayor Bill de Blasio, went so far as to say that the government should "impose hell on the rich."

The new taxes would fund a long list of liberal proposals – "Medicare for all", a free college, fighting global warming and rebuilding roads and bridges.

But these measures will face fierce opposition, including from wealthy donors. Congressional Republicans will certainly oppose new taxes, making their adoption impossible if the Democrats do not show up in both Houses of Congress in 2020. Whatever their political fate, these proposals represent the broadest reflection on tax policy for decades.

"We seem to be shuttling between Democrats and Republicans to tax the rich, depending on the power in place," said Eric Toder, co-director of the Tax Policy Center. "But the Democrats are now much more aggressive than in the past."

Four ideas were most successful: a wealth tax, raising marginal tax rates, increasing inheritance tax, and changing the way the government taxes capital gains.

Create a wealth tax

In January, Warren took a bold new approach by proposing to tax wealth, not just income. His proposal would impose a 2% tax on assets of more than $ 50 million, the first 70,000 families by fortune, in a country of nearly 330 million inhabitants. A person with $ 100 million in assets would pay $ 1 million a year. Fortunes greater than $ 1 billion would be subject to an additional surtax of 1%.

The tax, similar to the operation of the property tax, would be for a group controlling a growing share of the country's wealth. The 400 richest Americans own 3.5% of the country's assets, according to Emmanuel Saez and Gabriel Zucman, economists at the University of California at Berkeley, who advised Mrs. Warren. Over time, his tax would reduce that to 2%, according to Mr. Saez and Mr. Zucman. If it had been in place since 1982, the fortune of Jeff Bezos, the founder of the Amazon, would now be $ 87 billion, instead of $ 160 billion, using figures prior to his divorced.

Warren's proposal would yield $ 2.6 trillion over 10 years, according to Saez and Zucman. With $ 260 billion a year, this represents only a small share of total annual federal spending of $ 4.4 trillion. Lawrence Summers, former Treasury Secretary, and Natasha Sarin, a law professor at the University of Pennsylvania, challenged earlier estimates of the two economists as too optimistic.

On Tuesday, Sanders proposes his own wealth tax, a tax that hits mega-wealth even more aggressively than Warren's proposal. Its declining tax would start at 1% for assets over $ 32 million and would reach 8% for assets over $ 10 billion. The tax would raise about $ 4.35 billion over a decade.

As attractive as a wealth tax may seem to the liberal base of the party, its adoption would pose major problems. Anyone lucky enough to be in their sights has access to the best tax lawyers and accountants, who can consult the tax code to find a way out or at least a way to minimize the impact.

European countries have had mixed success with wealth taxes. The weak enforcement of law and offshore paradises have allowed many people to significantly reduce their debts. The Internal Revenue Service would require detailed reports from banks, brokerage firms and other financial institutions for the tax to be effective.

"It could bring in a lot of money but probably less than Elizabeth Warren thinks," Toder said.

Raise the highest tax rates

The highest tax rate increase is one of the simplest ways to tax the rich and some renowned democrats have adopted it. For example, Alexandria Ocasio-Cortez representative from New York City said the government should impose a 70% tax on incomes over $ 10 million.

While this may sound radical, it would actually represent a return to the tax policies that have prevailed for decades. The highest tax rate rose to 70% in 1980 and was even higher than before, reaching 90% in the late 1950s and early 1960s.

In terms of inequality, this would effectively reduce some of the earnings extremes that have emerged in recent decades. The vast fortunes accumulated by a few dozen billionaires have also made the new taxes more politically acceptable. For example, Ms. Ocasio-Cortez's 70% tax would be paid by approximately 21,000 taxpayers.

According to Penn Wharton's budget model, his proposal would raise up to $ 382 billion over 10 years. That's about half of what the government will spend on the Department of Defense during this exercise.

With the help of accountants and lawyers, the rich would definitely try to find ways to convert earned income into capital gains or business income, which are currently taxed at low interest rates. lower.

Increase the property tax

Experts say that inherited wealth is an important factor of inequality. The inheritance tax aims to combat this, but in recent decades, legislators have facilitated its escape by taxpayers. Mr. Sanders wants to change that.

According to his proposal, the inheritance tax rate would start at 45% for assets over $ 3.5 million and increase to 77% for those with capital exceeding $ 1 billion. The proposal would only apply to 0.2% of the population, according to Sanders.

The senator's plan would raise $ 315 billion over 10 years, less than half of this year's military spending. But the rise in estate taxes of more than $ 1 billion could raise $ 2,200 billion in the long run. Mr. Sanders said he wanted the money to be used to fund his ambitious social program.

Warren also proposed expanding the property tax as part of a housing bill. Inheritance tax would start at 55% and increase to 75%. She said the tax would affect 14,000 rich families a year.

Lawyers and accountants have come up with many strategies to avoid death duties, said Kyle Pomerleau, chief economist at the Tax Foundation. Of course, if Congress adopts Mr. Sanders' proposal, legislators could also try to remove some of these loopholes.

Increase in capital gains tax rates

Several Democrats, including former Vice President Joe Biden, want to end the divergence between the imposition of different types of income. In fact, long-term capital gains are taxed at the maximum rate of 20%, but the maximum rate of wages and salary income is 37%.

Lower taxes on investment income skew the system in favor of the wealthiest households and a rise in capital gains tax rates would change that.

According to an article by Lily Batchelder and David Kamin of the New York University School of Law, about 80% of household income earning less than $ 198,000 a year is in the form of wages and salaries. In contrast, capital gains and dividends represent 70% of family income earning $ 53 million or more per year.

"The way the highest salaries in our country are making money is very different from the others," said Kamin.

The top 10% of the wealthiest households own 84% of all stocks. Mr. Biden's plan targets this group and would increase the rate of appreciation to 39.6% for the senior employees.

Senator Ron Wyden of Oregon, who is not running for president, would go one step further by radically changing the way capital gains are taxed, at least for the wealthiest Americans. He recently proposed to tax the appreciation of shares held by the 0.3% of the richest households, even if these gains were not made. Wyden is also in favor of equalizing the tax rate on earned income and capital gains.

The senator's proposal would have the effect of cutting off the wings of the billionaires who saw their fortunes fly away but did not sell their shares.

Mr. Wyden's proposal would raise $ 1,500 to $ 2 trillion over 10 years for social security. Mr. Biden would allocate funds partly from the increase in capital gains taxes to the $ 750 billion cost of extending coverage under the Affordable Care Act.

It is difficult to raise capital gains taxes without further reform because taxpayers might choose not to sell shares so as not to have to pay money. According to the research he has analyzed, the Tax Policy Center estimates that increasing the capital gains rate above 30% would reduce revenues, Toder said. Imposing the assessment as proposed by Mr Wyden would help to solve this problem.