Taxing the rich, an idea gaining ground in the United States

Long out of favour in the United States, the idea of taxing rich individuals and corporations to pay for healthcare or to combat inequality is gaining ground among Democratic politicians.

While the United States reveres free enterprise and is home to the world's largest number of billionaires, such tax proposals have been gaining traction in political circles in recent weeks.

More than one Democratic contender in next year's presidential elections are campaigning on some plan to tax the wealthy.

And they have been encouraged by famous billionaires such as Bill Gates and Warren Buffett, the world's second and third wealthiest people, who worry about America's severe wealth inequality.

Vermont's left-leaning Senator Bernie Sanders was among the first in the recent wave. During his 2016 presidential campaign, he called for higher federal income taxes to pay for free college tuition and universal healthcare.

Massachusetts Senator Elizabeth Warren has proposed a two-per cent wealth tax starting at USD 50 million in earnings. New York Senator Kirsten Gillibrand is calling for a levy on financial transactions and Sanders says, inheritances should be taxed up to 77 per cent.

With the Democrats now in control of the House of Representatives, the undisputed media star of the freshman class, Alexandria Ocasio-Cortez, is leading the charge: she has proposed a tax of 70 per cent on any income over USD 10 million to help pay for a proposed "Green New Deal" to de-carbonise the US economy and help prevent catastrophic climate change, while offering universal healthcare and guaranteed employment.

This so-called marginal rate of 70 per cent is not unprecedented in the United States, but was last at that level in 1981. The current top marginal tax rate is 37 per cent.

Raising corporate taxes is another Democratic priority, a subject inflamed by the recent controversy over Amazon, which has reported no federal income tax expenses for the past two years. That has stoked a debate over highly profitable companies that do not pay into government coffers.

Some Republicans have pushed back, with outspoken and media savvy Ocasio-Cortez drawing the most fire.

Grover Norquist, an anti-tax activist who has long pushed Republican lawmakers to pledge never to raise taxes, warned in January against soaking the rich, saying such taxes "always slip down to hit the rest of us". But Joseph Thorndike, a historian specialising in US tax policy, said a reversal of the post-war trend of cutting taxes was within sight.

"Something is happening here," he said. "We are beginning to have a discussion about that that we haven't had since the 1960s or even the 50s."
Why has the debate changed?
"People are willing to tolerate rich people getting richer as long as middle-class people are also doing better," he said. "When the middle and labouring class is stagnating, that creates social tensions."