As U.S. Democrats lay the foundation of their bid to unseat President Donald Trump in 2020, raising taxes on the rich is emerging as a central theme for a party being pulled to the left by its invigorated progressive wing. Spurred on by the social media-fueled phenomenon of Alexandria Ocasio-Cortez, the youngest woman ever elected to the U.S. House of Representatives (and so young she can’t seek the presidency herself), other Democrats planning or considering a run are producing a bevy of proposals for how to draw more money from the most affluent. Ideas include a “wealth tax” on assets, much higher marginal rates on big annual incomes and a new tax on financial trades, all in the name of raising more money for new government programs while making a dent in rising inequality.

1. What are the proposals?

• Massachusetts Senator Elizabeth Warren, who recently announced her presidential candidacy, would put a 2 percent tax on household wealth in excess of $50 million. Every dollar above $1 billion would be taxed at 3 percent.

• Ocasio-Cortez has floated taxing income above $10 million at 70 percent, an increase from the current top 37 percent tax rate that kicks in above $500,000.

• Others, including Democratic candidate Senator Kirsten Gillibrand, as well as Senator Bernie Sanders who could also jump in the race, have backed plans that would largely hit investors -- such as a tax on financial trades -- as a way to shift the tax burden away from the middle class.

• A proposal to require investors to pay tax on the gain of their derivatives holdings each year instead of waiting until they sell -- a change that would mainly hit the well-to-do -- has support in Congress from some Republicans as well as many leading Democrats.

2. Who would be hit by these?

Primarily the richest of the rich: only a fraction of the top 1 percent of households would pay most or all of some of these proposals. Warren’s tax would hit the wealthiest 75,000 households. A 70 percent marginal rate would hit the top 0.01 percent of earners, according to IRS data, and even then, some people who have most of their income tied to the capital gains from investments could escape the higher rate. Financial transactions taxes would fall most heavily on high-frequency traders, while annual taxes on derivatives, a proposal known as mark to market, would hit investors, including hedge funds, but some plans limit the tax hit for pension funds, insurance contracts and college endowments.

3. How much would they raise?

Warren’s tax would raise $2.75 trillion over a decade from about 75,000 taxpayers, according to University of California-Berkeley economists Emmanuel Saez and Gabriel Zucman, two experts on inequality who helped prepare her plan. That’s a significant sum for a tax proposal -- nearly enough to pay for President Donald Trump’s $1.5 trillion tax cut twice. Critics, however, call some Democratic estimates overly rosy. By one count, the 70 percent tax could raise $353 billion over a decade. Others say that depending how it is designed, it could raise as little as $51.4 billion because of the tax maneuvering it would trigger. Taxpayers could avoid it by shifting business income to corporate structures -- taxed at 21 percent -- and using accounting tricks to get their income under the $10 million threshold. A financial-transaction tax set at 0.1 percent of the value of a securities trade is estimated to raise about $777 billion over a decade, while an annual tax on derivatives would generate $18.7 billion in a 10-year period.

4. What would they do for inequality?

That’s hotly debated, but they could at least slow down the rate at which the rich get richer. Higher income taxes mean that top earners would take home less of their annual income. Warren’s tax would take out a slice of what they already own. A wealth tax would redistribute wealth more quickly than an increase in the top income rate, because wealth inequality is greater than income inequality. Some new research also suggests that raising marginal income rates wouldn’t reduce inequality much, because much of the wealth among the richest Americans stems from private business profit taxed at lower rates, and from assets that have grown in value but go un-taxed until they are sold.

5. What’s the Democratic argument for these?

Democrats argue -- and polling suggests an increasing number of voters agree -- that the government should use the tax code to redistribute wealth downward. Since the Republican tax cuts passed in 2017 gave the highest income taxpayers a larger proportion of reductions, they say the first order of business is to reverse that trend. They also favor increasing overall tax revenues to pay for an ambitious agenda on health care, higher education and action on climate change.

6. What do opponents say?

For one thing, they say that wealth taxes and mark-to-market levies would be administrative nightmares. That is, they would require taxpayers or the IRS to calculate how much assets are worth each year, including real estate and investments in private businesses that are notoriously hard to value. Additionally, taxes on financial trades make capital more expensive for companies, meaning they’ll raise less of it; such a tax could also reduce liquidity in markets, opponents say. More broadly, they say high taxes on income and on accumulated wealth would discourage innovation and investment. The nuances of the the policy debate can get confusing for voters: Former Republican Wisconsin Governor Scott Walker incorrectly indicated that Ocasio-Cortez’s 70 percent tax rate would apply to all income earned by a wealthy individual, rather than money earned in excess of $10 million.

7. What other ideas are being debated?

Many states have proposals to raise taxes on the wealthy, but even in areas dominated by Democratic voters, such proposal are struggling to gain traction. New York City Mayor Bill de Blasio said in January he wants to increase the city’s mansion tax -- a 1 percent tax on homes that sell for $1 million or more -- to fund affordable housing after billionaire Kenneth C. Griffin bought a penthouse for $238 million. De Blasio is also pushing a millionaires tax-- a 0.53 percent increase on city residents earnings at least $1 million as a couple -- to pay for city transit, but New York Governor Andrew Cuomo has called the idea “dead on arrival.” Democratic lawmakers in Arizona -- a red state that recently elected its first Democratic senator since 1995 -- and Massachusetts are reviving efforts to raise taxes on the wealthy after both had millionaire tax questions kicked off their ballot last year because courts ruled them unconstitutional. One idea not in the mix: Trump’s proposal as he mulled a presidential run in 1999 for a one-time 14.25 percent tax on wealth over $10 million.

To contact the reporter on this story: Laura Davison in Washington at ldavison4@bloomberg.net

To contact the editors responsible for this story: Alexis Leondis at aleondis@bloomberg.net, John O’Neil

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