The Washington PostDemocracy Dies in Darkness

Billionaires strike back as Democrats embrace higher taxes, economic populism

Democratic members of Congress pose for a photo before President Trump delivers his State of the Union address to a joint session of Congress on Capitol Hill in Washington on Feb. 5, 2019.
Democratic members of Congress pose for a photo before President Trump delivers his State of the Union address to a joint session of Congress on Capitol Hill in Washington on Feb. 5, 2019. (J. Scott Applewhite/AP)

A wave of liberal economic populism has caught a number of left-leaning billionaires and Wall Street executives off-guard, and they are scrambling to beat back tax and regulatory proposals that could have profound implications for the economy.

So far, there have been only a few outspoken critics of the aggressive Democratic agenda, which has been led by lawmakers including Rep. Alexandria Ocasio-Cortez (D-N.Y.) and Sen. Elizabeth Warren (D-Mass.). But the tension, which has escalated rapidly in the past week, shows how business leaders are struggling to come to grips with a party that has lost many of its corporate-friendly voices.

The Clinton and Obama administrations had strong ties to Wall Street and California technology leaders, but an emerging group of liberal leaders has rejected such relations.

Leading the resistance, so far, are two potential 2020 presidential candidates, former Starbucks chief executive Howard Schultz and former New York mayor Michael Bloomberg, as well as former Goldman Sachs chief executive Lloyd Blankfein. Each has spoken out in recent days about what they view as overly liberal proposals on taxation and regulation from prominent Democrats.

All three have criticized President Trump but are warning that some proposals from Democrats risk pushing the country too far left and alienating broad swaths of voters.

Their complaints have mostly been met with mockery and scorn from liberal lawmakers.

“It should come as no surprise that a few billionaires want to continue to hoard as much wealth as possible, increasing their corrupting influence over our political system,” said Rep. Ilhan Omar (D-Minn.). “The reality is we cannot make progress on the greatest challenges of our time — whether climate change, student debt or health-care costs — unless we ask those with the most to give in our society to contribute more.”

The crux of many of the new proposals is an attempt to realign economic policy in a way that raises taxes on the wealthiest Americans and, in some cases, forces companies to share more income with their workers instead of with their shareholders. Democrats propose to spend some of that new revenue on programs they believe would help lower-income and middle-class Americans, such as by expanding government-run health care and assisting with college tuition.

The White House has sought to seize on these proposals in recent days, alleging that Democrats are working to tilt the country into socialism.

“America will never be a socialist country,” Trump said during his State of the Union speech Tuesday.

Technology executives and venture capitalist have also expressed increasing concern in the past few weeks about Democrats’ denigration of business leaders, said Rep. Ro Khanna (D-Calif.), whose district includes Silicon Valley.

“They’re open to higher marginal taxes and increasing the estate tax, which you may find counterintuitive. But they do say, ‘Don’t make us the villain,’ ” Khanna said. “They’re less concerned with their net worth than they are with their social status.”

Alice Rivlin, who was a top economic official during Bill Clinton’s presidency, said Democrats risk overestimating the public’s willingness to back some of their proposals and could create a backlash that costs them political support.

“I think the left is very energized right now, but I’m worried about it, because the country is quite cautious and centrist,” she said.

So far, few of these new proposals have even universal support among Democrats, and small groups of lawmakers are testing their party to gauge support. Many of the ideas have emerged in the past few weeks.

Rep. Jan Schakowsky (D-Ill.), a member of the House Budget Committee, said she is working with Ocasio-Cortez on revising Schakowsky’s existing proposal to raise marginal tax rates and treat capital gains like ordinary income, and other tax changes. Schakowsky’s bill would create a new top rate of 49 percent, but she said the enthusiasm for Ocasio-Cortez’s proposal may lead the bill to include much higher rates.

“I am definitely buoyed by the fact the American people like the idea of much higher taxes for the very wealthy,” Schakowsky said, stressing that talks with Ocasio-Cortez on the plan were preliminary. “It absolutely could be a big deal. . . . I think the atmosphere in which we’re working has changed.”

Warren, who is running for president, has proposed a 2 percent annual tax on wealth above $50 million and a 3 percent annual tax on wealth above $1 billion.

The United States has never had a federal wealth tax, and the proposal could face a court challenge on constitutional grounds if it were enacted.

Sen. Bernie Sanders (I-Vt.), who is also expected to run for president, followed Warren by releasing a proposal to dramatically increase the estate tax; his plan includes a 77 percent rate on the portion of estates worth more than $1 billion. Sanders’s plan would also move the threshold at which the estate tax kicks in from about $11 million to $3.5 million.

And in a sign that the proposals have only begun, Sen. Brian Schatz (D-Hawaii) is working on a plan whose provisions include a financial transaction tax that could hit banks for each stock trade. Democrats have worked on similar proposals in the past, but Schatz aims to design his to impose much steeper costs on financial companies.

Senate Minority Leader Charles E. Schumer (N.Y.) and Sanders are working on a bill that would prohibit companies from buying back their own stock and potentially limit dividend payments unless the companies first pay workers higher wages and offer a range of employment benefits.

At an event in New Hampshire last weekend, Bloomberg likened Warren’s tax proposal to the type of policy that destroyed Venezuela’s economy.

“We need a healthy economy, and we shouldn’t be embarrassed about our system,” he told reporters.

Schultz has called a number of the ideas from Democrats “ridiculous,” and Blankfein wrote Tuesday on Twitter that the Schumer and Sanders proposal to limit stock buybacks was misguided.

“A company used to be encouraged to return money to shareholders when it couldn’t reinvest in itself for a good return,” he wrote. “The money doesn’t vanish, it gets reinvested in higher growth businesses that boost the economy and jobs. Is that bad?”

There has long been a tension between different factions of the Democratic Party, as some of its most outspoken members are close with Wall Street while others are sympathetic to the Occupy Wall Street movement. Democratic lawmakers have sought to bridge this divide by characterizing Republican economic policies as unfairly tilted toward corporations and the wealthy.

This coexistence, though, is being put to the test even as policymakers fail to reverse income inequality.

The richest 1 percent of Americans now control as much wealth as the bottom 95 percent, according to research by Emmanuel Saez and Gabriel Zucman, two left-leaning economists at the University of California at Berkeley. Only five of 36 nations in the Organization for Economic Cooperation and Development have higher levels of income inequality than the United States, according to the OECD’s ranking.

Meanwhile, the number of billionaires globally rose from 470 in 2000 to 2,208 in 2018, according to Forbes.

Democrats are seizing on the issue of income inequality as they fight to design the party’s economic agenda ahead of the 2020 elections.

Jeffrey Sachs, a Columbia University economist, predicted that these proposals are likely to resonate with a broad swath of Americans who think both parties have done too little to help expand the middle class.

“I think the billionaires are not panicking so much as expressing their normal bravado that ‘we just utter the words and this will be dismissed as a rant of the left,’ ” he said. “I think that’s wrong, actually.”

And there are signs that some Wall Street executives are seeking out other prominent Democrats who might not support the types of tax and regulatory proposals that have emerged in recent weeks.

Larry Fink, chief executive of BlackRock, one of the world’s largest asset management companies, recently met with former vice president Joe Biden, who is considering his own presidential run and in the past has urged more bipartisanship.

A key component of Trump’s appeal during the 2016 election was outreach to middle-class Americans, particularly in the Midwest, who felt economically left behind and stuck with stagnant wages. He floated ideas that would break up big banks, impose steep taxes on hedge fund advisers and rip up trade deals. He abandoned the bank proposal and ended up cutting taxes for wealthy Americans, but he has worked to rewrite trade relations with numerous countries, something that remains popular with his supporters.

The economy has grown since Trump took office, and the unemployment rate has fallen, but a number of progressives think they can reframe the economic message ahead of next year’s election in a way that puts a Democrat in the White House.

“We respect the intellect of the public enough to trust them to understand what we have to say,” Ocasio-Cortez said Wednesday. “It is through fighting for working-class issues, while educating the public, that we can win back a very wide base.”

This has forced a number of the party’s wealthiest supporters to try to intervene, fearful that if they wait much longer, it could be too late.

“You don’t want to get to 2020 and have some Democrat look you in the eye and say, ‘Hey, you never said anything,’ ” said Douglas Holtz-Eakin, who was a top campaign adviser to Republican John McCain in 2008. “Why are you complaining now?”

Correction: A previous version of this article mistated the Republican presidential campaign that economist Douglas Holtz-Eakin had advised. This version has been corrected.