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How did the wealth tax become a central election issue in the US?

Presidential candidates Elizabeth Warren and Bernie Sanders have proposed ambitious plans to tax the super rich to tackle rising income inequality.

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New Delhi: US presidential candidate and Democratic Party senator Elizabeth Warren released a campaign video targeting four American billionaires who have voiced concerns about her ‘wealth tax’. Many wealthy Americans, including Bill Gates, have recently expressed unease about Warren’s proposed wealth tax — a 2 per cent tax on the net-worth of the “super-rich”.

Meanwhile, Bernie Sanders, the other Democrat in the presidential race, has proposed a more radical wealth tax. He had initially put forth a moderate tax structure, but with growing competition from Warren, he revised his proposal.

“A wealth tax like the ones proposed by presidential candidates Sen. Elizabeth Warren and Sen. Bernie Sanders would make ultra-wealthy Americans pay the federal government a small percentage of their net worth each year,” noted a report in Business Insider.

A central election issue

A section of Democrats have moved significantly to the left, in order to deal with the widening income inequality and hollowing out of the middle classes in the US. Leaders such as Warren, Sanders and Alexandria Ocasio-Cortez have proposed radical measures such as free education and healthcare to tackle the issue

Wealth tax is one such proposals advocated by these progressive and left wing Democrats.

A significant proportion of federal government revenues in the US come via taxes on individual and corporate income. The country also has a capital tax, which taxes the “return on investments”. Wealth tax proposals, on the other hand, plan to tax the principal of these investments.

In effect, the proposals suggest taxing the accumulated wealth of the ultra-rich.

The reason why wealth tax has become a hotly debated issue is because certain billionaires have opposed the idea since it would directly hit their wealth. Warren’s recent billionaire-targeting campaign ad was in response to such criticisms.

“The leftwing Massachusetts senator trains her sights on the investor Leon Cooperman, the former Ameritrade CEO Joe Ricketts, the former Goldman Sachs CEO Lloyd Blankfein and the investor Peter Thiel,” reported The Guardian.

What are Warren and Sanders proposing? 

According to a Financial Times report, Warren is proposing a tax on the “ultra-millionaire”. The proposal is to implement a “tax of 2 per cent on assets above $50m, plus a 1 per cent “billionaire surtax” on assets above $1bn”.

While Sanders, in his effort to outdo Warren, proposed an even more ambitious plan.

“It (Sander’s proposal) starts at 1 per cent on net worth above $32m, and raises taxes in steps until it arrives at 8 per cent for wealth over $10bn,” noted FT.

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