Ray Dalio, founder of investment firm Bridgewater Associates, speaking at the WEF in Davos, Switzerland on Jan. 22, 2019. Adam Galica | CNBC

DAVOS, Switzerland — Raising taxes on wealthy Americans in response to the defining issue of our time — income inequality — could have huge and unintended consequences on markets, according to billionaire Ray Dalio, founder of the world's biggest hedge fund. Dalio, who runs $160 billion at Bridgewater Associates, believes the political reaction to the yawning gap between the haves and have-nots will likely determine who wins the 2020 presidential election. But he said there are serious impacts to be considered ahead of such changes, including Rep. Alexandria Ocasio-Cortez's proposed 70 percent tax rate on earnings above $10 million. "How tax rates are changed will have a huge effect on incentives and could have a huge effect on capital flows, and that will have big effects on markets and economies," Dalio said in an interview on the sidelines of the World Economic Forum in Davos. "It's going to be a bigger market-influencing issue than people now realize."

The 69-year-old hedge fund titan has been outspoken that the brand of capitalism that has allowed for the rise of a global class of super wealthy like himself hasn't worked out for most Americans. In November, he pointed out that the top 1/10th of 1 percent have a net worth equal to 90 percent of the population, a situation similar to the 1930s. "This polarity issue — the income and opportunity gap — will determine who is elected and what approaches are going to be used to deal with that issue," Dalio said. "We have entered the presidential election cycle in which different policies and their probabilities of getting enacted to deal with this income-opportunity gap issue will be really important; probably the most important issue of our time."

Agreement on the problem