The reaction at Davos to Congresswoman Alexandria Ocasio-Cortez is a good sign for the 99%. The billionaires are worried and have no defence against a meaningful critique of their excessive wealth.

In a recent 60 Minutes interview, Representative Ocasio-Cortez stated that she supported a top marginal income tax rate of 70% on income over $10m. The reaction to the proposed 70% top marginal rate at the 2019 Davos World Economic Forum has been telling.

Davos — playground of the super wealthy (Reuters)

Running scared

Scott Minerd, chief investment officer for Guggenheim Partners, admitted that the proposed rate and its popularity was scary. Billionaire investor and top Democratic party financier, Glenn Hutchins, spoke dismissively about the rate being a part of the Democratic party platform despite its popularity among democratic voters.

Ken Moelis, CEO of investment bank Moelis & Co, was either disingenuous, or woefully uneducated about how marginal tax rates work, when he said:

It would be disastrous for the economy. You have to incentivize people. Even in the U.S., what’s going to happen to the two-workforce family? You forget where 70 percent starts to kick in.

Moelis statement is completely disingenous considering the average American working family’s household income is only $61,000 (which is precariously close to the US average cost of living of $49,000). The proposed 70% rate would kick in on income above $10m. Given the average US household income, that rate is going to affect very few working americans. Moelis claim goes to show just how rattled the billionaire class is by the proposed rate and the support it is attracting. Moelis was willing to make a blatantly false and idiotic claim just to scare working families into continuing the current tax system that benefits the billionaire class. If I was on Moelis board of directors, I’d be wondering how a CEO could be so uninformed about how marginal tax rates worked.

At a Davos panel sponsored by the Washington Post, Michael Dell claimed that his private foundation has done more good than what the government could do with a tax rate of 70% on income over $10m. Dell then went on to claim that a top marginal rate that high would be bad for US economic growth, and asked where a top marginal rate that high had ever worked. MIT Professor of Economics, Erik Brynjolfsson immediately responded that the United States had a similarly high top marginal rate in the past. Panel host, and economics correspondent for the Washington Post, Heather Long, interjected that the rate was only that high for a decade in the 1980’s (a pretty basic factual error from someone who received an economic education at Oxford). Brynsjolfsson went on to explain that the US top marginal tax rate had been at its highest during a period of unprecedented economic growth in the United States. That top marginal rate was instituted by President Franklin Roosevelt in order to fund the New Deal that was the result of tremendous pressure from American workers and the threat of communism in the 1930's.

Michael Dell doesn’t want his $10 millionth dollar taxed more than 37% (Michael Nagle/Bloomberg)

It is interesting that Dell, who recently purchased a $100m penthouse in Manhattan, immediately responded to the question by mentioning his private foundation. It is almost as if billionaires like Dell believe their charitable foundations act as a shield against criticism of their obscene wealth.

The bigger concern over whether private foundations actually provide a social good, is that they are fundamentally undemocratic. Without a comprehensively progressive income tax system, and in the absence of a wealth tax, the majority of people have no say in how social good is distributed within society. If billionaires like Dell had their wealth redistributed via income and wealth tax, that redistributed wealth would then be spent at the discretion of the public. When we rely on the beneficence of billionaires, we have terrible outcomes like the elevation of charter schools at the expense of public schools.

Rattled

Lies about how tax rates work. Immediately rationalizing a regressive tax system by mentioning charitable foundations. The feeble defence of the current regressive US tax system shows just how rattled the billionaire class is by the popularity of left wing policies propose by politicians like Representative Ocasio-Cortez.

Cortez the Killer (Photographer: Jeenah Moon/Bloomberg)

It is understandable that the billionaire class would be worried. High profile economists, including Nobel prize winners, support a high top marginal rate like that suggested by Rep. Ocasio-Cortez. A recent poll showed that the majority of Americans support the proposed 70% top marginal rate on income over $10m. A high top marginal rate has both the support of the US public, and the professional economic class. The best arguments the billionaires can muster is disingenuous fear mongering about high taxes on regular working americans, or feeble brags about their charitable foundations.

We live in a world where 82% of the wealth created last year went to 1% of the population. Meanwhile 3.7 billion of the worlds poorest did not see any wealth increase at all.

The Davos set should not be surprised by the popularity of redistributive progressive tax policies like that proposed by Rep. Ocasio-Cortez. It is speculated that Senator Elizabeth Warren, who has announced that she is running for the Democratic presidential nomination, will release a wealth tax plan that would be levied on those with $50m in assets.

The Davos set should take a hard look at the gross wealth inequality from which they benefit. If they want to keep some of that wealth, they should be prepared to part with more of it than they have over the last two decades. Otherwise, history suggests that the rising tide of populist sentiment will not end well for them. FDR understood this, Davos would do well to learn from his example.