The founder and manager of the world’s biggest hedge fund said Wednesday that if Democratic Socialist Rep. Alexandria Ocasio-Cortez’s high-tax proposals every become a reality, investment capital will dry up in the United States as investors find friendlier economic environments elsewhere.
â€œHow 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,â€ Ray Dalio, who runs $160 billion at Bridgewater Associates, told CNBC in an exclusive interview at the World Economic Forum in Davos. â€œItâ€™s going to be a bigger market-influencing issue than people now realize.â€
Dalio said he thinks that political reaction to the widening gap between the haves and have-nots likely will influence who wins the 2020 election — that is, Democratic candidates will exploit that gap, most likely, in their bid to unseat billionaire POTUS Donald Trump.
That said, Dalio noted that there are big problems with Ocasio-Cortez’s stated objective of raising income taxes to 70 percent on earnings above $10 million.
â€œThis polarity issue â€” the income and opportunity gap â€” will determine who is elected and what approaches are going to be used to deal with that issue,â€ Dalio told the network.
â€œWe 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,” he added.
During a recent interview with CBS News’ “60 Minutes,” Ocasio-Cortez laid out her tax plan — about a year to the day after a GOP-majority Congress passed, and POTUS Trump signed, a tax reform plan that reduced income taxes on more than 85 percent of Americans while substantially reducing them for American corporations.
â€œWeâ€™re in agreement on the problem thatâ€™s behind that suggestion,â€ Dalio said of Ocasio-Cortez’s proposal. â€œWe have to make capitalism work for the majority of Americans. I donâ€™t know that weâ€™re in agreement on the mechanics.â€
Specifically, Dalio has concerns about the unintended consequences of raising marginal income tax rates on wealthy Americans and how the additional revenue would be used, which he says might have a negative impact on U.S. productivity.
â€œIf weâ€™re to have a 70 percent marginal tax rate, most individuals affected by it will calculate whether they should instead operate as a corporation in order try to convert ordinary income to capital gains, so I wonder how that will be handled,â€ Dalio said. â€œAnd I wonder what will be done to influence whether capital will leave the country.â€
FormerÂ Former Federal Reserve Chairman Alan Greenspan said Ocasio-Cortez’s high tax plan would be a “terrible mistake” that would devastate the economy, which has been on a tear following last year’s tax cuts and POTUS Trump’s cutting of regulations.
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