Ray Dalio slams Ocasio-Cortez’s 70 percent tax rate proposal

Connecticut”™s wealthiest resident, Ray Dalio, is warning that any attempt to enable the 70 percent tax rate on earnings above $10 million proposed by U.S. Rep. Alexandria Ocasio-Cortez of New York will have a deleterious impact on the U.S. economy.

In an interview with CNBC from the World Economic Forum in Davos, Switzerland, Bridgewater Associates”™ chief Dalio said changes in tax rates “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.” He warned that the idea floated by the freshman Bronx congressional representative was not the right solution.

“If we’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 to try to convert ordinary income to capital gains, so I wonder how that will be handled,” he said. “And I wonder what will be done to influence whether capital will leave the country.”

Still, Dalio said he was cognizant of the optics of a nation where the gap between the wealthy and the working class was at a historic distance. In November, Dalio observed that the top 1/10th of 1 percent of the U.S. population had a net worth equal to 90 percent of the population, a situation not unlike the Great Depression era.

“We’re in agreement on the problem that’s behind that suggestion,” he said. “We have to make capitalism work for the majority of Americans. I don’t know that we’re in agreement on the mechanics.”

Dalio predicted the wealth gap would become a primary force in determining the 2020 election. “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.”