Billionaire investor Ray Dalio said in a new interview the U.S. should expect “significant” tax hikes as part of a “big movement” to close the nation’s wealth gap. But he warned that a wealth tax introduced by progressive Senator Elizabeth Warren (D-MA) could make the nation “less hospitable for capitalism.”
Plus, he cautioned that any potential hikes could impact the stock market.
“Depending on whether that’s done smartly — or not — will affect the markets,” says Dalio, who founded the world’s largest hedge fund, Bridgewater Associates. “When we cut corporate taxes, that benefited stock prices. Depending on how the tax rates are changed and so on, that will certainly affect asset prices and capital flows.”
President Joe Biden next week will unveil a $3 trillion infrastructure plan that may include tax hikes on corporations and wealthy Americans, The New York Times reported.
In the meantime, Senator Bernie Sanders (I-VT) — who chairs the powerful budget committee — introduced two bills on Thursday that would raise the corporate tax rate from 21% to 35% and make it more difficult for companies to stash their profits offshore.
Those proposals come weeks after Warren introduced a wealth tax, which would impose a 2% annual tax on households and trusts valued at between $50 million and $1 billion; and slap a 3% tax on all net worth above $1 billion.
Dalio, whose net worth exceeds $20 billion, told “60 Minutes” two years ago that he supports a tax hike on wealthy Americans. But he warned that a wealth tax has proven “operationally difficult” when implemented in countries like Switzerland and Norway, and it could hurt the U.S. economy.
“I’m a mechanic,” Dalio says. “I’m not an ideologue. I’m basically somebody who thinks if you move the lever this way, what will happen?”
“The big risk: Is this an environment that’s hospitable for capitalism?” he adds. “Cut capitalists — that affects capital flows a lot.”
Billionaires in the U.S. added $1 trillion to their net worth during the coronavirus outbreak, according to an Americans for Tax Fairness analysis released in December. The ultra-rich accumulated that wealth while tens of millions of workers have lost their jobs, exacerbating inequality that had already reached heightened levels before the pandemic.
Biden supports a tax hike on wealthy Americans that would raise the top individual tax rate from 37% to 39.6%, according to the Tax Policy Center. People with income greater than $1 million could face long-term capital gains rates of up to 39.6%, up from 20%.
Under the tax cut signed into law by Trump, the corporate tax rate fell from 35% to 21%. Biden’s tax proposal would raise the corporate tax rate to 28%, a midway point between current and pre-Trump levels.
Earlier this month, Biden reiterated his plans to raise taxes for Americans who make more than $400,000.
Dalio spoke to Yahoo Finance Editor-in-Chief Andy Serwer in an episode of “Influencers with Andy Serwer,” a weekly interview series with leaders in business, politics, and entertainment.
At age 26, Dalio launched Bridgewater Associates, now the world’s largest hedge fund. He compiled lessons learned at the firm in a best-selling book published four years ago called “Principles.”
Speaking to Yahoo Finance, Dalio said the Biden administration faces a polarized political environment with little room for compromise on issues like taxes.
“There are two political parties. In both cases, there are rather extreme elements that we can call capitalist and socialist,” he says. “It’s difficult to be in the middle because they have to align with either of those.”
“Things like the wealth tax might be a litmus test,” he adds.