Democratic Presidential Contenders Have a New Idea: Tax Cuts

The last couple of weeks in Democratic politics has seen a rise in what is sometimes called “the ideas primary”: the competing sets of policy announcements, often well in advance of the next presidential race, intended to set priorities and draw battle lines for the future. As our colleague Harold Meyerson has documented, the early ideas primary is around tax policy, and in particular a debate that encompasses the role of taxes in society, how to best deal with rampant inequality, and how to prioritize America’s biggest challenges.

Sens. Chris Van Hollen (D-MD) and Cory Booker (D-NJ), both of whom appear to be at least considering a run for the presidency in 2028 (Booker has already done so once, in 2020), have released bills that in different ways expand the standard deduction, which exempts a certain amount of earnings from taxation, and attempt to compensate for that further up the income ladder.

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The Van Hollen bill exempts the first $46,000 of individual income (what he says is roughly equivalent to an average living wage) and then phases out the exemption up to $80,500, with proportionally higher exemptions for married couples. The Booker bill makes the first $75,000 of income exempt from taxation for married couples ($37,500 for individuals). Taxes on the rich would increase substantially. The Van Hollen bill adds a tiered surtax on income above a million dollars, with other step-ups along the way. Booker would increase the current 35 percent tax bracket to 41 percent, and the current 37 percent bracket to 43 percent.

Booker’s plan would also resurrect Joe Biden’s reform of the Child Tax Credit, increasing the amount and changing the rules so that it does not require any income to claim—meaning parents who need it the most could once again get it. The credit would increase to $4,320 for children under 6, and $3,600 for children aged between 6 and 17. Booker would also add a $2,400 “baby bonus” for when a child is first born.

Both bills and their sponsors stress in their proposals the broad reduction in middle-class income taxes. “Way too many Americans have been working hard around the clock and still finding it difficult to make ends meet,” Sen. Van Hollen said in an interview. “We want to make sure that those Americans who are essentially working at a living-wage level get to keep more of their hard-earned pay.”

But critics from across the Democratic ideological spectrum accuse Van Hollen and Booker—and those who have jumped on the bandwagon like California gubernatorial candidate Katie Porter, who wants to exempt the first $100,000 in income from state taxes—of playing on Republican turf, hollowing out the tax base in ways that they say will make it impossible to deliver on important Democratic priorities. “What people are most frustrated about have more to do with structural issues on how the economy works than redistributive stuff,” said Bharat Ramamurti, policy director for Elizabeth Warren’s presidential campaign and a member of President Biden’s National Economic Council. “You need to pick and choose very carefully when it comes to prioritization, and I don’t think that a very sweeping middle-class tax cut is the right approach.”

THERE ARE GOOD REASONS TO OFFER TAX RELIEF to the broad middle class, defenders of the Van Hollen and Booker plans say. They counsel that the tax code overall isn’t very progressive once you take into account payroll and state sales taxes, and that shifting the distribution with the federal income tax adds that measure of progressivity. “This would overall on net create a more progressive tax code,” said Morris Pearl of Patriotic Millionaires, a group that advised on and endorsed the Van Hollen proposal. “One of the best ways to reduce inequality in our nation is to provide tax relief to people in the part of income distribution where they can barely support themselves.”

Booker’s child benefit would cut poverty substantially as well. “Creating a child benefit that does not exclude the poor, as Booker’s plan does, is a good idea that cuts poverty and improves the financial security of all families with children,” said Matt Bruenig, who runs the People’s Policy Project think tank. Numerically, child poverty would go down by an estimated 23 percent, while deep child poverty would fall by 36 percent.

But according to Alex Jacquez, chief of policy and advocacy with Groundwork Collaborative, these proposals are really an attempt to answer the Republican middle-class tax cuts rolled out with the Big Beautiful Bill, in particular the no tax on tips, overtime, auto loans, Social Security, and other policies. “This is really being driven by a group of strategists that saw the success Trump had on no tax on tips and are using that to drive a response,” Jacquez said.

As a simple matter of arithmetic, if America wants a world-class welfare state, taxes will need to rise steeply across the whole society to fund it.

Implicit in that is an assumption that no tax on tips and its cousins, all of which expire in three years, are so popular that Democrats must respond to them. (Van Hollen noted that working Americans would “all do better” under his policy.) But despite these measures coming into force in real time and being reflected in people’s IRS refund checks right now, there’s been no actual movement in favor of President Trump’s handling of the economy. “Surely people would rather pay lower taxes,” Ramamurti said. “But is it a high-salience thing compared to the economic problems people are fixated on? The political calculus that middle-class tax cuts are wildly popular and the ticket back to power, I’m a little bit skeptical of that.”

Another problem with Booker’s and Van Hollen’s ideas, critics say, is distributional fairness, which is at odds with the point its champions make about progressivity. Boosting the amount of income exempt from taxation benefits upper-middle-class families the most, so long as they are not so rich that they trigger the higher top rates. “Increasing the size of the zero percent tax bracket, which both plans do, is a bad idea that gives more money to high-earners than middle-earners and low-earners,” Bruenig said. “The money spent on expanding the zero percent tax bracket would be better spent on basically any other benefit program.”

This can be seen numerically in a tool the think tank Policy Engine has constructed. Booker’s plan would give the largest dollar benefit to households in the ninth income decile, at $8,539 on average. Van Hollen’s is flatter, with the seventh decile seeing the largest boost at $3,618, but he would give a mere $52 to the bottom decile, while Booker would give them $1,091.

In a statement to the Prospect, Booker spokesperson David Bergstein said: “Senator Booker thinks Democrats need to meet the affordability crisis head on, and we shouldn’t be afraid of talking about a tax cut for working people that’s paid for by making big corporations and the wealthiest few pay their fair share.”

A MORE FUNDAMENTAL ISSUE, CRITICS ARGUE, is that taxes are already quite low in the United States. According to the Tax Policy Center, taxes at all levels of American government take in revenue equal to 27 percent of GDP. That is fully 20 percentage points below the world leader, Denmark—or something like $6 trillion per year—and the rest of the Nordics are not far behind. The U.S. is already running a huge deficit, which Booker’s plan would increase by about $5.2 trillion over a decade according to Policy Engine, though spokesperson Bergstein says it is “fully paid for.” (The Van Hollen plan, because of the increases on the wealthy, would actually increase revenue slightly.)

As a simple matter of arithmetic, if America wants a world-class welfare state—with national health insurance, a year of paid family leave, five weeks of paid vacation, unemployment insurance, a child allowance, free day care, pre-K and college, proper disability benefits, and a more generous old-age pension—taxes will need to rise steeply across the whole society to fund it (or to offset inflation, put another way).

Indeed, a hypothetical incoming Democratic administration would have several holes to plug in the safety net that Republicans have created in the past year, which Ramamurti broke down. Reversing cuts to Medicaid and nutrition assistance, along with restoring cuts to subsidies for Affordable Care Act health insurance, would cost something like $2 trillion over ten years, more than the most expensive Democratic bills under Biden. Then there are the expiring Trump middle-class tax cuts, which certainly the Van Hollen or Booker plans could replace but which many Democrats support. That’s another $1 trillion or so. All of that comes before any affirmative agenda an incoming president wants to work on, among all of the welfare-state possibilities mentioned above.

All of that doesn’t necessarily have to be paid for; statutorily, there is a pay-as-you-go provision, but that can be waived with a point of order. But as a practical matter, the Democrats who would be determinative on the next agenda have typically asked for full offsets of any spending. “Congress tends to balk at some tax increases no matter how much people say they want to tax the rich,” Ramamurti explained. So that means that effectively scarce resources going toward a big middle-class tax cut crowds out the rest of the agenda, in Ramamurti’s telling. “What I want to avoid, in order to cram everything into a limited revenue envelope, let’s do one-third of what it takes and make it time-limited and conditional on a 50 percent match from the states which they won’t do,” he said.

Other critics agree that middle-class households do not really need a lower tax burden. A much more pressing problem, they say, is no rational way of paying for the services that, because the American welfare state is so terrible, they have to fund out of pocket. Child care, for instance, is an immense burden for many households because parents have to pay for it at the point of service, and because they have to pay early in their careers, during their childbearing years. If day care were funded by broad-based taxes instead, parents could smooth payments out over decades, and also contribute more in their prime earning years in their forties and fifties.

Democrats Get Serious About Taxing the Rich

“A broad income tax cut gets it exactly backwards,” said James Medlock, a pseudonymous social media poster who once won a million-dollar bet with a Silicon Valley venture capitalist that hyperinflation would not happen. “You’re helping people the most at the times of their lives when they need it the least, while providing no benefit when they need it most.”

Van Hollen didn’t totally accept the premise. “This is not intended to be an exclusive Democratic tax plan. I support other tax proposals, I’m the co-sponsor of others,” he said, citing a bill he authored eliminating the step-up in basis, a loophole that wipes out capital gains for heirs after death (that “creates an aristocracy in the country,” Van Hollen said) and several proposals for wealth taxes. His idea, he said, “is intended to be a key pillar of a Democratic tax plan.” The Maryland senator noted that he was considering designing more of a universal tax rewrite, but it got too complicated.

The most recent wealth tax proposal from Sen. Bernie Sanders (I-VT) and Rep. Ro Khanna (D-CA)—the former of whom has run for president and the latter of whom might—would raise an estimated $4.4 trillion over the next decade and put that money toward a host of progressive priorities targeting working families, including direct redistributive payments, reversing Medicaid and Affordable Care Act cuts, expanding Medicare, building seven million homes, establishing a floor for teacher salaries, and more. Because so much of revenue comes from capital gains rather than income, and because the rich have become so skilled at hoarding dynastic wealth, a large share of wealth is out of reach of income taxes, and getting at that wealth offers some opportunity to recoup money forgone over the past 25 years of successive Republican tax cuts.

Pearl’s Patriotic Millionaires supports wealth taxes as well. But he defended his middle-class tax cut policy. “What that total amount should be of taxes we can leave for further discussion. I think it could be a little higher or a little lower,” he said. “I’m concerned about how it’s distributed in the population. My effective tax rate on the money I make is a fraction of the tax rate of people who work for a living. That makes people who are already rich richer.”

Finally, there is a question of political framing. Democratic tax-cutters are “ceding the right-wing frame that taxes are a problem to be solved, rather than a way we collectively solve problems,” said Medlock. Reducing the share of the population that pays federal taxes even more might easily be turned into an argument as to why the rich deserve relief, as Mitt Romney did in his 2012 presidential campaign with his attacks on the 47 percent who don’t pay. “If you make the terrain of the economic fight ‘who can cut taxes more’ you’re never going to beat the GOP, because they are far more shameless and eager to cut government down to the bone,” Medlock said. Jacquez put this in terms more of civic responsibility: “As Democrats, we used to have a promise of a social compact, we’re all in this together, and we each pay our fair share. A fair share implies a share. I think that’s also getting lost as you erode more and more.”

Van Hollen responded that everyone would still be paying broad-based taxes for universal services like Medicare and Social Security. “That is a community program, people do put into that,” he said. His calculus is that on top of that, the tax code should be made more fair.

“I think we need to reduce the amount of taxes paid at lower end of income distribution, and lowering the tax burden is a good way to do that,” said Pearl. “I don’t think paying taxes makes people feel better in some way.”