Freshman Rep. Alexandria Ocasio-Cortez’s comments about a 70 percent tax rate on the wealthy set off a controversy over who does and doesn’t understand how America’s tax system works. What has been lost in the dust-up is that the wealthy pay relatively little in taxes compared with their peers in other developed countries, and the congresswoman is correct that they will need to pay more if we are going to continue to provide the quality public services, infrastructure, health care and economic equity all Americans truly deserve.
The signature achievement of the last Congress and the Trump administration, the Tax Cuts and Jobs Act, took us in exactly the wrong direction. It radically reduced taxes for the wealthy and corporations, at a cost of $1.9 trillion over 10 years. And the new law provides only marginal or no benefits for average Americans and households of color in particular.
A recent report by my group Prosperity Now found that $200 billion in benefits from the new law, out of a total of $275 billion, goes to the top 20 percent of households. Furthermore, white households will receive $2,020 on average in benefits compared with $970 and $840 for Latino and black households respectively. Regardless of race, even solidly middle-class households (earning between $40,000 and $110,000) received relatively little — an average of $2.75 a day compared with the top 1 percent of earners, who get $131 a day.
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Now that they control the House, Democrats have a big opportunity to design and advance a progressive economic agenda that could become a reality after 2020. This agenda should place a clear emphasis on helping the most vulnerable — the poor, the working class and households of color — and not retrace historical patterns of providing the biggest benefits to wealthy white families.
Democrats should propose to expand the earned income tax credit, which was left out of the 2017 tax law. The program currently helps lift more than 5.8 million Americans out of poverty each year, but childless workers are either excluded from the credit or receive only marginal benefits. The program should be expanded to include them. The credit should be enhanced as well so its impact lasts more consistently throughout the year by building in an emergency savings component. Democrats should also focus on fixing the child tax credit expansion in the new tax law, which failed to include the poorest families in the country.
Democrats must make big, bold reforms
House Democrats and others should also look to some of the big, bold tax reform proposals, introduced recently in the Senate, that would take massive steps in reducing economic inequality.The LIFT the Middle Class Act advanced by Sen. Kamala Harris, D-Calif., would build on the earned income tax credit by providing monthly cash payments of up to $500 to lower-income families. Working families making less than $100,000 a year would qualify.
Up to 80 million Americans would benefit, and millions would be lifted out of poverty.
The “Baby Bonds” proposal from Sen. Cory Booker, D-N.J., would deposit $1,000 in an account for every child at birth in a secure and steady investment. After that, only low- and moderate-income children would receive additional annual deposits ranging from $250 to $2,000, depending on their family’s income. At age 18, all children would be able to withdraw these funds for specific wealth-building purposes, such as higher education or homeownership, but the largest benefits would go to the most disadvantaged children, who could amass more than $45,000.
Help people and boost the economy
These two proposals combined would greatly reduce both income and wealth inequality. Despite a seemingly strong economy for several years now, the bottom 90 percent of Americans still hasn’t recovered from the losses of the Great Recession. Black and Latino households have it even worse than most. The Baby Bonds and LIFT proposals would remedy this by boosting wealth and paychecks, respectively, for a one-two economic punch.
Whether on the campaign trail for 2020 or in designing a congressional agenda for the year ahead, Democrats should frame their economic agenda in a truly progressive and race forward manner. If they expect working-class and minority voters who turned out in great numbers 2018 to turn out again in 2020, candidates and elected officials need to speak directly to people’s daily struggles and advance concrete proposals that address the economic inequities that shape their lives.
David Newville, director of federal policy at Prosperity Now, was a senior policy adviser at the Treasury Department’s Office of Consumer Policy during the Obama administration. Follow him on Twitter: @dlnewville