Since the 1980s, the trickle-down economic mantra has led state and federal governments to cut taxes and allow our social and physical infrastructure to crumble. Meanwhile, wealthy corporations and individuals have been able to hoard ever-increasing shares of money, wealth, and power. The Care Economy package now before Congress offers a change of course – a promise to make the critical investments our communities need to build economic security, paid for by those who have profited for decades from economic rules skewed in their favor. The budget reconciliation resolution that passed both the Senate and House in August with only Democratic votes largely follows the outlines of the American Families Plan (AFP) proposed by the Biden/Harris administration. It would raise funding for critical new community investments with increased taxes on ultra-millionaires, billionaires and large, profitable corporations, and it pledges not to raise federal taxes on those making $400,000 or less a year.
Americans of all political parties largely support the proposed new and expanded policies in the AFP: paid family leave, childcare and preschool, affordable college, adding dental, vision and hearing benefits to Medicare, and tackling climate change. Taxing the wealthy is also favored by a majority of voters. But with corporate lobbyists lining up in opposition to both new services for working families and higher taxes on their clients, the reconciliation bill is likely to stay completely partisan as it works its way through Congressional committees.
For wealthy individuals, the AFP proposes returning the top marginal federal income tax rate back to 39.6% for single filers with incomes over $452,700. The Trump Tax Cuts and Jobs Act (TCJA) of 2017 lowered the top rate to 37%. In a major move toward tax fairness, AFP would also raise the tax rate on income from financial assets held mostly by the wealthy, such as stocks and bonds, from a mere 20% to the same top rate that applies to income earned from work. These reforms would together raise around $450 billion over a decade.
Biden’s proposals for corporate tax reform, outlined in the administration’s American Jobs Plan, also aim at greater fairness and focus mainly on multinational corporations. Two strategies for reform are to eliminate tax incentives for moving jobs and profits away from the U.S. and to reduce corporate tax avoidance through tactics such as moving headquarters offshore. The proposal would also raise the global minimum tax for U.S. multinational companies to 21%. This is in line with the agreement signed this summer by 134 member countries of the Organization for Economic Cooperation and Development to levy a 15% global minimum tax on multinational companies, along with adopting other policies to address digital trade and tax avoidance by big corporations.
Another reform would help end the too frequent occurrence of highly profitable corporations paying little to no federal income tax, by establishing a 15% minimum tax on the “book income” corporations report to their investors. Under current rules, Amazon was able to pay zero federal income taxes for several years, then in 2019 finally pay taxes at an effective rate of only 1.2% on $13 billion in U.S. profits. A related reform would raise the corporate income tax rate from 21% to 28%. Overall, Biden’s proposals for corporate reform are estimated to bring in $2.2 trillion over ten years.
Paired with these tax increases on the wealthy are proposals to lower taxes for low- and middle-income households. AFP would make permanent some of the temporary tax credits from the American Rescue Plan Act, a stimulus package passed in early 2021 in response to the ongoing COVID-19 pandemic. The most significant of these is the expanded child tax credit, which was increased from $2,000 a year to $3,600 a year for children under age 6 and $3,000 for those aged 6-17, and was made fully available to very low-income families who don’t owe much if any federal income tax, along with middle-income families. Another was the federal Earned Income Tax Credit, which was expanded to include more low-income workers without children and to increase the credit they receive.
The AFP would also free up revenue from Medicare savings. Medicare Part D provides low-cost insurance to seniors and others for prescription drug coverage. When it was created in 2003, the legislation prohibited the government from negotiating drug prices with the pharmaceutical makers, leading to significant price increases over time for common drugs. Allowing Medicare to negotiate with drug makers and to limit price increases for certain medications to inflation would generate significant savings on the order of half a trillion dollars over ten years.
In addition to proposals from the Biden administration, the Congressional Care economy package includes other proposals for tax reform and new taxes. One relatively new policy included in the outline of the revenue section of the bill is a carbon polluter import fee. This is essentially a tariff on carbon-intensive imports such as steel, petroleum products, and aluminum. Washington’s economy is relatively dependent on trade-exposed industries and has experienced high trade-related job losses in the past several years. Washington is also home to strong environmental and labor movements. A federal carbon polluter import fee could help create trade conditions that favor a race to the top in terms of labor and climate standards, while supporting Washington’s trade-exposed industries that generally abide by higher standards than those in other countries.
Many of Biden’s tax proposals are relatively modest reforms for high-income individuals and large, profitable corporations. Another possibility for revenue to fund Care Economy services could be a wealth tax on ultra-millionaires and billionaires, such as that sponsored by Senator Warren and Representative Jayapal. While income disparity is great, wealth disparity is even greater and much of that wealth is currently not taxed at all. The key components of the Warren-Jayapal policy are a 2% tax on households worth $50 million or more, with an additional 1% surtax on those worth more than $1 billion. Economists estimate this would bring in $3 trillion over a decade and would only impact the tax bill of the top 0.1% of Americans – approximately 100,000 families.
For too long, trickle-down economics have prevailed, leading to huge economic inequality and growing economic insecurity for working families. The American Families Plan’s investments in childcare, health, education, and a future with fewer climate disasters – all funded by commonsense reforms for tax fairness – is the right approach for an economy that works for us all.
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