But this year, with the possibility of a comprehensive remaking of our tax system in the offing, I’m going to talk instead about how taxes might be different if each party had its way. In particular, I want to look at what Democrats can and should do now when it comes to making their case about taxes to the public.
This is a topic most Democrats don’t spend a great deal of time thinking about. You can make an (imperfect) analogy with health care. For years, Democrats proposed changes to the health-care system, while Republicans said, “Oh no, we can’t do that. That would be terrible.” But most Republicans never worried much about what kind of health-care system they’d prefer, even after Democrats passed the Affordable Care Act. In a similar way, Republicans have taken most of the initiative on taxes, because it’s an issue they care deeply about, just as Democrats care deeply about health care.
That has left Democratic politicians objecting to Republican ideas about taxes without offering much in the way of an affirmative vision of the system they’d like to see, beyond keeping the current system in place and making it a bit more progressive.
Make no mistake: Right now it’s absolutely appropriate for Democrats to focus their energy on their objections to whatever version of tax reform the White House and congressional Republicans come up with. That reform is all but guaranteed to confer enormous benefits on the wealthy, since this is the Republican Party we’re talking about, and there is no higher priority for them than relieving the crushingly unfair burden under which the United States’ noble job-creators suffer. When Democrats call it a giveaway to the rich, they’ll be right on the substance and right on the politics; for instance, in this recent poll, 72 percent of Americans say the wealthy don’t pay their fair share.
Republicans have some differences amongst themselves as they try to overhaul the tax system, and it will be the subject of a lobbying tsunami as every special interest descends on Capitol Hill to preserve its special tax breaks. It’s entirely possible that comprehensive reform will fail, and Republicans will default to the things they can agree on, like cutting the top rate and eliminating the inheritance tax. Democrats will probably be unable to stop that, and once it’s over, they’ll have to start making their case to the public not just about why what Republicans did was bad, but about how they’ll change the system if and when they get the chance.
So what would an affirmative liberal vision of tax reform look like? I know what Democrats don’t want, but what exactly do they want? I asked a bunch of liberal economists about how they’d change the system if they could. Some answers:
- Impose a financial transactions tax on Wall Street. Eliminate the corporate income tax and instead require corporations to give the government 25 percent of their stock, which would eliminate the incentive to game the system. (Dean Baker, Center for Economic and Policy Research)
- Get rid of “privileged types of income, which invite avoidance for no good reason. I’d add a simple, minimum tax on foreign earnings and an FTT of a few basis points.” And acknowledge that we’re going to need more revenue, not less, to meet our future needs. “Let’s just progressively raise the revenues we need and call it a day.” Instead, we should focus less on taxes and more on other policies to help lower-income people. (Jared Bernstein, Center on Budget and Policy Priorities)
- “As much as I think on paper tax breaks for socially beneficial things is a good idea, I would design a tax system that primarily tried to raise revenue off of social bads like carbon and then followed the fair, broad-based, and progressive schedule for an income tax … when designing progressivity we need to think about places where regressivity is optimal (a gas tax) and then correct for that regressivity through other types of taxes. Our federal income tax system is not currently progressive enough to counter all of the regressive federal taxes that exist.” (Betsey Stevenson, University of Michigan, former member of Council of Economic Advisers under President Obama)
- A financial transactions tax; a carbon tax, “but not to raise much revenue — I’d like to recycle the revenue back to people”; more tax brackets at the high end, because “it seems odd that someone making $400,000 a year pays the same as someone making $5 billion a year.” In addition, “I might get rid of the corporate tax and have more progressive individual taxes,” since the corporate tax is so susceptible to manipulation. (Josh Bivens, Economic Policy Institute)
All these economists had many more specific ideas. But what they had in common was that none of them favored a top-to-bottom overhaul of the system. While some of the ideas, such as Baker’s plan to eliminate corporate taxes in exchange for giving the government 25 percent of corporate shares, are creative or even radical, none of them would entail a visible change in most people’s lives.
Why is that? To return to the health-care comparison, it isn’t that liberals don’t care about taxes in the way conservatives never really cared much about health care. They do care about it. But the reason Republicans are so much more eager to overhaul the entire system when they have the chance is that, as Bivens put it, “Conservatives have more faith, or at least they say they do, in the behavioral responses to tax changes.”
Conservatives think that if you cut the top rate by a few points, it will change how everyone acts in the economy and there will be an explosion of economic growth. As President Trump recently said, “With lower taxes on America’s middle class and businesses, we will see a new surge of economic growth and development.” It’s a common refrain from Republicans: If we raise taxes on the wealthy it will be an economic calamity, but if we cut their taxes we’ll be on the road to untold riches shared by all.
Liberals don’t believe that, in part because history proves so emphatically that it’s not true. “That’s one reason why our imagination seems a little more restrained,” Bivens says. “We just want to pay for stuff.”
Which means that at the moments when Democrats get power, like in 2009, there isn’t the same urgency around tax reform as there is for other kinds of policy changes. But that doesn’t mean they can’t make a strong political case. All the liberal ideas stem from a single, powerful idea: fairness. Everyone should pay his or her fair share, and no one should be able to unfairly game the system. Why do we need a progressive tax system? Because that’s what’s fair. Why shouldn’t we eliminate the inheritance tax? Because it’s not fair for Eric Trump to get hundreds of millions of dollars tax-free, while people who work for a living have to pay taxes on their income. Why a financial transactions tax? Because it’s only fair that Wall Street, which gets so much of the benefit of our economy and has done so much damage, contribute its fair share. And so on.
It’s also an argument they can use both when they’re fighting against what Republicans want to do and when they’re advocating for their own ideas. And once the GOP succeeds or fails in passing tax reform, then it will become even more important for Democrats to have a vision of their own.