Senior Democrats, dissatisfied with the party’s tepid prescriptions for combating income inequality, are drafting an “action plan” that calls for a massive transfer of wealth from the super-rich and Wall Street traders to the heart of the middle class.
The centerpiece of the proposal, set to be unveiled Monday by Rep. Chris Van Hollen (D-Md.), is a “paycheck bonus credit” that would shave $2,000 a year off the tax bills of couples earning less than $200,000. Other provisions would nearly triple the tax credit for child care and reward people who save at least $500 a year.
The windfall — about $1.2 trillion over a decade — would come directly from the pockets of Wall Street “high rollers” through a new fee on financial transactions, and from the top 1 percent of earners, who would lose billions of dollars in lucrative tax breaks.
The plan also would use the tax code to prod employers to boost wages, which have been stagnant for four decades despite gains in productivity and profits.
“This is a plan to help tackle the challenge of our times,” Van Hollen said, previewing a Monday speech at the Center for American Progress. “We want a growing economy that works for all Americans, not just the wealthy few.”
With Republicans in control on Capitol Hill, Democrats have little hope of pushing the plan through Congress. Instead, they are looking to craft an alternative to GOP plans to cut tax rates for the top earners, and to shape a new Democratic agenda for 2016 that offers voters the promise of genuine change.
The plan marks a rejection of the more cautious approach to economic policy taken last year by President Obama and Democratic leaders. That strategy — which emphasized raising the minimum wage, achieving pay equity for women and easing the burden of college debt — tanked with voters. Democrats lost 13 seats in the House and nine in the Senate, ceding control of that chamber to Republicans.
Individually, the policies polled well, but they were too narrow to inspire voters who were less interested in social justice than in broad economic advancement.
“The challenge is a big one. You have to think big, you have to think forward, and you have to think new. You have to think new and fresh,” House Minority Leader Nancy Pelosi (D-Calif.) said in an interview, endorsing Van Hollen’s proposal. Van Hollen said that he has briefed senior administration officials and that they were receptive.
Since the election, Obama, too, has begun to conceive more
muscular policies with broader appeal, including a plan to make two years of community college free for most students.
But even that idea tinkers at the edges of the problem in a nation where wages for most workers have been stagnant over the past 40 years. Meanwhile, the lion’s share of economic growth has flowed to the top 1 percent of earners, households pulling in an average of $1.4 million a year, according to 2011 data from the nonpartisan Congressional Budget Office.
“Too often, Republicans and too many Democrats think that macroeconomic growth is pretty much all you need to lift the middle class. And there’s no question that overall growth in GDP and corporate profitability are necessary. But they’re obviously not sufficient,” said Jared Bernstein, a former Obama White House economist now at the liberal Center on Budget and Policy Priorities.
Van Hollen’s plan recognizes “that there needs to be more policy in place to help reconnect middle-class families with overall growth,” Bernstein said.
Brendan buck, a spokesman for House Ways and Means Chairman Paul Ryan (R-Wis.) dismissed the proposal.
“Just as the sun rises in the east, Washington Democrats propose another massive tax increase,” Buck said. “Here in the House our focus is going to be on cleaning up the tax code so that we can lower rates for all taxpayers and help create good-paying jobs, not scaring them off with punitive tax hikes.”
Although income inequality was the dominant theme in Democratic campaign speeches last year, the party has long lacked “a comprehensive [policy] strategy for dealing with this fundamental problem,” Van Hollen said.
Instead, Democrats echoed Sen. Elizabeth Warren (D-Mass.), the liberal icon who charged in dozens of appearances on behalf of Democratic candidates that the system is “rigged” against the working class by powerful special interests, particularly Wall Street bankers.
That message rang true for liberals, who poured into auditoriums and fields to hear Warren speak. But the centrist voters who decided most races broke against Democrats.
In an election postmortem, Democratic firms SKDKnickerbocker and the Benenson Strategy Group found that the party’s message had been off target, even for much of the base. Although the economy is growing and the jobless rate has fallen, most voters still don’t feel it.
Sixty percent of moderates and 62 percent of independents said they would favor “a candidate who emphasizes growth” over one who wants to “improve the economy through economic fairness.” More than 70 percent of Republicans favored a “growth” message, and Democrats split 50-50 on the question.
Many Democratic lawmakers are now making the same point.
“We need a pro-growth economic agenda,” said Rep. Richard E. Neal (Mass.), a senior Democrat on the influential House Ways and Means Committee. “We need to embrace the traditional Democratic positions of optimism and aspiration.”
Enter Van Hollen, 56, the senior Democrat on the House Budget Committee and a former chairman of the party’s campaign arm for House races. Close to Pelosi and the White House, he has emerged as one of the party’s big thinkers on economic policy and political strategy.
Like many Democrats, Van Hollen argues that creating a more prosperous middle class is the best route to overall growth in an economy driven by consumer spending. He began working on his action plan even before the November blowout, a tacit acknowledgment that he saw that the party’s agenda was weak.
“You can’t just say you’re going to address things like the middle-class squeeze without policy. Otherwise, it’s just talk,” Van Hollen said. “This plan attacks the chronic problem of stagnant middle-class income from both directions, creating bigger paychecks and letting workers keep more of what they earn.”
To spur employers to increase pay, the plan would target corporations, prohibiting companies from deducting executive performance bonuses in excess of $1 million, a benefit worth $66 billion from 2007 to 2010. To claim the deduction, companies would have to demonstrate that workers had shared in the company’s good fortunes by increasing wages about 4 percent, on par with inflation and productivity growth.
Other provisions would provide incentives to companies that give workers a share of corporate profits and invest in job training, through apprenticeship programs or partnerships with community colleges.
Blossoming wages would also stretch further under the plan, primarily through the paycheck bonus, worth $1,000 to individuals and $2,000 to couples. The idea is similar to Obama’s “Make Work Pay” credit, part of the 2009 stimulus package, but Obama’s credit was temporary and, at $400 per person, much smaller.
Van Hollen also proposes to:
●Increase the tax credit for child care from $3,000 per person to $8,000, or $16,000 per couple.
●Create a “saver’s bonus” of $250 for workers who put at least $500 a year into retirement or other savings accounts.
●And reduce marriage penalties for dual-income couples, particularly the working poor.
To avoid increasing federal budget deficits, Van Hollen proposes to limit tax breaks for the top 1 percent of earners, who are on track to reap more than $2 trillion over the next decade from favorable rates on capital gains, the mortgage-interest deduction and other “tax expenditures,” according to the Congressional Budget Office.
He also calls for imposing a 0.1 percent fee on stock trades, an idea under consideration by the European Union. That proposal would raise as much as $800 billion over the next decade, primarily from high-volume traders, Van Hollen said.
All told, the package is about a third of the size of tax cuts enacted under President George W. Bush. It would transfer about 0.6 percent of national income, or gross domestic product, from millionaires and Wall Street traders to about 150 million American workers, with the paycheck bonus alone reaching at least 100 million workers.
“We believe our economy grows faster when all paychecks are rising,” Van Hollen said. The plan, he said, “would put meat on the bones” of promises Democrats have been making to voters for a long time.