But on the question of raising taxes, and for whom, most Democratic candidates have hedged toward an all-too-familiar position. Like Hillary Clinton in 2016 and Barack Obama in 2012, they’ve asserted their opposition to tax increases on anyone but the very rich — even if those tax hikes are offset by household savings on priorities like child care, health care and college education. Joe Biden and Pete Buttigieg, for example, have attacked Medicare-for-all by saying it will raise middle-class taxes; progressive stalwart Elizabeth Warren countered with a gimmick in her Medicare-for-all financing plan that she claims — consistently and repeatedly — will fix our health-care system “without increasing middle-class taxes one penny.” Tom Steyer, Cory Booker and Michael Bennet have gone further, making big low- and middle-income tax cuts a centerpiece of their agendas.
A no-new-middle-class-taxes pledge may help fend off misleading questions from reporters and disingenuous attacks from primary opponents, but it is seriously misguided. Middle-class taxes are a necessary and desirable part of a comprehensive, progressive policy framework that benefits low- and middle-income people most. When redistributed through universal programs like Medicare-for-all (or free child care, free college, paid family leave, etc.), broad taxes provide stable funding and a sizable return on investment. Democratic presidential candidates should make the case for middle-class taxes, not run from them.
Here is a basic fact: The United States is a low-tax country. In 2018, the most recent year for which data is available, the United States ranked fourth-lowest in the Organization for Economic Cooperation and Development (a consortium of 36 economically developed countries) in terms of tax revenue collected as a percentage of the economy — behind nations like Germany, Israel, Latvia and Canada. The gap between U.S. and average OECD revenue has widened over time, from 1.3 percentage points of gross domestic product in 1965 to 10 percentage points more recently. That’s nearly $2 trillion per year in forgone revenue from lower tax rates.
Tax cuts from both parties have driven this decline: Of the 12 significant pieces of federal tax legislation enacted between 1997 and 2013, 11 of them reduced revenue. President Trump’s recent tax cut for the rich promises to exacerbate the problem, but the decades-long assault on taxation has not been confined to high earners.
In 1979, the year before Ronald Reagan was elected president, the average household in the middle quintile of the income distribution paid 19.1 percent of its income in federal taxes, according to data from the Congressional Budget Office. By 2016, that rate had dropped 5.2 percentage points, more than a quarter, to 13.9 percent. The story is similar for the second and fourth quintiles, which saw their rates decline by 5.6 and 3.8 percentage points respectively over the same period. These cuts reflect an ill-advised political bargain. In 2016, middle-quintile families paid $3,800 less in taxes than they would have at 1979 rates — modest savings compared with the cost of health care, child care, college education and numerous other public goods and services that have gone underfunded as a result of our low-tax, low-investment economy.
Low middle-class taxes in the United States stand in stark contrast to the approach in other developed countries, which raise more revenue from the middle class through some combination of taxes on goods and services, payroll taxes, and income taxes. These taxes fund key benefits — including universal health care, generous paid time off and significantly more affordable college tuition — more cheaply and efficiently than is possible through private markets.
Of course, middle-class tax increases are not the only means of providing these public goods. Trillions of dollars can be raised through various taxes on the rich that Warren has joined Sanders in championing. Redirecting much of our wasteful military spending to more productive uses is another valuable approach. And funding public investments with government debt, which modern monetary theory’s adherents recommend, is a far better approach than requiring every program to have a designated “payfor.” The government is uniquely positioned to borrow money, and we shouldn’t let unsubstantiated, theoretical concerns about debt levels prevent us from addressing the concrete and urgent needs of today.
But even with these options, writing off middle-class tax increases is a mistake. For one thing, raising revenue is not the sole purpose of taxing the extremely wealthy — another goal is to make them not so extremely wealthy anymore. Relying primarily on taxes on accumulated wealth and top incomes to fund government spending would mean that, if these policies succeed in reducing inequality, they would also shrink revenue and constrain public investment over time. Running deficits, though not cause for alarm and sometimes prudent, can also carry a real cost: In 2019, net interest payments to service our national debt approached 9 percent of the federal budget and 60 percent of nondefense discretionary spending, or 1.8 percent of GDP. On our current path, that figure is expected to reach 3 percent of GDP by 2029, eating up a larger and larger share of the budget. The most sustainable approach would be to raise revenue roughly in line with our spending needs.
Even if we want to simply maintain the policy status quo, those needs will still grow because of an aging population and decades of neglected infrastructure at the national, state and local levels. Policies to guarantee health care, combat climate change and dramatically reduce poverty — which the public strongly supports — would require even more revenue. Getting at least some of it from middle-class taxes is good policy.
It’s also far from the political nonstarter many think. Research by Brookings Institution tax expert Vanessa S. Williamson shows that Americans are less tax-averse than most Democratic candidates seem to believe. About half of state-level ballot initiatives seeking to increase taxes have passed in the past decade, up from 20 percent in the 1970s and 1980s. These measures not only targeted the rich, they often enacted sales taxes and other policies that pull substantially from the middle class. A year ago, for example, California voted to protect a 12-cent-per-gallon gas tax hike that is projected to raise $5 billion in annual infrastructure spending. And victories have not been confined to states with Democratic majorities; Arizona and South Dakota raised cigarette taxes in 2006, and North Dakota defended its property taxes from repeal in 2012, preserving more than $1 billion in state revenue.
So while tax increases may not be a political slam dunk, they’re definitely viable. Voters are sophisticated enough to understand the simple, clear explanation Sanders has given when discussing Medicare-for-all: When you pay $100 extra in taxes but save $500 in health-care costs, you come out $400 ahead. Social Security and Medicare are funded by broad taxes, and both are routinely ranked among our most popular programs. A recent proposal to use middle-class taxes to fund paid family leave is receiving similarly positive reactions. If new middle-class taxes are part of a package that provides a clear public benefit, the American people will probably support them.
For too long, the Democratic Party has failed to fight for broad-based, progressive taxation. In response, Republicans have only intensified their anti-tax fury. Decades of shrinking budgets, underfunded priorities and distrust in government have been the predictable results. It’s long past time to reverse this trend by embracing tax-positive politics.