By Benjy Sarlin (12/16/18)
As Democrats gear up to challenge President Donald Trump in 2020, several possible contenders are testing out a simple pitch: Would you like some more money?
A suite of big ticket bills by Sens. Cory Booker, D-N.J., Sherrod Brown, D-Ohio, and Kamala Harris, D-Calif., would directly transfer upward of trillions of dollars in cash directly to Americans. While low-income workers would be the biggest beneficiaries, the proposals would apply to large chunks of the middle class as well.
“It’s almost, on the face of it, obvious,” Brown told NBC News. “I want to reward work, but I also want to bring people out of poverty who don’t make enough money.”
Brown is co-sponsoring bills that would massively expand the refundable earned income tax credit (EITC), which subsidizes wages for low income workers, and the child tax credit (CTC). Harris’ LIFT the Middle Class Act would send up to $500 a month to families, $250 to single people, and pay at least some benefits to households making as much as $100,000 per year. And Booker has a plan to give every single American a $1,000 interest-bearing “baby bond” at birth. The government would contribute as much as $2,000 a year until the child is 18, when he or she can use it on investments like buying a house or pursuing a degree.
Cost estimates of their bills are loosely similar in scale to the $1.9 trillion Trump tax cuts, with some larger and some smaller, and they’ve all called for at least partially repealing the Republican bill to help finance their ideas.
That makes the legislation an implicit counterargument to the Republican tax overhaul, which Democrats attacked for tilting too far to the wealthy, and one that could easily make its way to a presidential debate stage in the future.
“The people at the top one percent don’t need an extra $60,000 a year, but you can best believe working families making under $100,000 a year need a tax benefit of $500 a month, which is what my bill would do,” Harris said in an interview, referring to independent estimates of top earners’ gains under the president’s tax cuts.
HOW THE PROPOSALS WOULD WORK
While they have some overlap in concept, each bill puts a special emphasis on a different weak point in the economy.
Brown’s tax credits are targeted at wage stagnation, a decades-long phenomenon in which average incomes have remained stuck in place even as the economy has grown at a steady pace.
The $1.4 trillion Grow American Incomes Now Act (GAIN), which Brown introduced jointly with Rep. Ro Khanna, D-Calif., in the House, would expand the EITC to higher incomes and double the maximum payout for families to $12,131. It also would increase the maximum credit from $500 to $3,000 for childless adults, a large category of workers whose benefits are often limited and Brown sees as a high priority.
“They’re the only group that can be taxed into poverty,” he said.
The Harris bill addresses wage stagnation issues as well, but has an added focus on income volatility, or situations where workers with little savings can have their lives upended by unexpected bills. About 40 percent of Americans say they couldn’t cover a surprise $400 expense, according to survey data from the Federal Reserve.
To address this, the Harris bill would send cash out monthly, in contrast to the EITC, which arrives in a lump sum when workers file their taxes. The goal is to give people a more regular source of income to pay off bills before they become buried under credit card debt or payday loans.
“It’s a real issue,” Harris said. “I’ve met with a range of people, including teachers who have to work two jobs, sometimes three, because they have a calling to teach but can’t pay the bills teaching.”
The nonpartisan Tax Policy Center estimates the LIFT Act would cost $3 trillion over ten years and cut taxes by an average of $3,200 for households making under $50,000 and $3,500 for households making between $50,000 and $87,000.
Brown’s American Family Act, which he co-sponsored with Sen. Michael Bennet, D-Colo., has some similar features. It would provide monthly tax credits of up to $300 for each child under 6 and $250 for each child between 6 to 18.
Booker’s American Opportunity Accounts Act, which he estimates would cost about $60 billion a year and would finance by raising estate taxes, looks to tackle wealth inequality and a decline in generational mobility.
The goal is to help people born with few resources grow up to make more money than their parents did, an outcome that research by Harvard economists found has become far more rare in recent decades.
“We know that income is something that helps people get by, but wealth in America is what helps get people ahead,” Booker said. “This creates generational change in outcomes, it gives Americans a way to build wealth that could protect them against the ups and downs of financial life.”
As Booker highlighted in announcing his bill in October, the wealth gap is also one of the starkest racial divides in the economy. The median white family had $171,000 in assets in 2016 versus just $17,600 for black families and $20,700 for Hispanic families, according to the Federal Reserve.
The senator’s office estimates that 18 year olds in the poorest families would receive a total payout as high as $46,215 under his plan, while children in the highest-earning families would get $1,681.
That could give young adults a critical boost as they start their career. Booker pointed to research suggesting kids with even modest college savings accounts are more likely to go to school and graduate.
“That changes the trajectories of people’s lives, knowing they have as Americans that birthright, that agency, that stake in our economy,” he said.
Unlike the other bills, which function as tax cuts, there would be some limits on what Americans could spend their baby bond money on. In addition to housing and education, Booker is exploring a way to apply bond payouts to starting a business.
'OLD-FASHIONED PANDERING': POTENTIAL PUSHBACK FROM THE RIGHT — AND LEFT
While the proposals could serve as a populist pitch against Trump, the political roots behind them are diverse. All three of the senators’ proposals share at least some DNA with ideas from centrist and conservative politicians and think tanks, but they're blown up to a larger size.
The EITC has long attracted Republican support and Brown has encouraged efforts by Sens. Marco Rubio, R-Fla. and Mike Lee, R-Utah, to expand tax credits for families. A limited version of the Rubio/Lee plan made it into the GOP tax bill. Brown also helped secure a bipartisan deal under President Barack Obama that made prior EITC and CTC expansions permanent. Booker noted that Republicans such as former Sen. Rick Santorum, have proposed a form of savings accounts for children in the past. Hillary Clinton also floated a $5,000 baby bond idea in 2007.
Their legislation has also attracted strong interest from Silicon Valley, where tech CEOs have become fixated on the idea that the government should provide a universal basic income, or UBI, to every American to offset jobs and wages lost to automation.
None of the bills are quite that. Unlike a UBI, the EITC and new proposed LIFT Act credits would require recipients to earn a minimum amount. The tax credits would then increase at higher incomes before eventually tapering off.
“This country will not accept a broad entitlement not tied to work,” Jim Kessler, a co-founder of the center-left think tank Third Way, said. “It’s not in our nature.”
Nonetheless, groups pursuing a UBI have hailed them as the closest thing yet.
“The politics are shifting under our feet, what's possible today was not possible yesterday,” Natalie Foster, who chairs the pro-UBI Economic Security Project with Facebook co-founder Chris Hughes, told NBC News. Their group is investing in pilot programs in multiple cities that will give up to $1,000 a month to select residents and track the results.
But passing legislation to reform the tax code to tackle poverty and inequality on the scale Democrats are discussing won’t be easy, and they could face pushback from the left and right.
Brian Riedl, a Republican economist who advised Mitt Romney and Marco Rubio on their presidential campaigns, said the biggest obstacle was the deficit. While an EITC expansion might be possible, the Democratic proposals don’t exist in isolation. Some of the same senators are also backing potentially tens of trillions of dollars in federal spending on proposals like single-payer health care, free college, green infrastructure, and guaranteed jobs.
“The costs would dwarf the 2017 tax cuts,” Riedl said. “So this is all about 2020 presidential candidates trying to win the ‘ideas primary’ with old-fashioned pandering and vote-buying.”
This issue of which spending to prioritize also could lead to splits on the left. Some progressives believe private employers should be pushed to boost worker compensation themselves and would prefer the next Democratic president spend federal dollars — and political capital — on other jobs programs and benefits instead of new tax breaks.
“Rather than subsidize Walmart to keep paying bad wages and have low benefits, why don’t we have the government actually accomplish something?” Thea Lee, the president of the progressive Economic Policy Institute, said at a panel on wage subsidies this month hosted by the Brookings Institute.
But Democrats have also become bogged down in the past debating details of federal programs like the Affordable Care Act and explaining the sometimes complicated benefits to voters. To supporters of tax credits and baby bonds, the blunter formula of handing people cash directly could be a selling point.
“It’s a very simple answer right now to the problem of people not having enough money,” Foster, the Economic Security Project co-chair, said.