By Ylan Mui (10/19/18)
With midterm elections 2½ weeks away and the 2020 presidential race around the corner, prominent Democrats are embracing an ambitious idea: Repeal and replace the $1.5 trillion Republican tax plan.
The proposals would get rid of the tax cuts and, in turn, funnel that money into government-guaranteed cash for low- and middle-income households.
Sen. Kamala Harris, D-Calif., announced a plan this week that would give working families up to $6,000 each year, with the option of receiving monthly payments. Sen. Sherrod Brown, D-Ohio, and Rep. Ro Khanna, D-Calif., outlined a similar idea last year. A bill from Rep. Bonnie Watson Coleman, D-N.J., would allow family caregivers and students to receive the money as well.
"The idea was to provide a clear contrast with Donald Trump," Khanna told CNBC in an interview. "You know what you could actually do with this money? You could give anyone making under $75,000 a raise."
The measures are significantly more dramatic than some previous Democratic proposals – a reflection of the proximity to the midterm elections and the early interest surrounding the presidential race in 2020. Harris and Brown are potential contenders for the White House, and Democrats have been seeking bold ideas to present to their energized electorate.
"There's all kind of evidence that voters are not looking for incremental solutions," said Adam Ruben, campaigns director at the Economic Security Project, a liberal think tank that has pushed the idea. "They're looking for a big vision of how to pick up all the people who have been left behind in this economy."
Harris' plan would create a new tax credit of up to $3,000 for individuals or $6,000 for households. They could opt to receive the money in a lump sum after filing their annual tax return or in monthly installments of $250 to $500, which Harris said could help reduce reliance on payday lenders. The credit would be refundable, which means workers would receive the money even if they don't owe any taxes. Households earning up to $100,000 would be eligible.
The bill shares many of the same elements of an earlier bill from Brown and Khanna. Their proposal would expand the existing earned income tax credit up to roughly $12,000 for a family with three children. The money could also be paid monthly, but it would only cover households earning up to about $76,000. The lawmakers introduced the bill last fall with more than 50 co-sponsors in the House; no other senators signed on to the measure at the time.
"We've seen the debate shift," Khanna said. "My hope is that other presidential candidates will look at the Brown plan and embrace it as the alternative to Trump."
Ruben said his organization has spoken with other potential Democratic candidates about the idea but declined to specify whom. Earlier this year, Senate Democrats announced a more modest proposal to roll back the GOP tax cuts: Move the top tax rate for individuals back to 39 percent, raise the corporate tax rate 4 percentage points to 25 percent and reinstate the alternative minimum tax.
Rep. John Delaney, D-Md., who has announced he is running in 2020, has called for nudging the corporate tax rate up to 23 percent to pay for $1 trillion in infrastructure spending. He told CNBC he also supports expanding the earned income tax credit but did not say by how much.
"We must reform our tax code in a way that is fiscally responsible, addresses our long-term economic competitiveness needs and helps working families," he said in a statement.
Indeed, the new tax credits come with a hefty price tag. Brown and Khanna's plan is expected to cost about $1.4 trillion – just about what the Republican tax plan costs. Harris' bill is likely to be in the same ballpark. That's why liberals say repealing the current law is a critical component of their plan.
Yet Democrats have repeatedly attacked the GOP tax cuts for ballooning the deficit. And while they argue that the new credits would support long-term economic growth, they are not claiming such a plan would pay for itself.
Republicans are preparing for battle.
The conservative Heritage Foundation released an analysis this week showing repealing the tax cuts in 2020 would cost the average household nearly $27,000 in lost take-home pay over the next decade. Some of the decline is due to higher individual tax rates, said Adam Michel, a policy analyst at Heritage and one of the authors of the report. But most of it is the result of lower economic growth because of higher corporate rates, he said.
"That's where a lot of the juice comes from," Michel said. "That's the thing I'm frankly most concerned about."
Democrats have also criticized the GOP for passing its sweeping tax plan with a party-line vote. Yet it seems unlikely that any Republicans would support repealing and replacing what GOP leadership has dubbed the "crown jewel" of its legislative agenda.
"The tax cuts launched our booming economy into the stratosphere and anybody advocating for repeal will have to explain why they want to reverse the jobs and wage growth our country has seen since the law passed," said John Ashbrook, a Republican strategist who worked under Senate Majority Leader Mitch McConnell.
The Nov. 6 elections will be a testing ground for the Democratic agenda, and Economic Security Project's Ruben said the Democratic Party will need fresh thinking to connect with voters in 2020.
"People want to feel the confidence that someone is going to fight for them and push for big changes and not let classic Washington gridlock or the constrained sense of what is acceptable in politics get in the way," he said.