By Annie Lowrey (10/18/18)
Senator Kamala Harris, a California Democrat and potential 2020 presidential contender, has a Trump-size tax plan of her own.
Harris is offering a kind of fun-house-mirror inversion of the sweeping Republican tax initiative, one that would, instead of slashing rates on high-income households and corporations, push huge credits out to middle-income and poor families. The lift the Middle Class Act would provide monthly cash payments of up to $500 to lower-income families, on top of the tax credits and public benefits they already receive. “Last year, Congress gave a trillion dollars in tax breaks to corporations,” Harris told me. “That money should have gone to American taxpayers who need it instead of handing it over to corporations and the top 1 percent.”
Her proposal joins a growing number of aggressive plans coming from Democrats concerned with economic stagnation, competing to win over younger and more progressive voters, and emboldened by the success of President Donald Trump. They differ in their mechanisms, costs, and effects, but all point to the same Robin Hood goal: not just raising taxes on the rich, but shunting vastly more money to the working classes and the poor. In Harris’s case, that means something like $200 billion a year more.
There is a good economic case for such a shift, Democrats argue. Families in the bottom 20 percent of the income distribution are earning just $133 more a month today than they were a decade ago. (For families in the top 5 percent, the figure is $7,548.) The middle class has gotten smaller and the poverty rate has not budged, while the the cost of health care, housing, child care, and education have all increased, in some places sharply. “This is an immodest proposal,” said Sarah Rosen Wartell, the president of the Urban Institute. “But we’re facing some big structural changes in the economy.”
There is a good political case, too, the theory goes. The Trump tax cuts, which were heavily tilted toward corporations and the richest-of-the-rich families, remain deeply unpopular among the voting public—indeed, they are less popular than the tax increases passed by Bill Clinton and George H. W. Bush, with most Americans saying the tax law did nothing to help them. Plus, despite all of the partisan fighting over Brett Kavanaugh’s behavior, Elizabeth Warren’s heritage, and Trump’s constant stream of misinformation, voters remain primarily focused on health care, immigration, and jobs. The idea is to offer them something radical and tangible.
Harris is offering as much as $3,000 a year for a single person or $6,000 a year for a married couple, on top of existing tax and transfer programs, disbursed either as a lump-sum tax refund or as a monthly payment. Working families making less than $100,000 a year would qualify, including those making close to nothing. As many as 80 million Americans would benefit, Harris’s office has estimated, with the Center on Budget and Policy Priorities calculating that the proposal would lift 9 million people out of poverty, including nearly 3 million kids.
It is big, in other words, as are the other cash initiatives coming from the left. Senator Sherrod Brown of Ohio and Representative Ro Khanna of California have put forward an ambitious tax plan that would double the earned income-tax credit (EITC) many families receive and make 20 million more Americans eligible for the benefit. Roughly 50 million Americans would get more money from Uncle Sam. “Americans are working longer hours, but too many aren’t seeing that hard work reflected in their pay,” Brown said, introducing the proposal. And Representative Bonnie Watson Coleman of New Jersey has proposed extending the EITC to millions of family caregivers and students.
If it looks like class warfare, that is because, in some sense, it is—making the government more redistributive than it is now, and more redistributive than it was during the Barack Obama years. An analysis of Harris’s proposal by the Institute on Taxation and Economic Policy finds it to be roughly the same size as the Trump tax cuts. But the average family in the bottom income quintile will see $100 in benefits from Trump’s tax initiative as of 2019, with the average family in the middle getting $800 in benefits and $55,190 for those in in the top 1 percent. In contrast, Harris’s legislation would have families in the bottom and middle of the income distribution benefit by $2,000 on average, with no effect on those at the top.
The central issue the cash proposals seek to remedy is the stagnation of the income of millions of working Americans—particularly those without college degrees. The post-tax, post-transfer pay of such households rose just 3 percent from 1979 to 2015, after adjusting for inflation. For families in which one worker has a college degree, take-home incomes have increased about 23 percent; at the very top, they have increased far more.
Moreover, lower-income families continue to struggle with income volatility that makes it impossible to budget and to save, and that often leads to evictions, lost jobs, and broken-down cars. In a given year, roughly two-thirdsof lower-income adults have one month where their monthly income falls to less than 25 percent of their average income. For two in five of those lower-income adults, that is true in six months of the year. “These families’ incomes are bouncing around all the time, more than we ever imagined they were,” said Elaine Maag of the Tax Policy Center. “It leaves people feeling very uncertain and vulnerable.”
The Harris and Brown-Khanna tax proposals would not just boost families’ earnings, but help them smooth out their income and consumption. Brown and Khanna would let families take an advance on their expanded EITC credit; Harris would let them receive their money as a monthly payment, a kind of optional universal basic income. “Half of Americans are a $500 emergency away from financial chaos,” Harris told me. “A trip to the emergency room or an unexpected expense should not land you in bankruptcy court or drive you to a predatory payday lender.”
There are two other related issues the proposals would target. The first, as Harris said, is the persistence of payday lending in depressed neighborhoods and among lower-income families. Even given the good economy, and even given the passage of the Dodd-Frank bill, strip-mall lenders and tax-preparation services continue to target the financially distressed, offering loans with annual interest rates higher than 300 percent and tax-refund advances that come with obscene fees. Twelve million Americans, whose average income is just $30,000 a year, spend $9 billion a year on loan fees. The average payday-loan borrower spends nearly half the year in debt, and pays more in interest than she borrows in the first place.
“The business model is designed to keep borrowers in long-term debt even though it’s a short-term loan,” said Rebecca Borné, the senior policy counsel at the Center for Responsible Lending. The idea would be to stop families from having to go to such lenders by making the government a kind of interest-free backstop.
Moreover, the bills—though framed as being for the middle class, and aimed at helping working people—would also quietly act as a tremendous salve for the poorest of the poor. Over time, government spending has drifted away from those in deep poverty. Research by the economist Robert Moffitt of Johns Hopkins University has found that for the single-parent families with the lowest levels of earnings, government aid has dropped by one-third since the early 1980s. “You would think that the government would offer the most support to those who have the lowest incomes and provide less help to those with higher incomes,” Moffitt said, reporting his findings. “But that is not the case.”
As a result, hundreds of thousands of families live on essentially no cash income. “We have families who all of their support is in the form of subsidies,” said Aisha Nyandoro, the chief executive officer of the nonprofit Springboard to Opportunities, which is based in Jackson, Mississippi, and is starting a no-strings-attached cash-transfer program. “It makes it impossible to address very basic things in life, like if your child has something that comes up at school and you have to pay a fee.” In such situations, poverty itself often becomes the biggest impediment to getting out of poverty.
The Watson Coleman proposal would, in essence, count taking care of family members or pursuing higher education as work, extending the EITC to many people who are currently ineligible—among them, the thousands of single parents who make money piecemeal, off-the-books, or on the side while taking care of their kids and the hundreds of thousands of women involved in care work. “These folks work long hours and multiple jobs to have enough income to cover day to day expenses,” Watson Coleman said in a release. “If we can cut taxes for billionaires and corporations, we should be chomping at the bit to help people striving for the middle class.” And Harris’s proposal would phase benefits in more aggressively than the current EITC.
Of course, the federal proposals would come at significant cost—in some cases, on the scale of the Trump tax cuts or the Affordable Care Act. The Brown-Khanna legislation would cost $1.4 trillion over a decade, with the Harris legislation coming in at something like $200 billion a year. Harris has proposed repealing the Trump cuts to pay for her bill. But that would still leave a significant hole in the deficit—particularly after accounting for the other legislation that Democrats are pushing for or prioritizing, including Medicare for all, housing subsidies, a jobs guarantee, and child-care initiatives. Were those bills to pass—something, of course, that would require Democrats to take control of the House and Senate, as well as the White House—the Democrats, much like the Republicans, might find themselves adding hundreds of billions of dollars of deficit-financed stimulus to an already hot economy.
For now, the left is resisting talking about the deficit or engaging in dollar-for-dollar tit for tat, given the Republican Congress’s willingness to use debt to pay for tax cuts for the wealthy. It argues that if the will were there, the money would be, too. “The question is, we have the capability to give this kind of support to lower- and middle-income families at a cost of an additional 1 percent of GDP,” said David Kamin, a former Obama economic official, now a tax professor at New York University. “There’s no reason to argue we do not have the capability of doing that as a country.”
Boosting the fortunes of the middle class and ending poverty are achievable policy goals, not moonshot ideas or flights of fancy. And Democrats want to achieve them by giving people cash.