Just in time for Tax Day, we received new insight into the dueling partisan visions for the U.S. tax system.
We already knew that the GOP’s 2017 tax law mostly benefited corporations and the wealthy; that’s old news. But last week, we got some illustrative examples, courtesy of the Institute on Taxation and Economic Policy. The organization found that at least 60 profitable Fortune 500 firms paid no federal income tax in 2018, about twice as many as in the years leading up to the law’s passage.
In fact, most of these companies got a federal tax rebate.
For context, Americans’ top complaint about the tax system remains the “feeling that some corporations don’t pay their fair share,” according to a March poll from the Pew Research Center.
Now let’s consider what Democrats have on tap.
A lot of competing plans have piled up. Many 2020 presidential contenders have released proposals, covering everything from forcing big companies to report the same income to the tax man that they report to their shareholders (Elizabeth Warren); to using higher estate and inheritance taxes to pay for government-funded “baby bonds” savings accounts (Cory Booker); to something just shy of universal basic income administered through the tax code (Kamala Harris).
Some of these ideas are better thought through — legally, fiscally, politically — than others. But the general theme is this: Reverse those tax cuts for the rich. Focus on cutting taxes for low- and middle-income families instead.
In new legislation, Democrats have offered the clearest blueprint yet for what they would do if they regained unified control of government. It’s called the Working Families Tax Relief Act. Nearly every Democratic senator has signed up to co-sponsor it — including every senator now running for president.
The bill, introduced by Democratic Sens. Sherrod Brown (Ohio), Michael F. Bennet (Colo.), Richard J. Durbin (Ill.) and Ron Wyden (Ore.), focuses on expanding the earned-income tax credit, or EITC, and the child tax credit.
For those unfamiliar, the EITC is a tax credit that incentivizes work by topping off workers’ wages. Given the EITC’s record of lifting living standards and job growth, it has long enjoyed bipartisan appeal; Republican and Democratic presidents alike have presided over successive expansions. If passed, this new bill would boost the credit for families who have children and massively expand it for “childless” adults (which includes noncustodial parents), who are currently eligible for little support.
What about the child tax credit?
Widespread benefits
The new bill would make the existing child tax credit available to all children by making it fully “refundable.” That is, poor families whose income taxes are less than the credit could receive the entire balance as a refund.
It would also create an entirely new, fully refundable “Young Child Tax Credit” available to families with children under 6. Together, these changes would increase the child-tax credit’s maximum value to $3,000 per preschool-age child. That would surely be a welcome increase in living standards for families struggling with child care and other expenses.
The bill’s beneficiaries would be widespread — raising incomes for households containing an estimated 114 million people and putting a significant dent in the child-poverty rate, according to an analysis from the Center on Budget and Policy Priorities. No cost estimate is available yet, but it appears less expensive than other ambitious proposals Democrats have put forward.
It also has the virtue of building on ideas that have traditionally had bipartisan support without undermining that support, as some other rival Democratic proposals risk doing.
All told, for all the criticism of Democrats as a politically tone-deaf party devoid of any message other than “Not Trump,” they’ve worked hard to craft an economically efficient, politically formidable plan. Family-values-and-job-growth-supporting Republicans should take note.
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