Democrats Unveil Ambitious Tax Plan to Help Middle Class

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Democrats Unveil Ambitious Tax Plan to Help Middle Class

Emily Crockett

“The tax code today is stacked in favor of people who make money off of money and against those who make money off of hard work,” Rep. Chris Van Hollen said in a speech this week.

Now that they are in the minority in Congress, Democrats are trying to get bolder and more unified in their messaging about economic fairness in hopes of retaking the majority in 2016.

As an opening policy salvo this week, Rep. Chris Van Hollen (D-MD), the senior Democrat on the House Budget Committee, outlined an “action plan” to transfer more wealth to the middle class from the super-rich and Wall Street traders.

“The tax code today is stacked in favor of people who make money off of money and against those who make money off of hard work,” Van Hollen said in a speech at the Center for American Progress.

He noted that even though 2014 was the best year for jobs growth since 1999, wages remain stubbornly low and have for decades. This means that even though the economy may be recovering, many Americans don’t feel like they are sharing in that growth.

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Put another way, a family with a household income of $80,000 has $5,000 less in disposable income than they did a decade ago, due both to stagnating wages and to the rising costs of necessities like education and child care.

The government spends more on “tax expenditures,” or tax breaks, than it does on Social Security, Medicare, and Medicaid combined. Some of those tax breaks are sensible policy, Van Hollen said, but too many go to those who don’t need them. The top 1 percent of Americans get a whopping 17 percent of the government’s massive amounts of tax expenditures.

Van Hollen said the proposed new tax plan would make that distribution more fair and come close to replacing the income families have lost in the last decade. A two-income family with one child making $80,000 would get an extra $4,400 in their pockets every year.

One proposal is a “paycheck bonus” tax credit of $1,000 for individuals who make less than $100,000 and $2,000 for couples who make less than $200,000—a larger version of the “Making Work Pay” tax credit from the economic stimulus package that expired in 2010.

To alleviate the “marriage penalty” that especially discourages spouses of the working poor from becoming a second breadwinner, another proposal would create a 20 percent tax deduction for second earners with children making up to $60,000.

The package would also expand the Child and Dependent Care Tax Credit and create a “saver’s bonus” tax credit of $250 for those who save at least $500 per year.

The proposal would also require CEOs to raise their workers’ wages before writing off bonuses of more than $1 million on their taxes.

The tax breaks for the middle class would also be paid for in part by a financial transaction tax, which the Obama administration has opposed in the past but which has broad support from many financial reform advocates.

That tax would be named the “High Rollers Fee” to clarify how unlikely the tax is to affect average Americans.

“If I had $100,000 worth of stock and I turned over my entire portfolio in a year, it would cost $100 bucks,” Van Hollen told reporters. “When people go to the ATM machine, they take out $100 bucks, and they pay three bucks. That’s three times the percentage we’re talking about.”

The plan has little chance of passing in a Republican-dominated Congress. It also suffers from the problem of the “submerged state,” or hiding beneficial spending in the tax code, which causes many average Americans who benefit from that spending to have no idea they benefit from it.

That makes the uphill climb steeper for Democrats eager to promote pro-government views in the voting public. The plan does, however, help Democrats draw a clear distinction between themselves and Republicans and define the debate on policies to help working families.