Is New Democratic Tax Plan The Best Way To ‘Grow Paychecks’?

Isaiah J. Poole

Rep. Chris Van Hollen (D-Md.), the ranking Democrat on the House Budget Committee, unveiled a major tax proposal on Monday at the Center for American Progress that was billed as “An Action Plan to Grow the Paychecks of All, Not Just the Wealthy.”

“I see this as the start of a conversation,” he said at the end of his one-hour presentation. If he’s right, it is an opportunity for progressives to shape a specific plan to raise the stagnant wages of working-class people; get perverse incentives out of the tax code; and get millionaires, billionaires and big corporations to pay their fair share toward rebuilding the pillars of economic growth.

A central element of the Van Hollen proposal is a new, $1,000 middle-class tax cut, which raises an important question: Is the best way to help workers is to give them a tax cut, or to put that money into programs that will speed up and broaden economic growth and job-creation, thus boosting wages? Of all the elements of his proposals, that question really deserves a serious conversation.

Van Hollen starts with the noble goal, as he put it in his address, of reforming the tax code from “that premise that we need a tax code that rewards those who earn a living through hard work” rather than “people who make money off of money.”

“My goodness, if the tax code can be used to provide preferences for corporate jets and for racehorses, surely we can use the tax code to incentivize corporations to give their employees pay raises and apprenticeship programs that result in better skills and bigger paychecks,” he said.

The proposals include a $1 million cap on the tax deduction that corporations can take for CEO salaries if rank-and-file workers are not getting raises or if the corporation is laying off workers. There are new tax incentives for companies that have profit-sharing plans or offer apprenticeships. One of the biggest revenue raisers would be a financial transactions tax, set at a level that “would be virtually imperceptible to average investors” but would curb high-speed computerized trading that doesn’t add value to the economy.

The revenue from the transactions tax would help fund the $1,000 tax cut, which would phase out for individuals earning $100,000 or more, plus improvements in the child and dependent care tax credits and a $250 retirement account contribution to each person who puts at least $500 of their tax credit into a retirement account. All told, Van Hollen says what he proposes will provide “$1.2 trillion in tax benefits that are aimed directly at boosting the take-home income of working middle class taxpayers and those working to join the middle class. One-hundred fifty million Americans will benefit in some real way from this effort to raise flat incomes experienced by so many.”

While it is hard to deny the political and popular appeal of a $1,000 tax cut for middle-class and low-income people, the question that should be debated in the coming weeks is whether the goal of raising wages is better served by investing more in efforts that would create jobs and put future economic growth on a more sound, sustainable footing. That includes shoring up our decaying infrastructure, including our transportation systems, water and electric grid; helping local economies left behind by today’s uneven economic recovery; and funding the research and development needed to accelerate the growth of the green energy economy.

Taking these steps would create millions of new, good-paying jobs and would have arguably a more dramatic effect on the economy than would a tax cut that would amount to an additional $19.23 a week for each individual. If you create more jobs, thus tightening the labor market, that forces employers to raise wages. That’s even more likely if this spending is coupled with measures to increase the bargaining power of workers.

If the Van Hollen proposal becomes the opening bid in a competition with Republicans over who can give people the biggest tax cuts, that could be a losing proposition for Democrats and for the middle-class taxpayers that the Democrats are trying to win. But Van Hollen is right that we need a tax code that rewards workers for work, and gets the government out of the business of subsidizing the salaries of CEOs who boost their income while freezing the incomes of their workers or cutting their jobs altogether.

AFL-CIO President Richard Trumka, who last week hosted a “raising wages” summit for progressive activists in Washington, said that Van Hollen’s proposals “represent a major moment in progressive leadership that brings bold ideas to the forefront.” The next step is to continue to shape and push these ideas in a way that gives Americans a bold and sensible alternative to conservative trickle-down austerity.

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