In a new memo, EPI Research Director Josh Bivens lays out two key principles that progressive lawmakers and activists should adhere to in the upcoming debate over tax reform:
- Stand firm against any plan that includes net tax cuts for high-income households and corporations—even if that means rejecting plans that purport to include sweeteners like “middle-class” tax cuts or infrastructure spending.
- Resist the urge to base opposition to tax cuts for high-income households on concerns about increasing the federal budget deficit.
Bivens writes that the U.S. economy has performed extraordinarily well for those in the top 1 percent, and cutting their taxes should not be a policy priority. In fact, while the share of total national income claimed by the top 1 percent has increased substantially, their effective tax rate is lower today than in 1979, even after some increases late in the Obama administration. Furthermore, in the long run, the progressive priority should be to increase effective tax rates on high-income households—to curb inequality as well as raise revenue needed to pay for public investment and expand the social safety net—and agreeing to tax cuts now would undermine this goal.
“There are a million details that will come up in the debate over tax reform,” said Bivens. “But going into it, there are two relatively broad-based principles that progressives should adhere to, both to help win the tax reform fight ahead but also to avoid putting us in a worse position in the future.”
Progressives should reject tax cuts for high-income households even if they are coupled with appealing offers of middle-class tax cuts or infrastructure spending. Federal taxes on middle-class families have been steadily lowered in recent decades, while income growth for the vast majority has still slowed dramatically. Cutting middle-class tax rates further provides very little scope for improving living standards for ordinary Americans. Meanwhile, it is unlikely that any forthcoming tax deal will include an attractive-enough infrastructure plan to be worth accepting large, regressive tax cuts—particularly if such infrastructure plans follow road maps already put forward by the Trump administration and congressional Republicans.
While progressives should fight against regressive tax cuts, they should not do so by stoking fears about budget deficits, which Bivens argues represents both bad economics and bad political strategy. The country’s long-term fiscal outlook is strong and there is no evidence that we need to be worried about deficits. Meanwhile, stirring up concerns over deficits to help the short-term fight against tax cuts could harm later efforts to boost spending on social insurance, the safety net, and public investment. Instead, Bivens argues, progressives should highlight the implicit trade-offs. Regardless of the pluses or minuses of the effect of regressive tax cuts on budget deficits, they represent resources that the federal government will no longer have because we have decided instead to boost the disposable incomes of already-rich households.
“It’s perfectly reasonable to ask why Speaker Ryan believes that the federal government has $3 trillion in revenue to give away to the top 1 percent, but not $3 trillion to boost health coverage, or fix the nation’s eroded unemployment insurance system, or expand Social Security, or undertake substantial public investments,” said Bivens. “Today’s fiscal situation is not dire. The only thing standing between the United States and the ability to not just honor, but expand, the federal programs that provide crucial help to low- and moderate-income households is the tax-cuts-over-everything-else ideology of the Republican Party.”