Our decisions about whom and how to tax are decisions about which community needs we have the capacity to address and at what scale. Progressive taxes like personal, investment, and corporate income taxes generate more revenue from those who have the greatest ability to pay, and for whom the cost of losing the next dollar is small, relative to the last dollar of a family struggling to make rent and afford groceries. On the other hand, regressive revenue strategies like non-strategic tariffs, fees and fines, and an overreliance on sales taxes, especially when combined with cuts to social programs, heighten the sense that the system is unfair. Where progressive revenue strategies can bind a community together in mutual support and expand capacity to meet needs through good governance, regressive strategies erode people’s trust in the public sector.

H.R. 1 presents a vision of public finance that is unsustainable and erodes trust in government

Much of the federal tax code is in fact progressively structured, but for decades conservatives have weakened and attacked that progressivity. H.R. 1 (which the White House has referred to as the “One Big Beautiful Bill Act” or “OBBBA”) is the latest Republican-led effort toward breaking down trust in the public sector and social contract. H.R. 1 provides a suite of tax breaks to households across the income distribution; however, the wealthiest households and corporations see a far bigger tax cut from the package than the typical household does. In service to these tax breaks, the bill introduces devastating cuts to Medicaid, SNAP, and critical government agencies designed to help workers and their families thrive. Despite their size and the pain they will cause, these drastic cuts in the federal government’s capacity to serve and support working families are not enough to cover the costs of the corporate tax breaks; the Tax Policy Center estimates that H.R. 1 could increase the federal deficit by between $3.7 trillion and $5.1 trillion by 2034.

But unlike the federal government, states and localities cannot run budget deficits; their budgets must be balanced yearly. When major federal cuts happen, states and localities that rely on federal dollars to maintain critical services are forced to curtail and eliminate services, dive into emergency savings where they exist, or else shift to revenue generation strategies that often fall disproportionately on Black, brown, and poor households. The combination of directly hampering public services working people rely on while shifting more of the burden of raising revenue toward Black, brown, and poor workers and their families weakens worker power and exacerbates racial disparities.

H.R. 1 combines a shift toward regressive revenue strategies with massive tax breaks to corporations and the wealthiest households, in service to the Trump administration’s overarching goal: reasserting white, wealthy, and corporate privilege through tax cuts, deregulation, and the defunding of public institutions.

Regressive revenue strategies: Taking from the poor to give the rich even more breaks

The Trump administration has floated using tariffs as a replacement (either in full or part) for the federal income tax. This is not a new Republican strategy: Tariffs are a kind of consumption tax (on imported goods, along with the intermediate products businesses need to create goods and provide services domestically), and Republican-led state governments tend to rely more on consumption taxes1 (like sales taxes) and less on income taxes to increase revenue. Because poorer households spend a larger share of their income purchasing goods and services than the rich do, consumption taxes are inherently more regressive. The current federal income tax is progressively structured, in spite of the ways conservatives have attempted to weaken that progressivity over time. While tariffs can be a sensible part of a larger industrial policy strategy, governments place too large a burden on low- and moderate-income households when they try to use consumption taxes as a primary source of revenue. 

States and localities may turn to fines and fees to raise revenues in the absence of adequate federal support. These penalties are a poor substitute for progressive taxes. Fines and fees historically have only been able to cover a small fraction of state and local budget costs. And this is baked into the design: If the point of a fine or fee is to deter behavior, the best-case scenario (ending the behavior) would result in no revenue.

Even so, fines and fees cause significant economic pain for working-class families in the Black communities that are most affected by them. On an ethical level, a modern idiom applies: “If the penalty for a crime is a fine, that crime only exists for the poor.” The criminal justice system can trap poor folks in a cruel cycle of penalization for being unable to pay traffic tickets, court fees, and even their own surveillance through ankle monitors. Fines and fees increase the economic burden on those with the least ability to pay, all for a low return, making them a poor substitute for broad, progressive taxes.

Faux-progressive revenue strategies are ineffective and distract workers, their families, and policymakers from the need for real change

Ineffective tax gimmicks like temporary deductions on overtime and tipped income distract from the need for real reform around worker pay and scheduling. The point of requiring businesses to pay time-and-a-half for overtime is to discourage pushing workers to work beyond what we have collectively decided is a full and reasonable period of labor. Tipping is an outdated practice with racist roots, designed to shift the cost of maintaining a workforce onto consumers, rather than having employers properly compensate employees. Instead of cynically gesturing toward affordability through encouraging bad business practices, we should empower workers to fight for better wages and consistent scheduling.

Conservatives may also try to balance budgets by allowing progressive tax expenditures to expire (e.g., the recent expiration of the ACA premium tax credits or the expiration of the expanded child tax credits passed as pandemic relief). Temporary tax breaks themselves are not the most effective means of addressing structural economic issues; if health care or health insurance is persistently inaccessible to wide swaths of the population, we should seek to remedy that by making access universal—or, at the very least, making the credits that allowed greater access in the first place permanent. Allowing tax breaks implemented to address structural inequities to expire without an alternative solution to the problem being addressed is negligence. There are ways to balance budgets that do not involve reversing hard-won progress toward equity.

Progressive ways to generate revenue: Worker-centered tax policies can reduce inequality and expand the tax base

There are better ways of raising revenue that will support workers and their families, rebuild public trust in government, and get us the public goods and services we want and need. Since most Americans earn their living through selling their labor, it makes sense to keep some progressive tax on income to ensure people remain invested in the social contract. But with so much wealth and income concentrated amongst a few individuals, a necessary step is shifting more of the tax burden toward extremely high earners, wealth, and investment income. This will generate more revenue to improve public services and infrastructure, while tamping down on inequality. Adding tax brackets for the highest earners, adopting a legitimate tax on wealth holdings, and taxing the income made from investments at a rate closer to that of income from wages and salaries progressively raise revenues without increasing the burden on most U.S. households.

Proper enforcement of the current tax code would go a long way toward improving both our ability to raise funds and the public’s trust in public finance. The tax code is rife with opportunities for wealthy individuals and corporations to evade paying their fair share of taxes, allowing them to skirt holding up their end of the social contract. The IRS is also critically underfunded and recovering from recent staff reductions from the Trump administration. With enough resources to enforce existing tax law effectively, the IRS could go after the largest tax evaders and see returns that matter, as opposed to disproportionately targeting Black households without the funds to instigate a drawn-out legal battle over an audit.

Table 1

We need a tax code that supports states and localities and promotes full economic participation, not temporary tax gimmicks and handouts to the wealthiest

Taxpayers (literally) cannot afford to accept the conservative propaganda that all taxation is a burden on households. Taxes are one way of binding a democratic community together and allowing us to share in the costs of creating collective prosperity and community. Especially at the state and local levels, tax revenues are essential to providing the services people need to thrive. When federal funding gets pulled back and states and localities turn to regressive revenue strategies, it is working-class families who pay the price.

If we are going to rebuild a sense of trust in the social contract, we need to structure the tax code such that it becomes more progressive, tapping into a greater portion of the massive amounts of wealth and income that have pooled at the top. We can use that revenue to fund programs and new infrastructure that allow more people to fully participate in the economy:

• improved funding for public schooling, increasing teacher pay and quality of education
• a fully funded federal food assistance program, and/or adequate funding to states to support their own cash-assistance programs more comprehensive than Temporary Assistance for Needy Families (TANF)
• expanded access to and adequacy of Medicaid, or Medicare for All

Each of these initiatives could improve affordability and remove the need for state and local governments to pursue revenue regressive strategies that do more harm than good (like fines and fees). We won’t solve every structural inequality and eliminate all disparities through reforming the tax code; but building the resources and will to collect taxes in a progressive way are steps toward a fairer economy and a government that earns the public’s trust.

1. Consumption taxes have some potential uses. Carbon taxes, for example, tax the consumption of goods whose production intensively uses greenhouse gas-emitting inputs; if consumers look to avoid these goods by switching to others whose production involves fewer greenhouse gas emissions, we achieve an important social good.

But diverting public funds away from public K–12 schools and toward private schools does not guarantee educational opportunities will be expanded for all students—and this is especially true in rural communities. Most obviously, because students in rural communities often don’t have a private school option and therefore cannot use the vouchers, state voucher programs—which are financed by all the taxpayers in a state—amount to an education subsidy for wealthy urban families at the expense of strong public schools. Moreover, for rural areas that can support multiple school systems, voucher programs introduce a potentially large cost for the students that remain in public schools, as any sharp drop in public school enrollment will raise the fixed cost per pupil of running schools. For example, school facilities and staff that are efficient for 1,000 students in a school may no longer be efficient if enrollment were to drop to 800 or 900.

Voucher programs work like this: Parents who wish to send their kid to private school can receive public funding to cover part of the tuition or education-related expenses, rather than paying out of pocket. In states with vouchers programs, this added cost to government of paying for private educational expenses makes a big dent in state budgets—see examples here, here, and here. These programs also often entail fraud and abuse of funds and strip away funding for public schools. As a share of K–12 budgets, voucher spending accounted for as much as 26% in 2025, squeezing public schools of sorely needed funds. Moreover, recent reports have documented accounts of voucher funding getting used for high-end concert tickets and rideshare apps like Uber and Lyft. For wealthy parents in urban districts who were already planning to send their kids to private school, these slippery regulations and extra funding for education expenses are a feature, not a bug, of voucher programs. Vouchers are disproportionately taken up by students already attending private school, compared with those who consider a private school option when voucher laws get passed in their state.

For students in rural areas with no private school option, voucher programs simply mean there is less to spend on public schools, which leads to teacher shortages, fewer educational opportunities, and worse building maintenance. In rural communities with homeschooling or private school options, voucher programs impose an added cost to public education when students transition from public to private school.

We call this cost the fiscal externality of voucher programs, and it is borne by school districts, students, and their families when voucher-driven declines in student enrollment intersect with the fixed nature of many school costs. In rural districts, many key education costs—such as interest on bonds issued in the past, heating, electricity for school buildings, bus drivers, and even some staff—cannot easily adjust to student enrollment declines.

While public schools’ fixed costs do not decline when they lose students to voucher programs, their revenue does. Thus, when students in rural areas take up vouchers to leave public school for private school or homeschool, public schools have less revenue to cover the same level of fixed costs. The costs that can be adjusted—such as supplies or certain personnel—will get forced down due to shrinking school budgets. These variable costs are crucial for effectively educating children, meaning students who remain in public schools will pay the price of voucher program takeup.

This fiscal externality therefore leaves districts unable to deliver the same level of instruction to the remaining public school pupils. When students leave public schools in rural areas with voucher programs, there are fewer resources available on a daily basis to educate kids—fewer teachers and other staff members and fewer curriculum and education supplies. Education quality suffers.

How large is the fiscal externality that voucher programs impose on public schools in rural districts? Take the McComb Local School District in Ohio, which had 627 students in 2022 and is classified as a rural district according to the U.S. Census. Using EPI’s Fiscal Externality Calculator, we estimate that a 5% decline in enrollment would lead to an increased cost of $520 per pupil for the remaining students in the district, or a total of $309,530.

The key assumption is that there is some fraction of schools’ costs that is fixed and can’t be adjusted in the near term when enrollment falls. We assume that instruction and services costs (the cost of teachers and services like transportation, counseling, nurses, and school administrators) can only partially adjust to changes in enrollment. Specifically, we assume that when enrollment declines, instruction costs are only able to adjust by 50% of the enrollment decline, and service costs are only able to adjust by 20%. We assume that capital and building and maintenance costs can’t be adjusted at all. (Users can set their own adjustment rates for their school districts using the fiscal externality calculator here. The method behind this calculation is detailed in our report.)

Under these assumptions, aggregating all the rural Ohio districts using the rural categorization of school districts from the National Center for Education Statistics, a voucher-driven 5% enrollment decline would impose a fiscal externality of just over $206 million on Ohio public schools.

Rural districts have the most to lose when states enact voucher programs. For rural communities, vouchers are not a cost-free policy that simply expands education options for children—they are a subsidy for wealthy urban and suburban families at the expense of strong public schools. Voucher programs also introduce a large potential cost for the students that remain in rural public schools. The public spending declines associated with the introduction of vouchers will reliably cause significantly worse educational outcomes at a time when states should be spending more—not less—on public schools. States that promote voucher programs at the expense of funding for strong public education are signaling that rural students are not a priority. 

Key takeaways:

• Recent Democratic proposals to exempt broad swaths of the middle class from federal income taxes accept a damaging frame of taxes as a pure drain on affordability.
• But taxes aren’t a drain on affordability; they fund the public services and social insurance programs that make a decent life possible for middle-class families.
• Progressive taxes on the ultrarich and corporations are essential and should be the immediate priority, but they cannot sustain the public sector alone, let alone expand it in ways needed.
• Middle-class tax rates have fallen by a third since 1979, yet economic anxiety remains high. Tax-cutting has failed because it has left the private-sector drivers of inequality untouched and starved public services.

For decades, anti-tax politicians have tried to smuggle in large tax cuts for the ultrarich and corporations by loudly offering tax cut crumbs to the middle class. Key to this effort has been framing taxes as a pure drain on typical families’ ability to afford a secure economic life. Any success in this dishonest campaign to foster anti-tax sentiment is a disaster for working people—and that’s why some recent tax policy ideas from Democrats and the rhetoric around them are so deflating.

Two things are true about taxes in the United States. First, taxes on the richest families and corporations are far too low. Second, it is broad-based taxes on the middle-class that are the foundation of a functioning public sector and a decent society.

Progressive taxes on the ultrarich and corporations are mostly needed to reduce the potential gains to the rich and powerful from rigging the rules of markets. When the powerful rig these rules and hugely disproportionate shares of income concentrate at the top—like in the United States today—progressive taxes can also raise significant revenue.

But if sharply progressive taxes succeed in reducing the incentive for rigging the rules of markets and if other policies help lead to more broadly shared income growth in the country, this means that progressive taxes will raise a lot less revenue over time.

To be clear, this would be a victory for a better society. For example, the purpose of a carbon tax is to lower greenhouse gas emissions and if it’s highly successful, it will by definition stop raising much revenue. Progressive taxes aimed at reducing inequality will see the revenue they raise start to decline when they are their most successful. Right now, we do have deep inequality in the U.S. and progressive taxes will raise a lot of money—but we shouldn’t make the public sector’s resources dependent on this remaining true forever.

But more importantly, taxing only the very rich has never been the primary foundation of public-sector resources and can’t be going forward. The revenue needed to support programs that provide social insurance and income support (Social Security and Medicaid, for example), as well as public investment and services like highways, transit, and public education requires broad-based taxation. Without Social Security providing secure retirement, Medicare, Medicaid, and the Affordable Care Act providing access to health care, and public schools providing universal education, a decent life for the middle-class would be entirely unaffordable. And without middle-class taxes supporting all of these things, they would collapse.

If typical Americans lose faith that paying broad-based taxes to support public services and investments is a good deal, it will be a disaster for their ability to afford a decent life. Sadly, some recent Democratic proposals capitulate to this view of taxes as a “pure burden” rather than an investment in the country and its people.

Senators Chris Van Hollen (D-MD) and Cory Booker (D-NJ) have both floated ideas that would draw a line below which nobody would pay any federal income tax (Van Hollen’s line is $92,000 for a married couple while Booker’s is $75,000). Both proposals pay for this with tax increases on the rich. If these tax increases on the rich were standalone pieces of legislation, they’d be excellent. But they are instead paired with tax benefits that mostly miss the bottom of the income distribution. In Booker’s proposal, the gains from the higher standard deduction that zeroes out taxes for many are actually largest for families between the 60th and 80th percentiles, and gains persist on average through the 99th percentile. Van Hollen’s bill phases out the “alternative maximum tax” that zeroes out taxes for many, and the biggest gains hit in the middle of the income distribution, but the proposal still provides gains on average for families between the 60th and 80th percentiles.

Both proposals clearly aim to address the affordability challenge that politicians have seized on, but in doing so both frame taxes as a pure drain on affordability, with Booker even calling his the “Keep Your Pay Act.” But taxes aren’t a drain on affordability. They provide the resources needed to run the public sector, and the public sector in turn does a great deal to make life more secure and more affordable over people’s lifetimes.

Social Security and Medicare, for example, both rely on payroll taxes on workers’ wages. But they also provide income for these workers in retirement. Instead of draining affordability, these programs smooth income over the lifecycle to ensure working families can afford a decent life even when they can no longer work. Food stamps and Medicaid are financed by taxes and provide benefits to people who otherwise would not be able to afford the most basic necessities: food and health care. The same people who receive Medicaid and food stamps in one era of their lives will contribute to them through taxes in other periods when they have found steady work. Again, the taxes collected are recycled back into families’ incomes in ways that minimize suffering and severe affordability crises throughout their lives.

State and local taxes—often borne quite heavily by the broad middle class—pay for public education. This education—both K–12 and higher education—is incredibly valuable and necessary for anyone operating in modern economies. Without the taxes to support education, families would have to dig into their own pockets to pay for private schooling, and it would be delivered less efficiently and much less equitably.

Other taxes finance infrastructure and other key public goods and services, without which life would be harder and more expensive for most families.

Cutting taxes even fails on the crass political grounds of buying voters’ short-term goodwill. It’s often underrecognized (mostly, again, because of conservative campaigns to hide this fact), but taxes for the middle class have been cut a lot in recent decades. Figure A below shows the percentage point change in tax rates of households at different parts of the income distribution between 1979–2019. We stop at 2019 to compare equivalent points of the business cycle. Tax rates tend to fall sharply during recessions, which can obscure the full extent of legislative changes to tax rates. Further, cutting taxes temporarily during recessions can make some sense—tax cuts are one form of fiscal stimulus that can be used to fight recessions (unless these tax cuts are quite well-targeted on low- and moderate-income families, they tend to be less efficient stimulus than spending measures).

Figure A

The largest tax cuts have gone to the bottom fifth of households—a key policy victory of recent decades. The expansion of refundable tax credits like the Earned Income Tax Credit and the Child Tax Credit—credits that are paid directly to lower-income families even if their amount is greater than the families’ tax liability—have essentially made the problem of taxing families into poverty almost nonexistent. These tax cuts should clearly be kept. But all households, not just those with very low incomes, have seen sizable tax cuts. Tax rates for households in the middle of the income distribution have been cut by a third since 1979.

And yet, does anybody feel like this tax-cutting has led to most U.S. households feeling great about their place in the economy and their prospects for affording a decent life today? Do these voters express warm feelings about the policymakers from both parties who provided these middle-class tax cuts?

The tax-cutting strategy has failed to make these households happy for two reasons. First, it leaves the private-sector drivers of inequality untouched, and as governments have collected less in taxes, employers and corporations have contributed less to middle-class families’ wages. Second, lower taxes have starved public-sector capacity and led to a degradation of public services. Strangely, the newly fashionable “abundance” movement often frames this degradation as a problem of public-sector excesses, but it’s clearly driven by disinvestment. In short, middle-class families value public services and the decades-long campaign to cut taxes has harmed the ability to provide them. The lessons for today’s tax debates should be clear.

The failure of tax-cutting to foster economic security and happiness is not all that surprising for scholars of U.S. attitudes toward taxes, who argue that Americans are not universally anti-tax. Instead, Americans view paying taxes as a patriotic good and a moral obligation. But they are angry about paying their taxes when they think others are shirking their part of the social contract, particularly when they think the richest people and corporations aren’t paying their fair share.

Because we are starting with such high levels of inequality and because of this public cynicism about the rich ever being forced to pay their fair share, the first priority—by far—for policymakers today should be to enact significant stand-alone tax increases on the ultrarich and corporations. The revenue raised solely from the ultrarich could close today’s fiscal gap, the difference between today’s budget deficits and what is needed to put them on a sustainable path going forward. And this act would convince the rest of Americans that the ultrarich are not always prioritized in policymaking and would make future debates about the costs and benefits of higher taxes for higher levels of public goods much healthier.

But we can’t run a decent society based on just taxing the rich and telling everybody else that taxes are an unfair drain. Oliver Wendell Holmes famously said that taxes are the price you pay for civilization. But if the taxes are paid only by the rich, we will get the civilization they want. That doesn’t seem good enough to me.

Rising authoritarianism and the need to upend the failed Southern economic development model

For generations, Southern politicians backed by powerful business interests have promoted a Southern economic development model—characterized by low wages, regressive taxation, lax environmental regulations, a weak social safety net, and vicious opposition to unions—while claiming such policies will attract business and thereby generate regional economic gains. But data actually show a grim reality. The South lags all other regions on most indicators of economic health including job growth and wages, and Southern workers and their families experience significantly higher rates of poverty than in other parts of the country (Childers 2024a).

The truth is that this Southern economic development model was never designed to benefit most Southerners; rather, it is historically rooted in efforts of white plantation owners to retain their wealth following emancipation and ensure continued access to the labor of Black people for as little compensation as possible (Childers 2025). Foundational to these efforts was an authoritarian approach to state governance that suppressed popular democracy and worker organizing—an approach that also sanctioned prison labor, sharecropping, a century of Jim Crow laws, lynching, and other forms of state-sponsored terror and exploitation. Until partially challenged by federal legal and policy interventions won by post-WWII civil rights movements, many Southern states for decades held elections that served merely to provide a cover of legitimacy to one-party rule of white, wealthy elites—functionally excluding Black voters from the electorate and blocking working-class constituencies from any meaningful participation in governance (Mickey 2015; Perez 2024; Mast 2025).

Today, the Trump administration’s increasingly authoritarian actions echo this troubling Southern history. At their foundation, the administration’s approaches to bypassing constitutional checks and balances—while rolling back civil rights, worker rights, and environmental protections; terrorizing immigrant communities; deploying military troops in U.S. cities; and attempting to engineer election outcomes via gerrymandering and other forms of voter suppression—are rooted in authoritarian models developed and tested in the U.S. South, and that Black, brown, and immigrant communities across the country are no stranger to.

Recent attempts to terminate federal employee collective bargaining agreements, for example, are familiar to public employees in Southern states for whom collective bargaining has long been banned or severely restricted. The Trump administration’s use of military-style policing in communities across the country echoes Southern histories of weaponizing law enforcement (or National Guard troops) to suppress organizing and instill fear, while prioritizing the expansion of the carceral state over investments in housing, education, and public services. Trump’s efforts to override the authority of state officials mirror Southern state uses of abusive preemption laws to strip policymaking authority from local governments. And administration attempts to halt clean energy investments and environmental protections threaten to repeat harms familiar in Black and brown communities in the South, where corporations have insisted on lax environmental regulations that allow them to degrade air, water, and climate quality, while profiting from the exploitation of local natural resources and labor.

Seizing opportunities to reverse decades of anti-worker, anti-democratic policymaking in the South at a moment of rising authoritarianism in the U.S. is a daunting and unavoidably urgent challenge. It will require robust new forms of multiracial organizing and labor-community coalition building across a broad set of industries in the South. Labor-community coalitions can leverage community benefits agreements (CBAs) as a powerful tool to transform economic power relations in Southern workplaces and communities. Because CBAs are private agreements between labor-community coalitions and project owners, they do not rely on government action and can therefore shape economic outcomes of major projects even in otherwise hostile political environments. CBAs have traditionally been fought for and won by labor and community groups coming together and building necessary public pressure to hold developers, corporations, and elected leaders accountable for ensuring that public investments in major new developments truly benefit workers and communities.

In this report, we analyze the potential for labor-community coalitions to pursue strong CBAs that secure significant economic benefits for Southern manufacturing workers and communities, drawing on examples of existing agreements to model potential impacts. We examine the scale of recent public investments in Southern manufacturing and examine how strong CBAs on major publicly-subsidized private projects could improve the quality of newly created construction and production jobs; open up pathways to unionization; ensure equitable hiring and training opportunities for local residents; and address community needs such as child care, affordable housing, and natural resource protection.

We contend that upending the failed Southern economic development model and the authoritarian structures that underpin it will require building new forms of labor and community power to increase union density in the South. Well-known research shows that unions promote economic equality and help workers win improvements in pay, benefits, and working conditions (Economic Policy Institute 2021). But unions also powerfully affect people’s lives outside of work. They help foster solidarity, increase democratic participation, enable working-class communities to shape economic policies affecting their lives, and serve as a counterweight to corporate power in our economy and democracy (McNicholas et al. 2025). Historically, unions have been engines of resistance to entrenched and undemocratic power—mobilizing working people to challenge inequality, defend civil rights, and push back against authoritarianism in all its forms. For all these reasons, strengthening labor-community coalitions and pathways to unionization in growing Southern industrial sectors is not just good economic policy—it is also a democratic imperative amid national authoritarian backsliding.

Worker and community power can ensure new manufacturing investments yield good jobs and community benefits

The latest wave of manufacturing growth in the South presents both opportunities and pitfalls for workers and communities. Southern states continue to lure businesses—including large manufacturing facilities—with promises of low corporate tax rates, low wages, lax regulations, and massive public subsidies. The automotive manufacturing industry has been a key recipient of public subsidies, receiving billions of dollars from Southern states in recent decades (Childers 2024a; Todd 2021). This system of low taxation and corporate giveaways starves other essential public goods, like education and social safety net programs (Mast 2025b). Likewise, weak or nonexistent environmental regulations have contributed to toxic sites and resource degradation that disproportionately affect Black and brown families, reflecting often intentional decisions to site hazardous facilities in low-income communities of color (Bergman 2019).

Some announced manufacturing projects have been cancelled or reduced in size after the Trump administration’s slashing of federal supports for strategic industries, but many projects launched during the Biden administration continue to move forward. These manufacturing investments, both in traditional industries and nascent ones such as electric vehicle (EV) and EV battery manufacturing, are spurring significant job growth in some Southern communities. Yet past experience shows that new investments and resulting jobs are unlikely to generate economic benefits for most Southerners unless local residents are able to ensure that developers and corporations respect workers’ rights, protect local natural resources, and contribute a fair share toward addressing priority community needs.

Community benefits agreements can be powerful vehicles for communities to secure lasting local economic benefits from major industrial development, at both new and existing facilities. A CBA is a legally enforceable contract between a private developer or company and a local coalition—typically made up of labor, community, faith, environmental, and other grassroots organizations—that details how a project will benefit workers and the community, and in turn how the community will support the project (including via potential public investment). Benefits spelled out in a CBA can include commitments to strong labor standards; respect for workers’ rights to organize; equitable workforce recruitment, training, and hiring practices; affordable housing; environmental protections; or a broad range of other community-identified priorities. CBAs are a well-developed model for responsible community development—so far mostly, but not entirely, in regions outside the South—and have been used for many different types of major projects including sports stadiums, events centers, manufacturing plants, airports, transit projects, and more (WRI n.d.).

CBAs can likewise mitigate risks for project developers by ensuring local project support and addressing important concerns early on, whereas failure to engage local communities in major development decisions can otherwise lead to strong community opposition, interruption of development, obstacles to obtaining necessary siting permits or rezoning approvals, or significant legal costs. In an example from June 2024, developers shelved plans for a $1.3 billion data center in Indiana after facing significant local opposition over environmental concerns (Fazili et al. 2025).

Because a CBA is a private, legally binding agreement, it does not require government action and can be used to shape outcomes of major projects even in contexts (as in most of the South) where state legislators have preempted local governments from establishing their own job quality or environmental standards (EPI 2025a). That being said, state and local governments can still have a role in facilitating, negotiating, or enforcing community benefits. Cities like Detroit and Cleveland have ordinances requiring developers of projects using public resources to engage in a community benefits plan process (City of Detroit n.d.; City of Cleveland n.d.). In 2005, Atlanta passed an ordinance specifying worker and community benefits for the Beltline redevelopment (WRI 2025). However, government involvement in community benefits plans does not guarantee strong agreements on its own. A strong labor-community coalition remains essential for securing meaningful community benefits.

Another key strength of a CBA is that it can set standards across all stages of a project’s development to ensure long-term benefits for the community at large. Private developers or public entities sometimes negotiate Project Labor Agreements (PLAs) or Community Workforce Agreements (CWAs) with building trades unions and community partners to set wages, working conditions, and timelines for the construction phase of a complex development project. A CBA can be negotiated alongside a PLA to also ensure pathways to quality jobs for local residents during the operational phases of a project, including any future expansions of the facility or additions to its workforce. A CBA can also secure commitments to build affordable housing, strengthen environmental standards, and provide other benefits to the community such as child care, public parks, or other community spaces.

To be successful, a CBA must also include defined enforcement mechanisms that hold all parties to the agreement accountable. It must clearly establish the obligations of each party, metrics for measuring progress, and ongoing monitoring of compliance with the agreement’s provisions (Last 2025; PWF and CBLC 2016). If the company or the coalition fails to make good-faith efforts on the agreement’s commitments, an arbitration process is initiated. While monitoring of the agreement is an ongoing responsibility of all members of the coalition, providing a pathway for workers to organize in the operational phase of a project is of particular importance. A newly established union at the project site is well-positioned to monitor the commitments of the CBA and hold the company accountable over the long term.

Organizers and advocates should be clear-eyed that while strong CBAs can yield powerful economic outcomes, such agreements are by no means easy to win. There are generally no legal requirements for a particular company or developer to recognize or engage with a labor-community coalition, much less to agree to negotiate and implement a CBA. Building the broad-based, durable coalitions and leverage necessary to compel private interests to engage in CBA negotiations (and then to implement and enforce the terms of a CBA) is unavoidably a challenging, long-term, resource-intensive organizing project. And like any worthwhile organizing, the formation of strong, durable labor-community coalitions is itself a key outcome of successful CBA campaigns. Vastly expanding the capacity of broad-based coalitions and labor, faith, environmental, and other grassroots organizations to gradually build community and worker power in Southern communities is the most essential ingredient for transforming existing power imbalances and, ultimately, upending the failed Southern economic development model.

Indeed, recent initiatives to win CBAs in Southern states have proven so threatening to some corporate interests that they have sought to undermine them. In 2025, Tennessee Republicans passed legislation prohibiting any company that enters into a CBA from receiving state economic development funds—aiming to create obstacles to replication of a highly successful CBA covering Nashville’s soccer stadium, and to discourage a coalition of West Tennessee residents and allied groups calling on Ford and SK Innovation to negotiate a CBA covering its massive BlueOval electric vehicle and battery manufacturing complex (Abrams 2025). In Tennessee and elsewhere, however, labor-community coalitions are nonetheless continuing to organize to ensure that massive, publicly subsidized new facilities yield good jobs and community benefits.

A new wave of Southern manufacturing is an opportunity to transform working conditions in growing industries—and across the South

Growth in Southern manufacturing industries presents a significant opportunity for labor-community coalitions to shape labor standards and community benefits in new plants and facilities—and to shape economic outcomes for generations of Southern workers to come. In recent years, the South has seen a wave of manufacturing investments. Between 2017 and 2023, manufacturing construction doubled in the East South Central Census division (Alabama, Kentucky, Tennessee, and Mississippi) (O’Brien 2023). The West South Central division (Arkansas, Louisiana, Oklahoma, and Texas) has the highest amount of manufacturing construction spending of any division in the U.S. These investments are part of a long-term trend of manufacturing industries locating in the South, which in recent years was accelerated by large federal investments through the Inflation Reduction Act, Infrastructure Investment and Jobs Act, and CHIPS and Science Act. These federal investments included both direct public subsidies and tax credits to businesses that invested in key clean energy manufacturing industries such as the production of batteries, electric vehicles, solar panels, and wind energy products.

In contrast to the typical economic development approach of many Southern states, some recent federal investments have included incentives meant to encourage strong labor standards on projects receiving public funds. While the future of many of these investments (and accompanying incentives) is now uncertain, the U.S. has in the past two years experienced its largest investment in clean energy manufacturing ever, and much of that has occurred in Southern states.1 Since the third quarter of 2023, more than $125 billion worth of clean energy manufacturing investments were announced across Georgia, North Carolina, South Carolina, Tennessee, Kentucky, and Texas (CET 2025). Advancing even a portion of these projects would result in thousands of jobs for Southern workers.

Independent of the future of federal support for clean energy manufacturing, the South will likely continue to be the largest manufacturing employer of all U.S. regions. Figure A shows manufacturing employment by region in the United States since 1990. While manufacturing employment overall has fallen during the last three decades, the South has retained the largest share of manufacturing employment of any region. In 2024, 35% of U.S. manufacturing employment was in the South. Furthermore, since 2010, manufacturing employment in the South has grown by 17%, the quickest growth of any region.

Figure A

Manufacturing jobs are often considered to be well-paid, benefit-providing “middle-class” jobs, but there is nothing inherent to the sector that determines their quality. Manufacturing jobs in some industries became “good jobs” thanks to relatively high levels of unionization during the mid-20th century, which improved wages, benefits, and working conditions (Bayard et al. 2024; Rhinehart and McNicholas 2020). As Figure B shows, unionization in manufacturing has fallen in all regions since 1983, but the South has almost without exception had the lowest unionization rate of any region.

Conservative Southern policymakers have long been hostile to union organizing. For example, every Southern state except Maryland and Delaware has passed anti-union so-called right-to-work (RTW) laws, which make it harder for workers to form, join, and sustain unions. Southern states like Florida and Arkansas were among the first to pass such laws in the 1940s, amid a wave of big business backlash against new federal labor laws and white supremacist campaigns to maintain racial hierarchies and suppress multiracial worker organizing. RTW laws suppress unionization rates and, as a result, have driven down wages for both union and nonunion workers alike across the South (Sherer and Gould 2025; Childers 2023).

Figure B

In 2025, Southern manufacturing had a 6.7% unionization rate—slightly below the national unionization rate for private-sector workers (6.8%). Unionization in Southern manufacturing grew by more than a percentage point between 2024 and 2025, a notable one-year reversal of the industry’s long-standing unionization decline, consistent with overall union gains in the South (McNicholas, Poydock, and Shierholz 2026). Nevertheless, Southern manufacturing’s unionization rate remains well below the Midwest’s (11.2%), the region where manufacturing is the most heavily unionized. Unions have a strong impact on job quality because they leverage worker power collectively to raise wages, win benefits like health care and retirement, and enact other meaningful workplace improvements, such as improved health and safety standards. These benefits can extend beyond unionized workers themselves, helping set standards across a workplace, and with enough density, across an industry.

As unionization declines in an industry or region, so does job quality. For instance, as unionization rates have fallen in auto manufacturing, the pay advantage for auto workers compared with the median worker has declined significantly (Barrett and Bivens 2021). Figure C demonstrates how this relationship holds across regions in 2025. Manufacturing jobs in the South have a pay advantage of 7%, the lowest of any region. Southern manufacturing workers also experience the lowest median hourly pay of any region ($24.41).2

Figure C

The Southern economic development model clearly hurts the region’s workers by denying them their right to organize and suppressing their wages, but there are harmful spillover effects for their communities as well. Corporate tax breaks with no strings attached provide billions of dollars to corporations that could otherwise be used to invest in schools and other essential government services. These types of tax breaks might be worthy of consideration if manufacturing employers were required to create high-quality jobs for local workers and make long-term investments in local community development needs (i.e., housing, infrastructure, education, etc.). Without such protections, they are simply taxpayer-funded giveaways that often drain the very resources needed to develop the local workforce recruited by large new facilities.

Southern states enact little to no regulation of workplace safety or environmental pollution. This results in unsafe workplaces with greater levels of injury and death (Childers 2024a). Environmental pollution from manufacturing sites can negatively affect public health by contaminating water, air, and soil. New manufacturing investments also can mean significant changes to the demand for housing in a community. A new plant or factory can drive up the cost of living for nearby residents without yielding any economic benefits to a local community. Labor, community, and environmental groups need to collaborate on shared solutions to effectively address these intertwined challenges.

Labor-community coalitions can obtain commitments that ensure “economic development” means shared prosperity for all

Labor-community coalitions organizing around manufacturing projects can secure commitments that offer direct economic benefits to workers and communities, while also establishing groundwork for the growth of worker and community power in the area. While a campaign to win a CBA can be the impetus for forming a local labor-community coalition, the alignment and relationships built through this shared work can lead to longer-term, sustainable coalitions capable of transforming local and state power relationships.

The following section analyzes a set of commitments that can be included in a CBA for a manufacturing project. The CBA framework is flexible and allows for the inclusion of many different types of commitments prioritized by particular groups of workers, community members, and environmental groups. This report focuses on key types of commitments including union neutrality agreements, living wage floors, equitable workforce development practices (such as local or targeted hire policies and programs to expand pathways to apprenticeship training), affordable housing provisions, child care benefits, and environmental protections. Each type of commitment is analyzed in terms of its economic impacts and effectiveness in reshaping local economic development to ensure that public investments generate broadly shared community benefits.

The construction phase and Project Labor Agreements (PLA)

This report mostly focuses on community benefits for workers during the operational phase of a manufacturing plant. Nevertheless, it is just as vital to set high labor standards during the construction phase. Strong community benefits agreements are ideally developed in tandem with strong project construction labor standards set via project labor agreements (PLAs). A PLA is a multiparty agreement between a project owner and a coalition of labor unions that sets out labor standards and dispute resolution procedures to promote stability and efficiency on complex infrastructure projects while also ensuring the project will generate good jobs. PLAs ensure that construction projects run smoothly, are safer, and pay workers fairly (Mangundayao, McNicholas, and Poydock 2022). By setting negotiated wage and benefit levels for each type of work on a project, PLAs level the playing field in highly competitive construction bidding processes; they ensure that contractors base bids on their ability to deliver on quality and efficiency, rather than low-ball cost estimates that reflect intent to pay substandard wages or cut corners on safety. By standardizing wage and benefit levels and taking them out of the competition in the bidding process, PLAs incentivize the use of skilled union labor, which is 14% more productive than nonunionized construction work (McFadden, Santosh, and Shetty 2022). PLAs typically set wages, fringe benefits, and working conditions but can also include requirements to utilize certain numbers of apprentices, hire locally or from certain target worker populations, and/or provide child care or other benefits that open up pathways to good union construction jobs for members of underrepresented groups.

Several of the types of standards for construction workers typically included in a PLA have analogous labor standards in the operational phase. For instance, a CBA can secure commitments for local or targeted hiring and the development of registered apprenticeship programs in a manufacturing facility, extending equitable recruitment and high-quality training requirements that a PLA typically sets for construction into the operational phase of a project.

Removing obstacles to unionization: Neutrality and labor peace agreements

Protecting workers’ freedom to unionize has historically been key to turning manufacturing jobs into good jobs. This remains just as true today. However, like workers across the country, Southern manufacturing workers continue to face formidable obstacles—including weak labor laws, powerful anti-union corporations, and hostile politicians—to exercising their legally protected rights to form or join a union. Employers are charged with violating federal labor law in more than 40% of union elections and spend more than $400 million a year on “union avoidance” consultants (McNicholas et al. 2019; McNicholas et al. 2023). Because existing weak labor laws do not effectively deter employers from union busting, these tactics are treated by many employers as a normal cost of doing business—stacking the deck unfairly against workers seeking to exercise their rights to organize and collectively bargain.

Union neutrality agreements can help safeguard workers’ right to form unions free of the types of interference employers often deploy. Under a neutrality agreement, an employer agrees to remain “neutral” and not interfere with workers’ decisions on whether to unionize. Such agreements typically include joint commitments to a “card check” process for verifying whether a majority of employees have indicated interest in forming a union. Unions and employers sometimes also enter into a labor peace agreement, where unions agree not to engage in certain types of picketing, work stoppages, or other economic disruptions during the organizing process in exchange for employer neutrality.

Employers can also choose to commit to union neutrality as a matter of principle or company policy. Union neutrality—providing workers a more free and fair choice to decide whether to unionize—has been a key component of successful unionization drives in Southern manufacturing. To take two recent examples:

• In 2024, workers at the Volkswagen (VW) Chattanooga plant voted to join the United Auto Workers. Like many European corporations, the German-based VW has an established policy of maintaining neutrality in union election processes, although workers still voiced concerns that in its U.S. facilities, VW management tried to intimidate and dissuade workers from forming a union (Bomey 2024).
• In tandem with community benefits agreement negotiations with New Flyer in Anniston, Alabama, the United Steel Workers and Communications Workers of America negotiated three neutrality agreements with New Flyer and its subsidiaries in 2022. Over the two years that followed, these union neutrality agreements enabled workers to pursue five successful union drives, including at the New Flyer facility in Alabama (Last 2025; Sasha 2024).

Successful recent instances of union organizing in Southern manufacturing facilities have been powerful enough to generate their own backlash. Because of the threat that union neutrality agreements represent to the reigning Southern economic development model, several conservative state legislatures in the South have used model legislation developed by the American Legislative Exchange Council to pass laws intended to interfere with these agreements (Sachs 2024). While the legality of such measures remains in question and has not yet been tested, Alabama, Tennessee, and Georgia now all have legislation in place stating that employers who agree to a union neutrality agreement will be barred from receiving state economic development funds, disincentivizing companies from participating in these agreements (Stephenson 2024).

Importance of unionization to improve manufacturing jobs and wages

Securing unionization in Southern manufacturing can have significant wage benefits for workers. Unionized manufacturing jobs are more likely to provide family-sustaining wages. Unionization in manufacturing is associated with a 17.9% wage premium for workers (Scott et al. 2022). This means that compared with similar workers in terms of education, occupation, experience, race, and ethnicity, unionized manufacturing workers are paid almost a fifth more per hour than their nonunionized counterparts.

Table 1 translates this union premium into how much more unionized workers in the South could make on an hourly, annual, and plant-wide basis. The average nonunionized manufacturing worker in the South earns $34.50 an hour, so with the typical union premium, that worker would be earning an additional $6.18 an hour. If that worker works full time, year-round, the hourly premium translates to $12,846 more a year. To illustrate the potential impact of unionization in an entire plant, we take the example of the BlueOval auto manufacturing investment in Tennessee, which is projected to create 6,000 jobs (TN Office of Governor 2023). For a plant of that size, unionization could mean more than $77 million in additional wages for workers.

Table 1

Wage gains from successful unionization are not hypothetical for manufacturing workers in the South. For example, in 2024, workers at New Flyer in Anniston, Alabama, ratified a union contract with significant pay raises, with some workers gaining raises of up to 38% through 2026 (CWA 2024). Establishing a union contract with transparent pay ladders will also help New Flyer workers combat persistent pay gaps between white and Black workers in Anniston’s manufacturing industry (Erickson 2021).

The benefits of unionization go far beyond hourly wage increases. The workers at New Flyer also achieved significant gains in terms of vacation time and retirement contributions. Unionized workers secure critical benefits like health care and sick days at greater rates than their nonunion peers. Adjusting for differences in industry, sector, and region, union workers are 18.3% more likely to have employer-covered health insurance than their nonunion counterparts (EPI 2021). Almost 9 in 10 private-sector union workers have paid sick days, compared with less than three-fourths of nonunion private-sector workers (EPI 2021).

Unions also contribute to safer and healthier working conditions across a wide range of industries (Dean, McCallum, and Venkataramani 2022). By strengthening workers’ voice on the job, unions empower workers to report safety issues and demand better protocols. One example of this is that unionized construction sites experience significantly lower rates of Occupational Safety and Health Administration (OSHA) violations than nonunionized sites (Manzo IV, Jekot, and Bruno 2021). This is despite the fact that unionized workplaces actually experience greater rates of OSHA inspections than other workplaces, likely because many unions maintain active health and safety committees and because unionized workers have greater access to education on how to recognize safety hazards and are less afraid of reprisals from their employer for reporting them (Leigh and Chakalov 2021).

As the New Flyer agreement demonstrates, a strong CBA includes (or is negotiated in tandem with) union neutrality commitments ensuring that workers have a free and fair choice to unionize, without employer interference or retaliation. Securing a pathway to unionization can provide direct benefits to workers at a particular facility, while also increasing local organizing capacity and coalition strength for future negotiations over new projects and local development decisions. Not only is a new union a legally recognized institution that can monitor and hold the company accountable for commitments in the CBA, but it can also play a critical role in amplifying demands of workers and communities outside of the workplace and building power for working people more broadly.

Living wage floor

CBAs can also include commitments to minimum wage floors for the workers who will operate a new facility. For example, the 2018 Nashville Soccer CBA in Tennessee included a commitment to an hourly wage of at least $15.50 for stadium workers (SUN 2018). This provision set the stadium’s wage floor well above the minimum wage in Nashville, where workers—like all Tennessee workers and many across the South—are otherwise subject to the federal minimum wage of $7.25 an hour.

If a wage floor set by a CBA is high enough, it can help workers achieve a living wage in the place that they live. What constitutes a living wage must be determined by labor and community partners (Gould, Mokhiber, and DeCourcy 2024). For example, a living wage could be defined narrowly as covering the necessities for a single adult, or more broadly as including the needs of a working parent and their children. A living wage target must also make assumptions about nonwage income such as health care benefits and government transfers. Manufacturing workers in the South can also rightfully seek wages that not only cover bare necessities but provide the family-sustaining resources needed to be healthy and thrive.

Figure D shows the share of manufacturing workers in the South earning less than $30 an hour, or $62,400 a year in wages for a full-time worker. More than 3 in 5 (60.8%) manufacturing workers in the region earn less than $30 an hour. Around 80% of Southern Black and Hispanic manufacturing workers earn below the $30 threshold. Women in manufacturing are also more likely to earn below $30 an hour (71.8%) than men (59.1%).

Figure D

A $30 wage floor exceeds the minimum costs for a single adult in most jurisdictions in the U.S., but still barely covers needs for many families with children in manufacturing-dense counties nationwide. EPI’s Family Budget Calculator estimates living wage standards by county that cover modest but necessary costs families face like food, rent, and transportation in the United States. Table 2 shows three Southern counties with significant clean energy manufacturing investments in recent years (CET 2025). Each county has significant manufacturing employment, exceeding the U.S. average for manufacturing employment density. For each county, living wage standards from the Family Budget Calculator are listed for different family types. In Morgan County, Georgia, and Maury County, Tennessee, a single adult with a child must earn at least $30 an hour to cover basic needs. For a single economic provider to cover the costs of a four-person family, they must earn over $35 an hour in all the counties listed. These living wage standards indicate that a $30 wage floor would provide significant economic security for workers with smaller families or multiple wage-earners.

Table 2

A CBA that secures a strong living wage standard in a manufacturing facility can create a virtuous cycle that brings about greater prosperity in the area. Higher wages for low- and middle-income workers boost spending in the local economy because these workers spend a greater share of their paycheck than high-income workers (Anderson 2014). Other employers in the area might have to raise their wages to compete for workers with the CBA-bound employer. The establishment of a living wage also demonstrates to other workers in the area that higher wages are a feasible goal through collective action.

Local and/or targeted hire policies

Local and targeted hiring refers to policies that prioritize recruitment of individuals from the local community, or workers from specific groups who are otherwise underrepresented in a given workforce relative to local population demographics, such as women, people of color, veterans, low-income workers, formerly incarcerated workers, or workers with disabilities (Lawliss, Finfer, and Sherer 2022). A local hire policy can require that a certain percentage of hours worked on a project be completed by local workers. These policies can also require giving local workers the first option to apply for jobs on a project. For the prosperity created through manufacturing investments in the South to be shared equitably, it is important that local community members have access to the jobs that are created during both the construction and operation phases of a development. Workforce policies also should be designed to remove barriers to employment for groups of workers—especially workers of color and women—who have historically been excluded from many construction and manufacturing career opportunities. Increasing access to these well-paying jobs can increase economic mobility for workers with more limited opportunities.

Despite these benefits, some state policymakers have been hostile to local hire as a public policy. In 2015, Nashville voters passed a ballot initiative that required city-funded construction projects to dedicate 40% of construction hours to Nashville residents, with 25% of those hours going to low-income Nashville residents (Blair et al. 2020). The Tennessee state legislature then quickly passed a bill that preempted the city from creating its own local hire policy.

As Figure E shows, the harm of Tennessee’s preemption of local hire falls disproportionately on workers of color. The construction workforce in the Nashville metro area has a higher share of workers of color and immigrant workers compared with the state construction workforce overall. Black workers are 8.2% of the construction workforce in Davidson County, but 5.5% of the overall state workforce. More than half (51.5%) of construction workers in Davidson County are Hispanic, compared with less than a quarter (20.1%) of the state overall. Davidson County construction workers are also more than twice as likely to be immigrants (40.2%) than in all of Tennessee (14.8%). State preemption of local hire prevented Nashville from ensuring that public spending would benefit local workers. However, private agreements like CBAs offer an opportunity to incorporate local hire and/or targeted hire requirements into publicly subsidized developments, even in heavily preempted jurisdictions.

Figure E

In 2018, three years after the preemption of Nashville’s local hire policy, the labor-community coalition Stand Up Nashville was able to leverage $275 million in public subsidies for a new professional soccer stadium into a successful CBA (SUN 2018). The Nashville Soccer CBA included commitments to local hire for stadium workers, particularly workers from “Promise Zones,” i.e., high-poverty areas with fewer economic opportunities (SUN 2020). Through the CBA, Nashville Soccer Holding, LLC agreed to consider qualified Promise Zone resident referrals for jobs at the stadium. So far, the program has succeeded in hiring Promise Zone residents. In 2023, Nashville Soccer Club had hired 180 employees, 80 of whom were residents of Promise Zones (SUN 2023).

CBAs in the South and throughout the country are securing similar commitments to local and targeted hiring in clean energy and manufacturing investments. In Alabama, the New Flyer CBA commits the company to ensuring that at least 45% of new hires and 20% of promotions are members of “Historically Disadvantaged Groups” (Sabin 2022).4 In Massachusetts, a new offshore wind terminal entered into a CBA with the City of Salem—setting targets for hiring of local workers, workers of color, and women workers (Sabin 2024). The CBA for Maine Aqua Ventis, an offshore wind facility, includes local hiring opportunities for residents of Monhegan, Maine (Sabin 2017). 

These types of agreements help ensure that local residents benefit from large investments in their communities, particularly when policymakers have invested public dollars in the form of tax breaks or corporate subsidies to support a new facility. Ensuring local workers are prioritized in training programs and hiring processes for newly created jobs also helps community members stay in the area when housing costs are driven up by a large new manufacturing investment. And in the longer term, providing pathways for local workers to benefit directly from these investments strengthens the labor and community alliances needed to hold developers and corporations accountable over time.

Equitable workforce development through apprenticeships and pre-apprenticeships

In addition to local hire policies, which help create equitable pathways for local workers to secure good jobs at a manufacturing site, construction and manufacturing projects require a skilled workforce to operate safely and productively. A robust ecosystem of registered apprenticeship and pre-apprenticeship programs can help ensure both that employers find the skilled workers they need in a large new manufacturing facility, and that local workers can access pathways to newly created jobs.

Registered apprenticeship programs are training programs vetted by federal or state agencies to ensure use of high-quality, best-practice training standards and approved curriculum aligned with skills needed to succeed in a particular occupation. Registered apprenticeships combine paid on-the-job and classroom training and result in a recognized, portable credential certifying that a worker has the skills and experience necessary for a specific occupation. Pre-apprenticeship programs (also known as apprenticeship readiness programs) recruit and prepare participants for registered apprenticeships—often partnering with community organizations—to open pathways to apprenticeship for women, Black and brown youth, immigrants, workers with disabilities, or others historically excluded from skilled trades occupations. The best practice is for these apprenticeships and pre-apprenticeships to be joint programs between unions and employers, providing high-quality instruction tailored to industry needs and training that leads to placement in a high-quality job with wages, conditions, and benefits negotiated into a union contract. Often, a vital building block for successful manufacturing apprenticeship programs is the establishment of a unionized workforce at a facility.

Unlike lower-quality workforce development programs, registered apprenticeships pay workers fairly for their labor during their training—and in joint apprenticeship programs, the wages and benefits of apprentices are negotiated into a union contract and typically include scheduled increases as apprentices progress through the training program. Registered apprentices (across joint and non-joint programs) typically see their earnings increase 49% between the year before they enter the program and the year after completing it (Walton, Gardiner, and Barnow 2022). These increases in earnings are greater than for similar workers who do not enter the apprenticeship during the same time period (Katz et al. 2022). Apprenticeships can also be particularly attractive to workers because they are debt-free. Most apprentices (60%) consider debt avoidance the most important reason for choosing to enroll in an apprenticeship (Walton, Gardiner, and Barnow 2022).

Apprenticeships can be a powerful tool for increasing the diversity of construction and other industry workforces. While participation of women and workers of color in apprenticeships has grown in recent years, this growth has been painfully slow for decades (CEA 2024). Research finds that union-based (joint) apprenticeship programs have been more successful than other types of apprenticeships at increasing diversity in the construction industry (Ormiston and Bilginsoy 2024). Joint apprenticeships enroll a higher share of women, Black workers, and Hispanic workers than non-joint programs, and have higher program completion rates for all workers, including for women and workers of color. Community benefits agreements can secure commitments and partnerships that equitably grow this pipeline of workers and set enforceable local and targeted hiring goals which in turn spur diversification of construction and manufacturing apprenticeship programs.

For instance, the New Flyer CBA creates a partnership between the company and coalition partners to develop pre-apprenticeship and technical training programs that expand access to manufacturing jobs for workers with low incomes and from disadvantaged groups (Sabin 2022). For these programs to succeed, community groups and educational institutions must have an active role in shaping the programs and connecting workers to these opportunities. The development of a growing skilled workforce and a robust, high-quality workforce development ecosystem can in turn be a strong incentive for bringing more facilities to an area over time. In 2015, Polaris stated that a significant factor in its decision to choose Huntsville, Alabama, for a new production facility was the area’s skilled workforce (Polaris 2015). As more workers participate in high-quality training programs that lead to union jobs, the organized workforce of the region will grow, strengthening labor-community coalitions the next time there is an opportunity to shape new development in the region.

Child care

Child care is an essential but extremely costly expense for many working families across the South. Average annual infant care costs in the South range from $6,868 in Mississippi to $14,277 in Virginia.5 The Department of Health and Human Services recommends that 7% or less of family income go toward infant child care costs, but typical Southern families spend significantly more. In Alabama, infant care costs are 9.8% of median family income, while in Oklahoma the share is 15.4% (EPI 2025b).

Increasing access to high-quality, affordable child care not only makes work more accessible to parents (and especially to women, who on average continue to assume disproportionate care responsibilities), but is a powerful investment in children’s development that can help narrow class and racial inequalities (Morrisey 2020). In addition, child care workers tend to work for very low wages and experience poverty at greater rates than the typical worker.

A large manufacturing investment in a locality might produce a significant number of jobs, and in turn increase the demand of workers and their families to live nearby. This is likely to increase the need for child care services in the region. However, data show that child care employment has not kept up with manufacturing growth in Southern counties. Table 3 compares counties with high manufacturing density, where manufacturing employment makes up more than the national average (9% in 2009), with those with lower manufacturing employment density (EPI 2025c).

Table 3

Between 2009 and 2024, manufacturing employment in high-manufacturing-density counties in the South grew 15.9%, achieving faster growth than similar counties in the U.S. overall (12.1%). However, over the same period, child care employment only grew 4.5% in Southern high-manufacturing-density counties, far below the national rate of 14.2%. Child care employment growth in the South for low-manufacturing-density counties (22.3%) is also below the national level (28.5%). The South systematically underinvests in child care, despite its importance to a healthy economy in the region.

CBAs and PLAs have been used to secure both the construction of physical child care spaces and financial support for actual services. The Nashville Soccer CBA reserved 4,000 square feet for the development of a child care center (SUN 2020). In 2001, the CBA for the North Hollywood Commons mixed-use development project in Southern California secured a commitment to an on-site child care center. Fifty child care spaces at the center were reserved for low- and moderate-income families (Sabin 2001). In the Boston area, unions have secured Project Labor Agreements that seek to address the unique child care needs of the construction industry. The PLA for the Winthrop Center in Boston established a child care access fund to research, develop, and implement alternative child care models within the construction industry, with a particular focus on assisting single mothers with child care while supporting their career (NEREJ 2019).

These types of investments are vital supports for working families, particularly mothers, seeking to balance professional and care work. Combined with union neutrality for the child care workers at these facilities, commitments to providing child care can further elevate worker power in the region and help large new facilities recruit and retain the skilled, experienced workforces they need to succeed.

Affordable housing

Without strategies to address the housing needs of a community impacted by a new manufacturing investment, local residents can experience increased economic precarity or forced displacement. The local housing impacts of a large industrial investment can be complex. A significant manufacturing investment can make a local community more attractive as workers move into the area to be close to their place of work. Manufacturing investments are also likely to be paired with prospective real estate investments in anticipation of future development around the original project. State and local governments might use eminent domain and other purchasing mechanisms to secure land for roads and other new infrastructure. These dynamics can increase housing costs for residents, particularly renters who are most vulnerable to the impacts of housing speculation and prospective rent increases. For instance, the BlueOval development in West Tennessee is already reported to have increased property prices and housing rents (TCG 2023). Homeowners, particularly those with fixed incomes, can also be more burdened with housing costs as higher demand in the area increases property tax valuations (Payne 2019).

On the other hand, extreme proximity to an industrial site can expose residents to environmental hazards and noise pollution, and may be considered unsightly, which decreases property values (Currie et al. 2016; Upton and Talpur 2024). The exact distribution of these changes in demand for housing across a community will depend on the type of industry and any other types of development included in the project.

Industrial investments like manufacturing facilities tend to take place in rural and semirural areas, in part because land is relatively inexpensive (Wiley 2015). While the counties with a higher share of manufacturing employment tend to have lower housing costs than urban areas, housing affordability remains a significant issue for workers. On average, across high-manufacturing-density counties in the South, a two-adult, two-child household must cover more than $14,000 a year in housing costs.6 A large share of renters in high-manufacturing-density counties in the South still are cost-burdened by housing, meaning they spend more than 30% of their income on rent, utilities, and other housing costs. As shown in Figure F, across the Southern states, the share of cost-burdened households in high-manufacturing-density counties ranges from 28% in Arkansas to 47% in Florida. More than 2 in 5 (42%) of Texas renters in these counties are also housing cost-burdened.

Figure F

A strong CBA will secure commitments to build a certain number of affordable housing units or dedicate a share of housing at the site as affordable. The Nashville Stadium CBA created agreements that at least 12% of residential units in the development would be affordable and that 20% of those units would be three-bedroom units to accommodate families (SUN 2020). The Staples Center CBA in Los Angeles, California, was another successful example of strong affordable housing benefits. The 2001 agreement for the development of an expanded convention center, theater, and surrounding housing, hotel, and retail space secured commitments that 20% of housing units would be affordable. The developer also agreed to provide $650,000 in interest-free loans to nonprofit affordable housing developers in the local community (WRI 2001).

Even in situations where a labor-community coalition is unable to reach a final CBA with a company, coalition organizing around community demands can still deliver meaningful affordable housing victories. Between 2002 and 2006, a labor-community coalition in Denver pressured Cherokee Investment Partners to provide community benefits as part of their redevelopment of the site of the Gates Rubber Company. The coalition leveraged zoning changes necessary for the project and a potential subsidy package from the city to extract benefits including an affordable housing plan for hundreds of rental and for-sale affordable housing units (Ingram and Hong 2011; PowerSwitch Action 2025).

In 2005, the labor-community coalition organized by Georgia STAND-UP was able to attach community benefits to an Atlanta city ordinance allocating $2 billion in public funding for the Atlanta Beltline transit-oriented development project. The city resolution shaped by the coalition established an affordable housing trust fund and a goal of developing 5,600 affordable housing units (PowerSwitch Action 2025). As of 2024, more than 4,100 affordable units have been created as part of the project (Atlanta Beltline, Inc. 2024).

Labor-community coalitions can also pursue other land-use commitments beyond the development of affordable housing. The BlueOval Good Neighbors coalition in West Tennessee has demanded commitments to protect land for farmers in the area. The development of the Ford factory has pushed Tennessee’s Department of Transportation to pursue land for new roadways through purchase and eminent domain. The area targeted for new roadways is a majority Black farming community, and several farmers are engaged in lawsuits with the state over the state’s meager compensation offers for their land (Wadhwani 2023). The coalition has demanded that farmers be offered replacement land in exchange for their sold land, as well as the creation of a 10,000-acre community land trust (BlueOval Good Neighbors n.d.).

Creating or protecting affordable housing is essential for protecting the communities that are necessary for any effective labor-community coalition. Large developments can cause instability within the community as new residents arrive, and existing residents are buffeted by rising housing costs. Because of historic and ongoing racial discrimination in housing policy, labor policy, and real estate practices, the costs of these changes are most likely to impact Black and Hispanic workers. Black families and other workers of color are the most likely to be cost-burdened by housing (JCHS 2024). Creating housing for workers and families to remain in the area is vital for continued collective action to secure benefits from developers and hold those developers accountable for their promises.

Environmental standards, funding, and monitoring

Large-scale manufacturing projects often have significant environmental impacts, both during construction and once they are in operation. Air, noise, and groundwater pollution; harm to wildlife habitats; and residents’ exposure to toxic byproducts are just a few examples of common concerns, and these consequences can be severe when projects are approved without sufficient environmental consideration. The consequences of large manufacturing projects often disproportionately harm communities of color and low-wealth areas throughout the South (Brouk 2024). For decades, poor and Black residents in the region have been exposed to toxic chemicals, pollution, and other environmental dangers at alarming rates (Bergman 2019).

In 2021, the Tennessee governor approved the construction of a General Motors lithium battery supplier in the city of Spring Hill, on the banks of the Duck River. Though the project was seen as an economic success, the plant’s operation has taken a toll on the fragile river ecosystem. The lithium battery factory is not the only strain—just eight companies along the river drain tens of millions of gallons of water daily (Wadhwani 2024). This enormous water usage has lowered river water levels, threatened biodiversity, and harmed local tourism and recreation. Advocates for the river’s health blame the state’s prioritization of manufacturing expansion without regard to the long-term environmental or economic consequences for local residents or other existing local industries.

CBAs are a tool that may help community-labor coalitions address the environmental impacts of data centers in the South. Data centers are booming across the United States, but particularly in Southern states like Georgia, Texas, and Virginia (Walker and Goldsmith 2026). New centers are heavy users of water and energy, create noise and air pollution, and are driving up electricity costs nationwide both by increasing demand for energy and requiring utilities to invest in new infrastructure paid for by all ratepayers (Merchant and Guerra 2025; Bizo et al. 2021; AI NOW 2025; Reed 2025). For example, in Virginia, electric bills were on track to increase as much as 25% in 2025 because of data centers (Penn and Weise 2025).

Growing community concerns surrounding data centers could create leverage for labor-community coalitions to pursue CBAs and other community benefits strategies. In 2025, community opposition blocked or delayed $64 billion in data center projects across the nation (Data Center Watch 2025). As community resistance to data centers continues to grow, more developers may recognize the need to come to the table with local coalitions to negotiate binding commitments on environmental and economic outcomes to secure project approvals. A handful of localities have begun to create agreements with data center developers regulating water use and securing commitments to green energy use (Turner Lee and West 2026).

Past development projects provide examples of how communities have used CBAs to secure long-term commitments to clean energy transition and protection of local natural resources in a multitude of ways, from mandating that any new construction must meet specific sustainability standards to requiring companies to contribute a set dollar amount to a city’s renewable energy transition fund. In Virginia, the City of Richmond Resort Casino CBA ensured the developing and operating company would design and construct all project buildings to Leadership in Energy and Environmental Design (LEED) Silver standards and would use previously existing pavement where possible (WRI 2021). The agreement also required the developer to attempt to reduce the urban heat island effect by planting shade trees along sidewalks and using other landscaping methods (WRI 2021). These agreements can mitigate additional environmental harm in areas that have already been polluted. A CBA between the Town of Waterloo, New York, and Seneca Meadows, Inc. regarding a landfill expansion commits the waste management company to pay for the development of new public water lines and other potable water infrastructure if existing public water wells become contaminated (WRI 2005).

CBAs can also be used to expand the positive impact of an already climate-friendly project. In New York, a CBA with an offshore windfarm developer stipulates that the company must contribute $2 million to the town of East Hampton’s Ocean Industries Sustainability Program (WRI 2018). Additionally, Deepwater Wind South Fork, LLC must spend $200,000 to establish an Energy Sustainability and Resilience Fund to support East Hampton’s transition to 100% renewable energy (WRI 2018). CBAs with environmentally focused companies provide valuable opportunities for communities looking to address climate change, especially where state governments have failed to invest in environmental programs.

A CBA can achieve a variety of climate and environmental commitments from a company but is also a strong starting point for building local capacity to monitor resource use, pollution, and other environmental priorities. A strong coalition of community, labor, and environmental groups can play essential roles in implementing and enforcing CBA commitments in contexts where understaffed government agencies have limited ability to monitor or investigate pollution and other environmental harms. Instead, workers and community members are often the first to report harmful practices and safety concerns. A strong CBA can provide opportunities for labor and environmental groups to work together to monitor and protect worker and community health, natural resources, and ecosystems.

Conclusion

For decades, Southern economic policies shaped by dominant business and corporate interests have resulted in poor working conditions and failed to ensure that profits generated by publicly subsidized development are shared with local workers and communities. Confronting the deep, long-standing imbalances of power that have entrenched this failed economic development model will require significant organizing and coalition-building to increase the collective power of workers and community members to shape different outcomes from the latest Southern manufacturing boom. Building new forms of worker and community power will be equally necessary to counter escalating authoritarian actions of the Trump administration, which closely parallel many features of the failed Southern economic development model that by design prioritizes corporations over workers and communities.

Our analysis shows that community benefits agreements could be powerful tools for Southern labor and community groups building the shared power necessary to reshape local and eventually regional economies. When strong coalitions of labor, environmental, faith-based, and other grassroots community organizations are able to build the necessary power to bring a company or developer to the table to negotiate an enforceable agreement, such coalitions can secure measurable economic benefits like higher wages, respect for workers’ rights to unionize, local or targeted hiring, protection of natural resources, or more affordable housing. Such economic gains are beneficial in themselves, but they also raise expectations, build local capacity to pursue additional gains, and demonstrate to the community at large that local residents can shape their own economic futures, and that these types of victories are achievable in the face of the Southern status quo.

While the urgent project of upending the Southern economic development model will require vigorous and persistent organizing across many sectors and geographies, community benefits agreements are one key strategy for turning manufacturing jobs into good jobs, ensuring long-term local economic gains from new industrial investments, and even renewing democracy in contexts where it has long been suppressed. Forming strong, long-lasting labor-community coalitions is essential to winning concrete gains for local workers as well as reshaping the political fabric of Southern communities and increasing working people’s influence over broader state or regional economic policy decisions. Winning and implementing any strong CBA requires the formation of an empowered labor-community coalition, which ideally endures and gains greater strength, experience, and influence over time. Just as the economic benefits of unionization extend far beyond an individual workplace, establishing a strong CBA coalition can create broader positive impacts across a community or region—delivering higher-quality jobs; more equitable tax systems; stronger public services; and healthier, more inclusive political systems.

Acknowledgements

The authors wish to thank the AFL-CIO Center for Transformational Organizing for their partnership and invaluable contributions in the production of this report. The authors are also grateful to Athena Last and Ian Elder at Jobs to Move America and Ben Beach at PowerSwitch Action for their expert feedback.

Appendix

Appendix Table 1

Notes

1. Clean energy manufacturing includes manufacturing of batteries, electric vehicles, mineral products, solar energy products, and wind energy products.

2. Workers in Southern states experience lower wages than in other regions even after adjusting for cost-of-living differences (Childers 2023).

3. The facilities covered by these agreements included plants in Alabama, California, Kentucky, Minnesota, New York, and Wisconsin.

4. This category includes workers who are Black, Indigenous, and/or people of color; women; LGBTQ+ persons; systems-impacted people (formerly incarcerated people); persons emancipated from the foster care system; residents of Anniston, Alabama, lacking GED or high school diploma; and veterans.

5. Southern states excluding D.C., Delaware, and Maryland.

6. EPI analysis of Family Budget Calculator and Quarterly Census of Employment and Wages data.

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The Federal Mediation and Conciliation Service (FMCS) is a small, independent agency whose mission is to support businesses and workers in resolving workplace disputes and building positive labor-management relationships. FMCS has no authority to adjudicate disputes or issue regulations. Outside of the health care industry, it cannot require any business, worker, or union to participate in mediation or take any particular action. Rather, FMCS uses its expertise and experience to help parties find mutually agreeable solutions to workplace disputes. Through its work, FMCS has helped resolve thousands of workplace disputes and saved the U.S. economy hundreds of millions of dollars annually (FMCS 2025a).

In spite of this, the Trump administration has targeted this agency for elimination. Trump first attempted to shut down the agency by laying off almost all of its employees, but he was stopped by two lawsuits and two federal court injunctions. Trump’s proposed fiscal year (FY) 2026 budget included only $7.4 million for FMCS to use in shutting down the agency. In a series of continuing resolutions, Congress has rejected the Trump administration’s proposal and has continued to fund FMCS at close to its FY 2025 levels.1  

This report describes FMCS’s work and its importance to our national policy of supporting collective bargaining. It goes on to detail the Trump administration’s attacks on the agency and efforts to resist these attacks. The report concludes with recommendations for rebuilding and maintaining a quality, effective FMCS—recommendations that can also be implemented by states that have their own mediation agencies.

What is FMCS?

FMCS is a small, independent federal agency established by Congress to assist companies, workers, and their unions in building productive labor-management relationships and preventing costly and disruptive workplace disputes. Unlike most federal agencies, FMCS has no regulatory power and cannot force any company, worker, or union to agree to any term or participate in mediation (outside of the health care industry). It is a service agency that provides support to parties in the collective bargaining process and other aspects of labor-management relations.2

FMCS is headed by a presidentially nominated, Senate-confirmed director.4 Over the years, most FMCS directors have been individuals with broad collective bargaining experience and extensive relationships in the labor and management communities, which has brought stature and credibility to the agency and its work. However, FMCS has not had a Senate-confirmed director since 2021. President Biden’s nominee to lead the agency was not confirmed by the U.S. Senate, and President Trump has not nominated anyone to fill the director role and instead has tried to shutter the agency altogether.

FMCS is, and has always been, a small agency. In FY 2025, FMCS received a $55 million appropriation from Congress, representing .0014% of the federal budget (FMCS 2025a). This funding supported a staff of approximately 200 employees located in six regions around the country and Washington, D.C., the vast majority of whom were mediators. As previously noted, President Trump is attempting to shutter the agency and cut its funding to only the funds needed to shut down the agency (FMCS 2025b). In a series of actions, Congress has rejected Trump’s proposal and has continued to fund the agency at $48.7 million, close to its FY 2025 level.  

Because of the Trump administration’s attacks on the agency and the uncertainty created for FMCS employees, scores of mediators have left the agency. According to FMCS’s website, only 58 mediators remain at the agency (FMCS 2026).  

FMCS’s work

FMCS’s primary role is to provide training and mediation services to employers and unions engaged in collective bargaining. These services are provided at no cost to the parties.

In FY 2024, the last year for which full data are available, FMCS provided collective bargaining mediation services in 2,318 cases (FMCS 2025b). (Under the law, parties in the private sector must file a notice with FMCS when they seek to amend or renew a collective bargaining agreement. When FMCS receives such a notice—called an F-7 notice—it opens a case.) In FY 2024, 93.5% of mediated cases were settled, including several major and significant disputes (FMCS 2026b).  

Prior to the Trump administration’s efforts to shut down the agency, FMCS also provided grievance mediation services to resolve disputes arising under collective bargaining agreements (CBAs). Most CBAs include a dispute resolution process, under which workers can file grievances over alleged violations of the CBA and seek a remedy. Some collective bargaining agreements explicitly require the parties to seek FMCS mediation if their efforts to resolve the grievance are not successful. 

In FY 2024, FMCS mediated 1,362 grievances, almost half (47.2%) of which were settled in mediation. FMCS is not currently providing grievance mediation services.

Prior to Trump’s attempted shutdown, FMCS provided training to businesses and employees on the collective bargaining process and dispute resolution. These training services were especially helpful to parties entering into a new collective bargaining relationship, because they often are not familiar with collective bargaining and ways of building productive relationships.

In FY 2024, FMCS conducted 1,477 training programs on developing strong labor-management relationships. FMCS is not currently providing training services.

Table 1

As noted, all of these services are provided by FMCS at no cost to the parties, in furtherance of the national policy in support of collective bargaining and the peaceful resolution of workplace disputes expressed in the National Labor Relations Act (NLRA) and the Labor Management Relations Act. The provision of these services at no charge is especially important for smaller employers and unions who lack the financial resources to hire mediators on the private market.

Most grievance procedures in CBAs call for arbitration if the parties are unable to resolve a grievance themselves. FMCS supports the arbitration process by maintaining a roster of arbitrators that the parties can request for a nominal fee. In FY 2024, FMCS provided 10,000 panels of arbitrators for the parties to utilize in selecting an arbitrator to resolve a workplace dispute.

Congress has broadened FMCS’s mandate several times over the years, including to provide mediation and alternative dispute resolution services to the public sector. Many states reference FMCS in their state collective bargaining statutes, and many state public-sector CBAs similarly call on the parties to utilize FMCS’s services to resolve disputes.5 FMCS has also been directed to assist in negotiated rulemaking proceedings, although rulemakings of this nature have been rare in recent years.  

In 1978, Congress also broadened FMCS’s mandate to include support for labor-management committees and similar labor-management cooperative activities. Initially, FMCS received additional appropriations to support this work, including the ability to offer grants to support this work, but labor-management grants have not been funded for many years.

The Trump attacks

On March 14, 2025, President Trump issued Executive Order (EO) 14238, “Continuing the Reduction of the Federal Bureaucracy,” which directed several agencies, including FMCS, to reduce their operations to their bare statutory minimum. FMCS’s leadership stated that FMCS needed at least 80–100 mediators to meet its statutory duties, and could only do so if mediation was held virtually instead of in-person. Nevertheless, representatives of Trump’s Department of Government Efficiency (DOGE) ordered the agency to reduce its staff to five mediators and approximately eight additional staff (AFL-CIO 2025). All other staff were placed on administrative leave as of March 26, 2025, mediation and training sessions were canceled, and FMCS’s regional offices were closed. Employees began receiving formal Reduction in Force notices at the end of March 2025.

The impact on FMCS’s operations was immediate. Mediators who were working with employers and unions to reach collective bargaining agreements abruptly canceled mediation sessions, leaving the parties in the lurch. Some of the affected parties included the United Federation of Teachers and the Bronx Global Learning Institute for Girls, who were working with an FMCS mediator on reaching an initial collective bargaining agreement when the mediator was placed on administrative leave and canceled scheduled mediation sessions.  Providence Place and Service Employees International Union (SEIU) Healthcare Minnesota and Iowa were working with a mediator to settle their contract and avoid additional strikes, but mediation was canceled when their mediator was placed on administrative leave. The same was true for grocery workers in California, represented by the United Food and Commercial Workers Union. Their efforts to mediate a new collective bargaining agreement with California grocery stores stalled when their FMCS mediator was suddenly placed on administrative leave. A school district in Illinois had been working with FMCS mediators for months when mediation sessions were canceled after the agency was all but shuttered and their mediator was placed on administrative leave. A hospital in Rhode Island faced a similar fate when FMCS mediation to resolve a dispute with United Nurses and Allied Professionals was canceled, placing the hospital at risk of a major work stoppage.6 

In addition, other valuable FMCS services were canceled. This included a Biden-era initiative under which FMCS offered to conduct free card check verification services (FMCS 2022a; FMCS 2022b). These free card check services were provided to employers and unions who agreed to begin a collective bargaining relationship upon proof of majority support for unionization among employees, rather than go through the National Labor Relations Board (NLRB) representation election process. Voluntary recognition of unions through card check is a long-standing practice that allows the parties to begin their relationship on less adversarial terms. FMCS abruptly canceled these services when Trump proposed to eliminate the agency (Eidelson 2025). 

A group of state attorneys general quickly filed a lawsuit over the Trump administration’s attempted shutdown of FMCS and other agencies, arguing that the administration’s unilateral action was contrary to the underlying statutes establishing and funding the agencies and beyond the president’s authority.7 The lawsuit described the states’ reliance on FMCS to mediate labor-management disputes involving state employees and detailed the harms to their states caused by the Trump administration’s abrupt gutting of FMCS. The lawsuit was successful, with a federal district judge issuing an injunction ordering the Trump administration to cease implementation of Executive Order 14238 and to reverse the cuts that had already been made.8 Similarly, a group of unions that rely on FMCS’s services to mediate and resolve labor-management disputes filed a lawsuit over the Trump administration’s attempt to shut down FMCS (AFL-CIO 2025). As with the state lawsuit, the unions won an injunction stopping the administration from implementing EO 14238 and ordering it to reverse the cuts it had already made.

While the lawsuits and rulings have been essential to FMCS’s survival, severe damage to the agency has already been done. Scores of talented mediators have left the agency for other jobs, worried about the uncertainty of continued employment at FMCS. Only 58 mediators remain at an agency that previously employed almost three times that number. At first, FMCS drastically limited its services, making mediation available only for bargaining units of 1,000 or more employees (or 250 for health care). After the first court injunction, FMCS issued a new policy providing mediators for all health care disputes but limiting mediation for all other private-sector disputes to those involving bargaining units of 250 or more employees—a huge change from the practices in place before March 2025. FMCS provided no reasoning or justification for the new 250-employee threshold. Moreover, FMCS is offering only virtual mediation services, which some parties find less effective than in-person mediation.

The ongoing cutbacks and chaos at the agency have left employers, workers, and unions with less confidence in the agency and its operations, not knowing whether or when the Trump administration will make another attempt to shutter the agency.

Businesses and workers have good reason to worry about FMCS’s survival under the Trump administration. The administration requested only $7.4 million in funding for the agency for FY 2026, all to be used to shut down the agency. Fortunately, Congress rejected the Trump Administration’s proposal and has continued to fund FMCS at close to its FY 2025 level.  

Because of the Trump administration’s attacks on FMCS, several states—including Michigan, California, Minnesota, Illinois, New York, and others—have expanded their state mediation bureaus to offer some of the services that FMCS is no longer able to offer (Purifoy 2025). But these state efforts do not come close to the comprehensive services FMCS was previously able to offer.

Attacks on FMCS independence and impartiality

A hallmark of FMCS’s work over the years has been its independence and impartiality in providing its services. As previously noted, outside of health care, FMCS has no authority to require any entity to utilize its services. Parties voluntarily agree to bring in FMCS. The skills, reputation, and impartiality of FMCS mediators are key to their credibility and the willingness of parties to engage and trust them.

FMCS was created as an independent agency out of the former U.S. Conciliation Service, which was housed at the U.S. Department of Labor. Employers insisted on separating the mediation service from DOL over concerns that mediators were not impartial and favored unions. As this history shows, FMCS’s independence and impartiality are central to the operations and success of the agency.

FMCS is run by a presidentially nominated and Senate-confirmed director, who is a political appointee the president can remove at any time, although no president has ever done so. FMCS directors have typically been established, respected practitioners in labor-management relations, whose expertise and relationships have given the parties confidence in the quality and impartiality of FMCS’s operations.

FMCS’s independence and impartiality are threatened by the Trump administration’s efforts to take over and run the operations of independent agencies like FMCS. As already described, EO 14238 attempted to all but shutter the agency. Another Trump executive order, EO 14215, issued on February 18, 2025, attempts to control the activities of independent agencies like FMCS by giving the Director of the Office of Management and Budget extensive control over the priorities and expenditures of independent agencies (McFerran and McNicholas 2025). And President Trump has aggressively asserted his authority to remove Senate-confirmed members of independent agencies, boards, and commissions, demonstrating his belief that these agencies and their appointees are under his ultimate authority and control. All of these actions put FMCS’s independence and impartiality at risk (leaving aside the risk posed by the Trump administration’s efforts to abolish the agency altogether.)

FMCS and the first contract problem

The challenge of reaching an initial collective bargaining agreement when workers first organize their union is a serious and persistent problem. Research shows that only slightly more than one-third of new bargaining units reach an initial agreement within one year, and one-third of all bargaining units go three years or more without reaching an initial agreement (Bronfenbrenner 2022). The National Labor Relations Act does not authorize penalties or other monetary sanctions for delaying the bargaining process. Employers exploit this weakness in the law to slow-walk the bargaining process and avoid reaching an agreement with newly organized workers, because they know workers will get frustrated. This undermines the collective bargaining process and deprives workers of the goal they organized for—a binding contract governing their terms and conditions of employment. 

During the Biden administration, FMCS and the NLRB took action to try to help address the first contract problem (FMCS 2026c; NLRB 2022). When notified by the NLRB of a newly organized unit, FMCS proactively reached out to the parties and offered its training and mediation services in an effort to help the parties in the bargaining process. The NLRB trained FMCS mediators on the law of bargaining so that mediators could bring this additional knowledge to their work. Because FMCS’s services are voluntary on the parties’ part—outside of health care—FMCS could not force the parties to engage in mediation or training. But FMCS tried to be proactive with the parties in offering its assistance.9  

FMCS successfully helped IAM Union (formerly the International Association of Machinists) and the Apple Company reach an initial collective bargaining agreement at the first unionized Apple store in Towson, Md. FMCS helped thousands of researchers reach an initial agreement with the National Institutes of Health. These are but two examples of FMCS’s work in this important area.

For decades, legislation has been introduced to address the first contract problem. The Employee Free Choice Act, introduced and passed by the House of Representatives in the late 2000s, included a first contract mediation and arbitration process to ensure that employers and unions reached an initial collective bargaining agreement in a reasonable amount of time. Similarly, provisions requiring first contract mediation and arbitration are a centerpiece of the comprehensive Protecting the Right to Organize (PRO) Act, which also would establish monetary penalties for violations of the NLRA, override state “right-to-work” laws, ban captive audience meetings and prevent other employer interference, and more.

In March 2025, U.S. Senators Josh Hawley (R-Mo.) and Cory Booker (D-Nj.) introduced the Faster Labor Contracts Act, which contains the first contract mediation and arbitration provisions from the PRO Act.10 The legislation would require parties to begin bargaining promptly after a union is certified, and if bargaining fails to produce an agreement within 90 days (or longer if the parties agree), the parties would be required to engage in mediation. If mediation was not successful, an arbitration panel would be convened to hear from both parties and render a final and binding decision on the terms of an initial collective bargaining agreement. 

Both the PRO Act and the Faster Labor Contracts Act rely on the FMCS to provide the mediation and arbitration services. It is ironic that the legislation has been introduced by members of the same political party whose president is trying to eliminate FMCS—the very agency at the heart of making the legislation work.  

Without a robust, government-supported mediation and arbitration system, neither the Faster Labor Contracts Act nor the PRO Act will live up to its promise. 

Recommendations for restoring and improving FMCS

FMCS performs a valuable service to employers and workers by helping resolve workplace disputes and build better labor-management relationships—a service that the private market cannot replace at scale. It will take years to undo the damage inflicted on the agency by the Trump administration’s attacks, but it is essential that Congress takes action to restore and sustain the agency.  

The remedies are practical, not symbolic. FMCS must be restored as a reliable, nationwide, politically-insulated service with a trained bench of labor-specialized mediators and a sustained development pipeline. The recommendations that follow are designed to stabilize service delivery quickly, rebuild workforce and leadership capacity, and restore the structural independence that labor and management count on when they engage FMCS to help resolve an important dispute.

1. FMCS’s funding and staffing must be restored to FY 2025 levels so that the agency can continue to function and provide much-needed services to employers, workers, and unions.
2. FMCS should provide services in any dispute with the potential to disrupt commerce and not impose arbitrary thresholds, and it should provide in-person mediation services, not just virtual services.
3. FMCS must remain independent from political influence and control. Independence and impartiality is the hallmark of FMCS’s existence and success. The Trump administration should stop trying to control FMCS’s spending and operations and leave these decisions to the experts. FMCS should remain an independent, expert agency—it should not be folded into the Department of Labor or any other agency. Doing so would undermine FMCS’s impartiality, and the other agencies lack FMCS’s expertise.
4. FMCS has suffered from the lack of a Senate-confirmed director. The failure of the Biden administration—widely regarded as the most pro-union administration in history—to prioritize and win Senate confirmation of an FMCS director was detrimental to the agency’s operations and stature. Every administration should prioritize, nominate, and win Senate confirmation of an experienced, respected practitioner in labor-management relations to lead FMCS’s operations.
5. FMCS should resume free card check services in support of the voluntary recognition process. If employers are willing to recognize their employees’ union based on a showing of majority support without requiring workers to go through the NLRB election process, FMCS should be there to assist them. The Trump administration’s elimination of this service was misguided and undermined a long-standing practice by which companies and workers start their collective bargaining relationships on a more positive, less adversarial basis.
6. With restored funding and staffing, FMCS should prioritize the establishment of a special unit to focus on assisting parties in reaching initial collective bargaining agreements. This unit should be specially skilled and trained in collective bargaining and should be made available to the parties in newly organized bargaining units. Relatedly, Congress should recognize the importance of FMCS to the first contract mediation process. It should ensure that FMCS has sufficient funding to carry out this work and must increase FMCS’s funding and first contract mediation staffing and expertise if the Faster Labor Contracts Act or PRO Act become law.  
7. With restored funding and staffing, FMCS should prioritize the hiring, training, and retention of mediators experienced and skilled in mediating in a collective bargaining setting. Because Congress has broadened FMCS’s mandate over the years to include a number of activities in addition to collective bargaining mediation, FMCS’s services have become more varied and diffused. In order to have the credibility and stature to effectively assist in the collective bargaining process, FMCS should highlight collective bargaining mediation as its core mission and prioritize staffing and funding for these activities.
8. Relatedly, FMCS should highlight and publicize the importance and benefits of collective bargaining to employers, workers, and our economy. Congress should specifically direct FMCS to publish research and reports in this area and to coordinate with other labor and research agencies in collecting and analyzing relevant data. Several high-profile events were held during the Obama administration during the FMCS directorships of George Cohen and Allison Beck (the first and only woman to date to run FMCS). FMCS is uniquely positioned to do this work, as an agency explicitly created by Congress to support the collective bargaining process.
9. FMCS should explore ways to maximize the impact of its work by discouraging parties from engaging FMCS too early in the bargaining process.
10. The business community needs to speak up and support FMCS. FMCS is a service agency that supports employers and workers. FMCS helps prevent costly disputes and facilitate positive labor-management relations. Unions have actively worked to save FMCS through litigation and other efforts. The utter silence of the business community in response to the Trump administration’s attempts to shut down FMCS is inexplicable. The business community should voice support for restoring and maintaining FMCS.
11. FMCS leadership should prioritize and establish relationships with key Capitol Hill offices and the White House, and hire a government affairs director to lead this work. This would help ensure that key players are knowledgeable and up to date on FMCS’s work, which would be helpful in the appropriations and oversight process. Relatedly, FMCS should prioritize external communications about its work, the importance of collective bargaining to our economy, and the benefits of resolving workplace disputes through mediation.

Conclusion

The Trump administration’s attacks on FMCS and its independence have weakened and undermined the agency, its staff and morale, its operations, and its credibility. Only through the efforts of litigation and Congress has FMCS been able to survive, albeit in its weakened state. As a result, employers, workers, and unions have been deprived of a valuable service that Congress established nearly 70 years ago to help prevent and resolve workplace disputes. The Trump administration’s attacks are counterproductive and short-sighted and have undermined our national policy in favor of collective bargaining. Adoption of the recommendations outlined in this report would help restore FMCS to its original function and benefit employers, workers, unions, and our economy.

Notes

1. Consolidated Appropriations Act, 2026, [H.R. 7148], 119th Congress (2026).

2. Parties are required to participate in FMCS mediation in the health care industry, 29 U.S.C. 158(d), but FMCS has no power to prevent parties from engaging in strikes or lockouts if they fail to reach agreement. In contrast, the National Mediation Board (NMB) can and does require parties to engage in NMB mediation if the parties are not able to resolve a dispute on their own. 45 U.S.C. 155. This system was established by Congress to minimize the likelihood of disruptive labor disputes in the rail and airline industries. 45 U.S.C. 151a.

3. 29 U.S.C. 172(d).

4. 29 U.S.C. 172(a).

5. State of Rhode Island v. Trump. https://www.pelrb.nm.gov/wp-content/uploads/2026/01/RI-Fed-Court-Decision-Imposing-Injunction-2025-05-06-1.pdf

6. State of Rhode Island v. Trump. https://www.pelrb.nm.gov/wp-content/uploads/2026/01/RI-Fed-Court-Decision-Imposing-Injunction-2025-05-06-1.pdf

7. State of Rhode Island v. Trump. https://www.pelrb.nm.gov/wp-content/uploads/2026/01/RI-Fed-Court-Decision-Imposing-Injunction-2025-05-06-1.pdf

8. State of Rhode Island v. Trump. https://ag.ny.gov/sites/default/files/court-filings/state-of-rhode-island-et-al-v-donald-j-trump-institute-of-museum-and-library-services-preliminary-injunction-2025.pdf

9. As part of the Biden administration’s White House Task Force on Worker Organizing and Empowerment, efforts were made to try to require certain federal contractors to utilize FMCS’s services when workers first organized a union, but these efforts did not come to fruition (DOL n.d; WH Task Force 2023). Acting Secretary of Labor Julie Su issued a “first contract challenge” to newly organized companies, urging them to reach an agreement with employees within one year. She worked closely with BlueBird Bus Company and the United Steelworkers on meeting this goal and celebrated in person with them in Georgia when they succeeded (DOL 2024). However, the first contract challenge was not broadly implemented before the Biden administration left office.

10. Faster Labor Contracts Act, [S. 844], 119th Congress (2025).

References

AFL-CIO. 2025. “AFL-CIO, Unions Sue Trump Administration Over Cuts to Key Labor Relations Agency” (press release), April 15, 2025.

Bronfenbrenner, Kate. 2022. “In Solidarity: Removing Barriers to Organizing.” Testimony before the U.S. House Committee on Education and Labor, Washington, D.C., September 14, 2022.

Department of Labor (DOL). n.d. “Facilitating First Contracts Between Newly-Unionized Workers and Their Employers” (fact sheet). n.d.

Department of Labor (DOL). 2024. “Acting Secretary Su Visits Georgia for Blue Bird Corp. First Contract Signing; Spotlights Biden-Harris Administration’s Support for Unions in the South” (press release). July 19, 2024. 

Eidelson, Josh. 2025. “U.S. Agency to Cease Facilitating Easier Unionization Process.” Bloomberg, March 5, 2025.

Federal Mediation and Conciliation Service (FMCS). 2022a. “FMCS Card Check Services” (fact sheet), April 2022.

Federal Mediation and Conciliation Service (FMCS). 2022b. “FMCS Offers No-Cost Card Check Services” (press release), April 26, 2022.

Federal Mediation and Conciliation Service (FMCS). 2025a. “A Strategic Investment and Vital Part of America’s Economic Future” (fact sheet), March 2025.

Federal Mediation and Conciliation Service (FMCS). 2025b. “Fiscal Year 2026 Technical Supplement.” June 2025.

Federal Mediation and Conciliation Service (FMCS). 2026a. “Our Service Areas” (web page). Accessed on February 23, 2026.

Federal Mediation and Conciliation Service (FMCS). 2026b. “Success Stories” (web page). Accessed on February 23, 2026.

Federal Mediation and Conciliation Service (FMCS). 2026c. “Initial Contracts” (web page). Accessed on February 23, 2026.

McFerran, Lauren and Celine McNicholas. 2025. Trump’s Assault on Independent Agencies Endangers Us All. Economic Policy Institute, October 22, 2025.

National Labor Relations Board (NLRB). 2022. “NLRB General Counsel Promotes Productive Collective Bargaining Through Federal Mediation and Conciliation Service Partnership” (press release), April 27, 2022.

Purifoy, Parker. 2025. “States Take on Mediation Burdens After Trump Cuts Labor Agency.” Bloomberg Law, June 2, 2025.

Rhinehart, Lynn. 2025. “Donald Trump Is Shuttering A Little-Known Labor-Management Agency that Supports Collective Bargaining.” The Nation, March 28, 2025.

White House Task Force on Organizing and Empowerment (WH Task Force). 2023. “Task Force on Worker Organizing and Empowerment.” March 20, 2023.

Further, the Republican-led One Big Beautiful Bill (OBBB) that passed last year will sharply cut Medicaid and SNAP over the next decade by well over $1 trillion combined.

The combination of these trends—low-road employers paying insufficient wages and big upcoming cuts to Medicaid and SNAP—has led to a flurry of policy proposals at the state level to address them. One proposal—employer assessment fees (EAFs)—appears at first glance to address both problems by imposing a tax on firms that employ workers who receive Medicaid or SNAP, with the tax often calculated as the number of workers receiving these benefits multiplied by the average cost of those benefits. But EAFs are not the optimal solution to either problem and might cause undesirable collateral damage.

Here’s why:

• Medicaid and SNAP do not make it easier for employers to offer lower wages. In fact, they likely raise the wages needed to attract workers—and that’s a good thing.
  • This is not universal across all safety net and income support programs. Some of these, like the Earned Income Tax Credit (EITC), do see some of their benefits likely bypass workers and captured by low-wage employers.
• If you make Medicaid-receiving workers more expensive to employ, then employers will try to employ fewer of them and/or lower their market wages. And if the tax is proportional to the average cost of benefits like Medicaid, this incentive is large.
• Employer assessments fees are generally a large tax imposed on a small base. But revenue is maximized when tax bases are broad.
• The targets of EAFs can be more effectively reached with other policies.
  • Raising minimum wages and passing legislation to strengthen workers’ rights to unionize and bargain collectively are alternative policies for forcing employers to pay more.
  • Broad-based taxes are alternative polices for raising revenue.
    • Higher corporate income taxes or employer-side payroll taxes would be more progressive alternatives for taxing employers.
    • Another alternative would be to penalize firms that don’t offer employer-sponsored health insurance (ESI) to workers. This is not a huge base, but it is by definition wider than those who receive Medicaid (which is just a subset of all workers not receiving ESI through the firm.)

Below, we expand on these points.

Medicaid and SNAP do not make it easier for employers to offer lower wages

A concern is often expressed that Medicaid and SNAP “subsidize” low-wage employers by making it easier for them to offer lower wages. Intuitively, thinking that Medicaid and SNAP subsidize low-wage employers actually gives these employers far too much credit for caring about the living standards of their workers. Higher pay is not given out of the goodness of employers’ hearts—it happens when policy or market conditions change. Medicaid and SNAP do not change labor market conditions in any way that lowers workers’ pay, and when these programs are cut in coming years, low-wage employers are not going to think “we need to raise our wages to help these employees who are seeing cuts to other income sources.” They will instead raise wages only if policy mandates they do or if market conditions change.

In reality, Medicaid and SNAP actually boost lower-wage workers’ meager leverage to demand higher pay by making periods of non-work less miserable. This slightly improved fallback position for low-wage workers keeps them from being forced as quickly by material deprivation into accepting any possible wage offer from employers. Policy changes that reduce how many workers receive Medicaid or SNAP will put further downward pressure on wages. We should support policies that expand the number of workers who have their wages supplemented by safety net programs, not policies that penalize and stigmatize using benefits.

This wage-boosting effect is not universal among all public income support programs. The Earned Income Tax Credit (EITC), for example, pays more as workers supply more hours to the paid labor market. This boost to labor supply puts some downward pressure on market wages and can lead to some of the EITC benefits bypassing workers and being captured by employers (unless it is complemented by strong minimum wages.)

Making workers who receive safety net benefits more expensive will reduce demand for them

If you make workers who receive safety net benefits more expensive for employers to keep on payroll, then you increase the incentive for these employers to hire fewer of them or offer them lower wages.

Supporters of EAFs could argue this logic could be employed against any effort that made workers more expensive, like minimum wages. But minimum wages apply to all workers, and employers by definition cannot lower wages to absorb the higher costs minimum wages impose. Fully substituting away from workers whose pay has been lifted by minimum wages and toward other inputs essentially means employers would have to make costly investments in plant, capital, equipment, and processes.

Conversely, only a small fraction of workers receives safety net benefits. Absent binding minimum wages, employers can lower their market-based pay to recoup the EAFs (at least until they run into the relevant minimum wage in the labor market.) Trying to substitute away from workers who receive safety net benefits toward workers who are less likely to receive these benefits is more doable for employers than substituting away from all lower-wage labor.

These employer efforts to figure out who on their payroll is likely to trigger an EAF could lead to collateral damage. Workers from groups that are more likely to receive safety net benefits might be discriminated against across-the-board, regardless of whether or not they are actually enrolled in Medicaid or SNAP. Basically, EAFs mean that populations who are more likely to use benefits—like low-income single moms—would face even greater barriers in the labor market. Workers of color are also overrepresented among the families who use SNAP and Medicaid.

Further, the direct benefits of broad-based minimum wages to workers are large—all low-wage workers get a raise if their pay was lower than the new minimum. The direct benefits to any worker from an EAF is nonexistent—their pay does not rise, and they are not more likely to receive employer benefits.

The indirect benefits of EAFs are simply the revenue they raise, and if this revenue can be raised in less costly ways, then EAFs are not optimal.

EAFs are a large tax on a small base

Workers who receive Medicaid benefits constitute roughly 10% of the overall workforce (and their share of total hours is significantly less than this). This is a relatively small base for a tax. But the size of proposed EAFs is often quite large, sometimes as large as the average Medicaid benefit. This benefit can reach more than $9,000 annually in many states. For a full-time, year-round worker making $15 an hour, this constitutes a tax on employers equivalent to 30% of that worker’s entire earnings.

Large taxes on small bases often lead to behavioral responses that erode the revenue gained from the tax. The large value of the tax incentivizes this avoidance behavior, and the small base allows substitution away from workers who trigger the tax. This means that EAFs would raise—at best—a highly uncertain amount of revenue and could well end up raising small amounts.

Sometimes, behavioral responses to taxes that reduce the revenue they raise are socially useful. For example, when cigarette taxes lead to reduced smoking or even when workers facing higher taxes are able to voluntarily substitute more leisure for work. But the behavioral response to EAFs that lowers the revenue gained from them also directly inflicts harm on low-wage workers.

There are better alternatives for the policy goals of EAFs

The recent pushes to use EAFs come from very good impulses: the desire to force employers to pay more and stop defecting on the social contract, and the desire to raise revenue so that states can buffer their residents from the terrible coming effects of the OBBB.

But there are better alternatives to achieve these goals. To raise wages, higher minimum wages are an obvious first step. A second step is policy changes that better enable willing workers to form unions and bargain collectively, even in the face of steep employer resistance. Policymaker inaction has largely destroyed the fundamental right of association in much of the U.S. labor market. Reversing this would, in the long run, solve many of the problems of employer behavior that EAFs are trying to target.

There are also better sources to raise reliable revenue to buffer residents from the OBBB’s steep cuts. If the desired target for these revenue increases is employers, higher corporate income taxes or higher employer-side payroll taxes (for all workers) could be used. Another revenue source specifically targeted at low-road employers could be increasing penalties for firms based on the number of their employees who are not covered by employer-sponsored health insurance through the workplace. This is not a huge tax base, but it is by definition larger than just employers with workers receiving Medicaid, as it would also include workers with no coverage at all. Further, this tax would incentivize the provision of ESI to more workers, a good thing in itself.

The same is true of government. If we want a high-functioning public sector—and we should—there is no shortcut. It requires sustained investment in the people and capacity that make government work. Starve it of resources, and its performance will inevitably suffer.

In a recent New York Times essay, academics Nicholas Bagley and Robert Gordon argue otherwise. In their telling, government underperforms because public-sector unions have too much power, driving up costs and resisting efficiencies. Their solution is simple: rein in unions and invest less—largely by cutting pay for public-sector workers. It’s a tidy story that promises an easy fix.

It is also economically incoherent.

The central constraint on public-sector performance is not the power of unions—it is chronic underinvestment. For decades, policymakers have allowed public-sector pay and prestige to fall behind comparable private-sector jobs and have outsourced key functions that should have been performed by skilled civil servants, not profit-maximizing private contractors that are the real source of excess costs for state and local governments. The predictable results have been staffing shortages, uneven service quality, and degraded state capacity—not because we are paying too much, but because we have been trying to get government on the cheap.

Start with the most basic implicit claim Bagley and Gordon return to again and again: that public-sector unions have extracted excessive compensation and resisted efficiencies at every turn. If that were true, we would expect to see the total compensation of public-sector workers rising as a share of the overall economy. In fact, the opposite has happened—the combined compensation of public employees has shrunk noticeably as a share of national income for the last quarter century.

To be sure, policymakers should always aim to deliver value for taxpayers. And—just as in the private sector—there are surely instances where some public employee’s pay is out of line or workers resist useful improvements. But if overpayment for services delivered inefficiently was a general feature of the public sector, their aggregate compensation wouldn’t be shrinking sharply over time.

Bagley and Gordon support their claims with a shotgun blast of anecdotes about public-sector unions able to muscle excess pay out of colluding Democratic politicians that are almost laughably context-free. L.A. Mayor Karen Bass gave larger-than-normal raises to public-sector employees in 2024? I’d hope so—prices had risen 23% in the previous five years (this inflation had made some news) and private-sector pay for non-supervisory employees was up 28% over that time. The suggestion by Bagley and Gordon that these raises were untoward only makes sense if you actively want the desirability of public employment to crater relative to the rest of the economy.

Bagley and Gordon also note darkly that “more than half” of local government expenditures are paid to employees. So what? Local government spending is not like federal government spending where the overwhelming majority of it is simple transfer payments—sending checks to people (Social Security) and medical providers (Medicare and Medicaid). Local governments must directly deliver public goods and services, like public education. That’s going to be done by people who need to be paid. The private sector, too, devotes the majority of its spending to labor (in the corporate sector, labor’s share is well over 70%.)

Even the data they cite for this irrelevant point show that compensation—including the benefits that Bagley and Gordon decry—in state and local jobs is lower than for similar workers in the private sector. That gap matters. Public-sector employers must compete in the same labor markets as everyone else, and low relative pay for skilled workers in the public sector compromises the ability of public-sector employers to attract and retain highly effective workers.

This ignorance of how labor markets in the private and public sectors interact is the root of many of Bagley and Gordon’s economic misunderstandings.

Consider their discussion of education spending, where they note that California spends more per pupil than Mississippi. California does spend more per pupil in nominal dollars, but prices in California are far higher than in Mississippi. Even more importantly, private-sector salaries for college-educated professionals in California are much higher than in Mississippi—and those are the jobs that set the outside options that talented college graduates weigh when deciding whether to enter and remain in teaching. Put another way, it is competition from the private sector that determines how high pay must be to attract and retain high-quality teachers. Education researchers know this, and that’s why the generally accepted way to assess the sufficiency of education spending is not nominal dollars spent per pupil, but per pupil spending scaled to per capita GDP in a state. In forthcoming work we show that on this measure, California ranks 36^th in the nation—lower than Mississippi.

This also shows why the Bagley and Gordon claim that “…blue states and cities often also pay state and local government workers more than similar jobs pay in red jurisdictions, even after adjusting for the cost of living” misses the point so spectacularly. State and local governments are embedded in their local economies and public-sector pay has to rise in line with private-sector pay in the economy around them, or the quality and quantity of available public employees will suffer.

The big problem over recent decades is that public-sector pay has not kept pace with the surrounding economy, which has made it harder to recruit and retain qualified workers. Teacher shortages, for instance, stem directly from the huge gap that has emerged in recent decades between what public school teachers earn and what comparable private sector workers earn, even in the highest-spending states. How would making these jobs lower-paying and lower-prestige add excellent new teachers and improve educational outcomes?

Another common complaint about the public sector is that it slows infrastructure projects. The public is often invited to imagine huge teams of paper-pushing bureaucrats gleefully stamping “no” on planning documents. But the clearest finding in empirical research about the drivers of higher-cost infrastructure is that costs have risen fastest where states reduced the number of transportation department employees. Fewer public-sector workers means that more of the planning work has been outsourced to more expensive private consultants.

Bagley and Gordon claim that when policymakers bargain with public-sector unions, there is no constraint on their incentives to grant union demands in exchange for electoral support. In reality, there is a crushing countervailing constraint—the overwhelming perception that voters are rabidly anti-tax. This results in a deep reluctance by policymakers to call for the level of revenue needed for public sector excellence. It is a far bigger structural problem today than any supposed excess power of public-sector unions.

Public-sector workers don’t just bear the brunt of underinvestment, they are also one of the few consistent voices arguing for robust financing of state and local governments, bargaining directly for the public good. They advocate for libraries to remain open in rural communities so that everybody has at least some access to the internet, for higher levels of K–12 education spending, and for proper training for EMTs and other first responders to ensure public safety.

Despite these efforts, public sector financing has been throttled in recent decades, and the results have been a predictable degradation of services. Even worse is coming, as the Republican tax and spending megabill will impose crushing cuts to safety net programs that states administer and jointly fund.

For decades we have been relying on the admirable intrinsic motivation of public employees to shield us from some of the damage of underinvestment—nurses, first-responders, and teachers going above and beyond the strict demands of their jobs to provide services they feel called to perform. But we’ve already asked too much while paying too little. If we want a truly excellent public sector—and we should—we need to pay for it.

This FAQ answers key questions about the “no tax on overtime” policy and what it means for working people.

Summary  

The public has supported raising taxes on the ultrarich and corporations for years, but policymakers have not responded. Small increases in taxes on the rich that were instituted during times of Democratic control of Congress and the White House have been consistently swamped by larger tax cuts passed during times of Republican control. This was most recently reflected in the massive budget reconciliation bill pushed through Congress exclusively by Republicans and signed by President Trump. This bill extended the large tax cuts first passed by Trump in 2017 alongside huge new cuts in public spending. This one-step-forward, two-steps-back dynamic has led to large shortfalls of federal revenue relative to both existing and needed public spending.

Raising taxes on the ultrarich and corporations is necessary for both economic and political reasons. Economically, preserving and expanding needed social insurance and public investments will require more revenue. Politically, targeting the ultrarich and corporations as sources of the first tranche of this needed new revenue can restore faith in the broader public that policymakers can force the rich and powerful to make a fair contribution. Once the public has more faith in the overall fairness of the tax system, future debates about taxes can happen on much more constructive ground.

Policymakers should adopt the following measures:

• Tax wealth (or the income derived from wealth) at rates closer to those applied to labor earnings. One way to do this is to impose a wealth tax on the top 0.1% of wealthy households.
• Restore effective taxation of large wealth dynasties. One way to do this would be to convert the estate tax to a progressive inheritance tax.
• Impose a high-income surtax on millionaires.
• Raise the top marginal income tax rate back to pre-2017 levels.
• Close tax loopholes for the ultrarich and corporations.

Introduction

The debate over taxation in the U.S. is in an unhealthy state. The public is deeply distrustful of policymakers and doesn’t believe that they will ever put typical families’ interests over those of the rich and powerful. In tax policy debates, this means that people are often highly skeptical of any proposed tax increases, even when they are told it will affect only (or, at least, overwhelmingly) the very rich. People are also so hungry to see any benefit at all, no matter how small, that they are often willing to allow huge tax cuts for the ultrarich in tax cut packages if those packages include any benefit to them as well. The result has been a continued downward ratchet of tax rates across the income distribution.1 This is a terrible political dynamic for U.S. economic policy, given the pressing national needs for more revenue.

As countries get richer and older, the need for a larger public sector naturally grows.2 Yet the share of national income collected in taxes by the U.S. government has stagnated since the late 1970s. This has left both revenue and public spending in the United States at levels far below those of advanced country peers.3 This stifling of resources available for the public sector is not only inefficient but has led to frustration over its inability to perform basic functions. The political root of this suppression of resources for the public sector is a series of successful Republican pushes to lower tax rates for the richest households and corporations. This attempt to use tax policy to increase inequality has amplified other policy efforts that have increased inequality in pre-tax incomes, leading to suppressed growth in incomes and declining living standards for low- and middle-income households and a degraded public sector.4

In recent decades the dominant strategy for many on the center–left to combat the public’s tax skepticism is to pair tax increases with spending increases for programs that lawmakers hope will be popular enough to justify the taxes. This strategy has worked in the sense that some tax increases have been passed in the same legislation that paid for valuable expansions of income support, social insurance, and public investment programs in recent years. But this strategy has not stopped the damaging political dynamic leading to the sustained downward ratchet of tax revenue and the tax rates granted to the ultrarich and corporations.5

Part of the problem with a strategy of trying to attach tax increases to allegedly more popular spending increases is that it takes time for spending programs to become popular. The Affordable Care Act (ACA), for example, was not particularly popular in the year of its passage but has survived numerous efforts to dislodge it and has seemingly become more popular over time. Conversely, the expanded Child Tax Credit (CTC) that was in effect in 2021 and cut child poverty in half only lasted a single year, so there was little organic public pressure on Congress to ensure it continued.

In this report, we suggest another strategy for policymakers looking to build confidence in the broader public that tax policy can be made fairer: Target stand-alone tax increases unambiguously focused on ultrarich households and corporations as the first priority of fiscal policy. The revenue raised from this set of confidence-building measures can be explicitly aimed at closing the nation’s fiscal gap (the combination of tax increases or spending cuts needed to stabilize the ratio of public debt to national income).6 Once this gap has been closed with just highly progressive taxes, the public debate about the taxes needed to support valuable public investments and welfare state expansions should be on much more fruitful ground.

This approach takes seriously the work of scholars like Williamson (2017), who argue that the U.S. public is not rigidly “anti-tax.” Indeed, this public often views taxpaying as a civic responsibility and moral virtue. Yet they have become convinced that too many of their fellow citizens are not making a fair and adequate contribution. Part of this perception rests on underestimating the taxes paid by the poor and working people, but a good part of this perception also rests on the accurate impression that many rich households and corporations are not paying their fair share. Policy can change this latter perception, particularly if the policy is explicitly identified with ensuring that the rich and corporations—and only the rich and corporations—will see their taxes increase.

The rest of this report describes a number of tax policy changes that would raise revenue from the rich and corporations with extremely small (often zero) spillover into higher taxes for anybody else. It also provides rough revenue estimates of how much each could raise. It is not exhaustive, but it demonstrates that the nation’s current fiscal gap could certainly be closed with only taxes on the very rich. Making this policy agenda and target explicit could go a long way to restoring trust and improving the quality of the debate about taxes.

Targeting the ultrarich

The vast majority (often 100%) of the tax policy changes discussed below would only affect the taxes paid by the top 1% or above (those making well over $563,000 in adjusted gross income in 2024). Many of the taxes—and the vast majority of the revenue raised—will actually come from households earning well above this amount. We will be more specific about the incidence of each tax in the detailed descriptions below. The tax policy changes fall into two categories: increasing the tax rates the rich and ultrarich pay and closing the tax loopholes they disproportionately benefit from. We first present the tax rate changes, and we list them in declining order of progressivity.

Both the rate changes and the loophole closers disproportionately focus on income derived from wealth. By far the biggest reason why rich households’ tax contributions are smaller than many Americans think is appropriate has to do with rich households’ source of income. So much of these households’ income derives from wealth, and the U.S. federal tax system taxes income derived from wealth more lightly than income derived from work. If policymakers are unwilling to raise taxes on income derived from wealth, the tax system can never be made as fair as it needs to be.

Levying a wealth tax on the top 0.1% or above of wealthy households

The WhyNot Initiative (WNI) on behalf of Tax the Greedy Billionaires (TGB) has proposed a wealth tax of 5% on wealth over $50 million, with rates rising smoothly until they hit 10% at $250 million in wealth and then plateauing. With this much wealth, even a household making just a 1% return on their wealth holdings would receive an income that would put them in the top 1% of the income distribution. A more realistic rate of return (say, closer to 7%) would have them in the top 0.1% of income.

The $50 million threshold roughly hits at the top 0.1% of net worth among U.S. families, so this tax is, by construction, extremely progressive—only those universally acknowledged as extremely wealthy would pay a penny in additional tax. The WNI proposal also imposes a steep exit tax, should anybody subject to the tax attempt to renounce their U.S. citizenship to avoid paying it.

The Tax Policy Center (TPC) has estimated that the WNI wealth tax could raise $6.8 trillion in additional net revenue over the next decade, an average of $680 billion annually. In their estimate, the TPC has accounted for evasion attempts and the “externality” of reduced taxes likely to be collected on income flows stemming from wealth holdings. Despite accounting for these considerations, the $6.8 trillion in revenue over the next decade could completely close the nation’s current estimated fiscal gap.

A key consideration in the long-run sustainability of revenue collected through a wealth tax is how quickly the tax itself leads to a decline in wealth for those above the thresholds of the tax. If, for example, the tax rate itself exceeded the gross rate of return to wealth, wealth stocks above the thresholds set by the tax would begin shrinking, and there would be less wealth to tax over time. The Tax Policy Center’s estimate includes a simulation of this decumulation process, assuming an 8.5% rate of return.7 It finds only very slow rates of decumulation.

Other simulation results (like those in Saez and Zucman 2019b) find faster decumulation for wealth taxes as high as this, but even their findings would still support the significant revenue potential of a wealth tax targeted at sustainability. Whereas the WNI wealth tax raises roughly 2.2% of GDP over the next 10 years, the Saez and Zucman (2019a) results highlight that over half this much could essentially be raised in perpetuity.8

It is important to note that even if revenue raised from any given wealth tax came in lower than expected due to the decumulation of wealth, this decumulation is itself highly socially desirable. The wealth would not be extinguished. It would instead accumulate to other households throughout society. An analogy is carbon taxes targeted at lowering greenhouse gas emissions. If a carbon tax were implemented and the revenue it raised steadily fell over time, this would be a sign of success, as the primary virtue of such a tax is not the long-run revenue it can raise but the behavioral changes it can spur, such as switching to less carbon-intensive forms of energy generation and use.

The benefits from wealth decumulation could be profound. For one, much of the rise in wealth in recent decades has been the result of a zero-sum transfer of income claims away from workers and toward capital owners (Greenwald, Lettau, and Ludvigson 2025). To the degree that higher wealth taxes make these zero-sum transfers less desirable for privileged economic actors, the imperative to keep wages suppressed and profits higher will be sapped, leading to a broader distribution of the gains of economic growth.

Further, highly concentrated wealth leads naturally to highly concentrated political power, eroding the ability of typical families to have their voices heard in important political debates (Page, Bartels, and Seawright 2013). Studies show that popular support for democratic forms of government is weaker in more unequal societies, demonstrating that a greater concentration of wealth can lead to the erosion of democracy (Rau and Stokes 2024).

Converting the estate tax to a progressive inheritance tax

The estate tax in the United States currently only applies to estates of more than $11.4 million. At the end of 2025 it would have reverted to pre-2017 levels of roughly $7 million, but the Republican budget reconciliation bill passed in 2025 will raise it to a level more than twice as high starting in 2026—at $15 million. The 40% estate tax rate applies on values above these thresholds.

The estate tax threshold has been increased significantly since 2000, with changes in 2001, 2012, 2017, and 2025 all providing large increases. In 2000 the threshold for exemption was under $1 million, and the rate was 55%. If the 2000 threshold were simply updated for inflation, it would have been $1.3 million today, instead of $11.4 million. At this $1.3 million threshold and with a 55% rate, the estate tax would raise roughly $75 billion more in revenue this year than it is currently projected to.9 In short, our commitment to taxing wealthy estates and their heirs has eroded substantially in recent decades.

Batchelder (2020) proposes a new tax on inheritances that would replace the estate tax. Batchelder’s inheritance tax would not fall on the total value of the estate, but simply the portion of it inherited by individual heirs. Her proposal is to tax inheritances of various thresholds as ordinary income. Because the tax would be triggered by the lifetime level of gifts and inheritances, it cannot be avoided just by using estate planning to time these bequests and gifts. For a threshold of $1 million, the tax would raise roughly 0.35% of gross domestic product annually, or roughly $1 trillion over the next decade.

An inheritance tax is naturally more progressive than an estate tax. To see why, imagine an estate of $5 million that faced 2000-era estate tax rules. An estate tax would lower the value of the inheritance to all heirs by an amount proportional to the tax. Conversely, under an inheritance tax, the effective rate of the tax felt by heirs would be significantly different if the estate was spread among 10 heirs (each receiving $500,000 and, hence, not even being subject to the Batchelder inheritance tax that starts at $1 million) versus being spread among two heirs (each receiving $2.5 million and paying an inheritance tax). Fewer heirs for a given estate value imply a larger inheritance and, hence, a higher inheritance tax (if the inheritance exceeds the tax’s threshold).

Imposing a high-income surtax on millionaires

Probably the most straightforward way to tightly target a tax on a small slice of the richest taxpayers is to impose a high-income surtax. A surtax is simply an across-the-board levy on all types of income (ordinary income, business income, dividends, and capital gains) above a certain threshold. As such, there is zero possibility that lower-income taxpayers could inadvertently face any additional tax obligation because of it.

A version of such a high-income surtax was actually a key proposed financing source for early legislative versions of the Affordable Care Act. The bill that passed the House of Representatives included such a surtax.10 This surtax was replaced with other revenue sources during the reconciliation process between the House and Senate versions.

One proposal is to enact a 10% surtax on incomes over $1 million. This would affect well under 1% of households (closer to 0.5%). Using data from the Statistics of Income (SOI) of the Internal Revenue Service (IRS), we find that roughly $1.55 trillion in adjusted gross income sat over this $1 million threshold among U.S. households in 2019.11 A purely static estimate with no behavioral effects, hence, would argue that $155 billion annually (10% of this $1.55 trillion) could be raised from this surcharge. In tax scoring models (like that of the Tax Policy Center or the Joint Committee on Taxation), behavioral effects tend to reduce estimates roughly 25% below such static estimates. Applying such a discount would still suggest that the revenue potential of a high-income surtax with a $1 million threshold could be $1.5 trillion over the next decade.

Raising the top marginal income tax rate back to pre-TCJA levels

During the Clinton and Obama administrations, the top marginal tax rate on ordinary income was increased to 39.6%. During the George W. Bush and the first Donald Trump administrations, it was reduced and currently sits at 37%. This lower marginal top rate would have expired at the end of 2025, but the Republican budget reconciliation bill, passed by Congress and signed by Trump in July 2025, ensured that it would stay at 37%.

In 2025 the bracket that this top tax rate applies to will begin at $626,350 for single filers and joint filers. This is well under 1% of taxpayers. If the bracket for top tax rates was dropped to $400,000 and the rate was raised to 39.6%, the Tax Policy Center has estimated that this could raise roughly $360 billion over the next decade. Earlier in 2025, there were reports that Republicans in Congress were thinking about letting the top tax rate revert to the level it was at before the 2017 Tax Cuts and Jobs Act (TCJA). This was touted as members of Congress breaking with their party’s orthodoxy and actually taxing the rich. On the contrary, the new top marginal tax rate now applies to joint filers at an even lower level than pre-TCJA rates.

As can be seen in Table 1, pushing the top marginal rate on ordinary income to pre-TCJA levels is one of the weakest tools we have for raising revenue from the rich. The reason is simple. A large majority of the income of the rich is not ordinary income; it is income derived from capital and wealth, and, hence, only changing the tax rate on ordinary income leaves this dominant income form of the rich untouched.

Corporate tax rate increases

In 2017 the TCJA lowered the top rate in the corporate income tax from 35% to 21%, and the 2025 Republican budget reconciliation bill extended that lower 21% rate. The 35% statutory rate that existed pre-TCJA was far higher than the effective rate actually paid by corporations. Significant loopholes in the corporate tax code allowed even highly profitable companies to pay far less than the 35% statutory rate.

But at the same time the TCJA lowered the statutory rate, it did little to reduce loopholes—the gap between effective and statutory rates after the TCJA’s passage remains very large.12 Clausing and Sarin (2023) have estimated that each 1 percentage point increase in the top statutory tax rate faced by corporations raises over $15 billion in the first years of the 10-year budget window. Raising today’s 21% top rate back to the 35% rate that prevailed before the TCJA would, hence, raise roughly $2.6 trillion over the next decade.

The immediate legal incidence of corporate taxes falls on corporations, the legal entities responsible for paying the taxes. However, the economic incidence is subject to more debate. The current majority opinion of tax policy experts and official scorekeepers like the Joint Tax Committee (JTC) is that owners of corporations (who skew toward the very wealthy) bear most of the burden of corporate tax changes.13 But some small share of the corporate tax rate’s incidence is often assigned to workers’ wages, as there are some (speculative) reasons to think a higher corporate tax rate leads in the long run to lower wage income. The economic reasoning is that if the higher corporate tax rates lead to less economywide investment in tangible structures, equipment, and intellectual property, then this could slow economywide productivity growth. This slower productivity growth could, in turn, reduce wage growth for workers.

However, newer research highlights that there are good reasons to think that corporate tax rate increases have zero—or even positive—effects on private investment in structures, equipment, and intellectual property. Brun, Gonzalez, and Montecino (2025, forthcoming) argue that once one accounts for market power (either in product or labor markets) of corporations, corporate taxes fall, in part, on nonreproducible monopoly rents. To provide an example, a large share of Amazon’s profits is not just due to the size of the firm’s capital stock but its considerable monopoly power in many business segments. This market power allows them to charge higher prices than they could in competitive markets, and these excess prices represent a pure zero-sum transfer from consumers, not a normal return to investment.

Increasing taxes on these monopoly rents can reduce stock market valuations of firms and actually lower the hurdle rate for potential competitors assessing whether to make investments in productivity-enhancing capital. This can actually boost investment and productivity economywide, and if investment and productivity rise (or just do not fall) in response to corporate tax increases, this implies that none of the economic incidence of a corporate tax increase falls on anybody but the owners of corporations.

In short, despite some mild controversy, it seems very safe to assume that increases in the corporate income tax rate both are and would be perceived by the public as extremely progressive.

Closing tax loopholes that the ultrarich and corporations use

As noted above, it’s not just falling tax rates that have led to revenue stagnation in recent decades. There has also been an erosion of tax bases. Growing loopholes and increasingly aggressive tax evasion strategies have put more and more income out of the reach of revenue collectors. It goes almost without saying that the vast majority of revenue escaping through these loopholes and aggressive tax evasion strategies constitutes the income of the very rich and corporations.

These types of loopholes are unavailable to typical working families because their incomes are reported to the Internal Revenue Service. Typical working families rely on wage income, which is reported to the penny to the IRS, and families pay their legally obligated tax amount. Income forms earned by the ultrarich, however, often have very spotty IRS reporting requirements, and this aids in the evasion and reclassification of income flows to ensure the ultrarich are taxed at the lowest rates.14 Shoring up tax bases by closing loopholes and engaging in more robust enforcement are key priorities for ensuring the very rich pay a fair and substantial contribution to the nation’s revenue needs.

Closing loopholes that allow wealth gains and transfers between generations to escape taxation

The wealthy use a number of strategies to escape taxation of the income they generate and to allow assets to be transferred to their heirs. Below we discuss three such strategies and provide a score for a consolidated package of reforms aimed at stopping this class of tax strategies—$340 billion over the next decade.

Ending the step-up in basis upon death or transfer of assets

This is best explained with an example. Say that somebody bought shares of a corporation’s stock in the early 1980s for $1 per share. They held onto it for decades until it reached $501 per share. Since they never realized this capital gain by selling the stock, they were never taxed on their growing wealth. Now, say that they transferred these stock holdings to their children decades later. Because it is no longer the original buyer’s property, it would not be assessed as part of an estate subject to the estate tax. If their children subsequently sold the stock, current law would allow a step-up in basis, which means the capital gain they earned from selling the stock would only be taxed on the gain over and above the $501 per share price that prevailed when they received the stock, not the original $1 per share price.

So, if children sold their stock gift for $501 per share, they would owe zero tax. And for the family as a whole, the entire (enormous) capital gain that occurred when the share appreciated from $1 to $501 is never taxed. This allows huge amounts of wealth to be passed down through families without the dynasty’s ever paying appropriate taxes, either capital gains taxes or estate taxes.

An obvious solution to this problem is simply to not grant the step-up in basis when the asset is transferred. That is, when the children receive the stock in the example above, any subsequent sale should be taxed on any capital gain calculated from the $1 originally paid for the stock. In the case above, the children would have had to pay a capital gains tax on the full value between $1 and $501 if they had sold the stock for $501.

Besides raising money directly through larger capital gains values, ending the step-up in basis can also cut down on many tax engineering strategies that wealthy families undertake to avoid taxation. Estimates for the revenue that could be raised by enacting this change are quite varied, but they tend to sit between $15 billion and $60 billion in 2025.15 We estimate this would raise $190 billion over the next decade.

An alternative solution getting at the same problem would be to make the death of a wealth holder a realizable event. Essentially, for the purposes of taxation, it would be assumed that all assets were sold by a wealth holder upon their death, and the appropriate rate of capital gains taxation would then be collected.

Making borrowing a realizable event

A related reform would make the pledging of any asset as collateral against a loan a realizable event. In the example above, as the original holder of the stock held the shares and did not sell them over a long period of time, this raises an obvious question of how this family is financing their current consumption without liquidating any wealth. They could, of course, be earning labor income. But the very wealthy often finance current consumption by taking out loans and using the value of their wealth as collateral. So long as the interest rates on the loans are lower than the rate of return on the wealth being pledged as collateral, they can enjoy high and rising consumption and still see considerable wealth appreciation. This is a particularly useful strategy during periods of low interest rates (like most of the past 25 years) and for owners of newer corporations that are growing rapidly (think Jeff Bezos and Amazon during the 2000s). This use of debt as a strategy of avoiding capital gains realization has often been called the “Buy, Borrow, Die” strategy.

An obvious reform to stop this would be to force wealth holders to treat pledging an asset as collateral as a realization event for this asset. When the wealth holder goes to financiers to get loans and pledges their shares as collateral, the wealth holder would pay a capital gains tax on the difference in the value of the stock between when they originally bought it and the value the day it is pledged for collateral. The amount of revenue this would raise would be small in the grand scheme of the federal budget, roughly $60 billion over the next decade. But it would provide one more block to a common tax evasion strategy for the ultrarich, and this could show up in more revenue collected through other taxes.

Closing loopholes that erode estate or inheritance tax bases

Hemel and Lord (2021) identify estate planning mechanisms that reduce the base of the current estates taxes, including the abuse of grantor retained annuity trusts (GRATs) and excessively preferential tax treatment of transfers within family-controlled entities. Under current law, wealthy individuals establishing a trust for their descendants may calculate the taxable gift amount of the trust by subtracting the value of any qualified interest. This qualified interest includes any term annuity retained by the grantor of the trust. The annuity is based on market interest rates prevailing when the trust was established. When interest rates are low, this becomes an extremely valuable deduction.

Hemel and Lord (2021) give the example of a grantor establishing a $100 billion trust but retaining a two-year annuity payment of $50.9 million based on the 1.2% interest rate prevailing in 2021. This taxpayer would be able to subtract this annuity from their taxable gift calculation, effectively paying no gift tax. If the assets in the trust grew faster than 1.2%, then the trust would have assets left over after two years, and these could be passed to the beneficiaries free of any transfer tax (as these assets came from the trust, not the original grantor). If assets in the trust grew more slowly than this amount, then the trust would be unable to make its full final annuity payment and would be declared a failed trust and would trigger no estate or gift tax consequences. In this case, the original grantor could simply try again to construct a short-term irrevocable trust that would succeed in transferring income to heirs without triggering a gift tax.

Hemel and Lord (2021) recommend repealing the law that allows for this deduction of qualified interest from gift or transfer taxes applying to GRATs. They also argue for reducing the preferential treatment of transfers within family-controlled entities. The full package of reforms to estate planning that they recommend would raise $90 billion over the next decade.

Closing the loophole from ambiguity between self-employment and net investment income

As part of the Affordable Care Act, a 3.8% tax was assessed on income above $200,000 (for single filers and $250,000 for joint filers). If this income is earned as wages or self-employment income, this tax is paid through the Federal Insurance Contributions Act (FICA) or the Self-Employment Contributions Act (SECA) taxes. If the income is received as a dividend or interest payment or royalty or other form of investment income, the tax is paid as a Net Investment Income Tax (NIIT). The clear intent is for income of all forms to be assessed this tax.

Somehow, however, some business owners (mostly those owning limited partnerships and S corporations—corporations with a limited number of shareholders who are required to pass through all profits immediately to owners) have managed to classify their income as not subject to FICA, SECA, or the NIIT.16 A number of policy options could close this unintended gap and raise nontrivial amounts of revenue—roughly $25 billion in 2025. Importantly, the revenue collected by this loophole closing would go directly to the Medicare trust fund.

International corporate tax reform

Before the TCJA, the biggest loophole by far in the corporate income tax code was U.S. corporations’ ability to defer taxes paid on profits earned outside the United States. In theory, once these profits were repatriated, taxes would be levied on them. However, financial engineering meant that there was little need to repatriate these profits for reasons of undertaking investment or stock buybacks or anything else corporations wanted to do.17 Further, corporations routinely lobbied for repatriation holidays, periods of time when they were allowed to repatriate profits at a reduced rate. One such holiday was passed by Congress and signed into law by George W. Bush in 2004.

Between 2004 and 2017, pressure for another such holiday ramped up as more and more firms deferred corporate taxes by holding profits offshore. The TCJA not only provided such a holiday for past profits kept offshore, it also made profits booked overseas mostly exempt from U.S. corporate taxes going forward. In essence, the TCJA turned deferral into an exemption.

This TCJA exemption of foreign-booked profits was subject to small bits of tax base protection. But they have been largely ineffective. The 2025 budget reconciliation bill would further exacerbate these problems, reducing taxes on foreign income even more.

Clausing and Sarin (2023) recommend a suite of corporate reforms that aims to level the playing field between firms booking profits in the United States versus overseas. Key among them would be to reform the Global Intangible Low-Taxed Income (GILTI) tax rate, a rate introduced in the TCJA, to ensure that financial engineering would not allow large amounts of corporate income earned by U.S.-based multinationals to appear as if they were earned in tax havens.18

The GILTI is essentially a global minimum tax rate for U.S. multinationals. But the rate (10.5% in 2024 and 12.6% in 2025) is far too low to effectively stop this kind of tax haven-shopping for corporations, much lower than the 15% minimum rate negotiated by the OECD and agreed to by the Biden administration in 2022.

In addition, multinationals are currently allowed to blend all their foreign tax obligations globally and take credits for foreign corporate income taxes paid. So, taxes paid on a company’s actual manufacturing plant in, say, Canada, can count toward the GILTI contribution of a multinational, even if they then used financial engineering to shift most of their paper profits to tax havens like the Cayman Islands.

Raising the GILTI rate and applying it on a country-by-country basis would go a long way to preserving the base of the U.S. corporate income tax in the face of tax havens. The Clausing and Sarin (2023) suite of reforms would raise $42 billion in 2025.

Building up IRS enforcement capabilities and mandates

In 2022, the IRS estimated that the tax gap (the dollar value of taxes legally owed but not paid in that year) exceeded $600 billion. The richest households account for the large majority of this gap. The IRS in recent decades has lacked both the resources and the political support to properly enforce the nation’s tax laws and collect the revenue the richest households owe the country.

Due to this lack of resources and mandates, the IRS instead often took the perverse approach of leveraging enforcement against easy cases—easy both in terms of not taking much capacity and of not generating intense congressional backlash.19 In practice, this meant intensively auditing recipients of refundable tax credits to look for improper payments. Tax credits are refundable when the amount of a credit (say, the Child Tax Credit) is larger than the taxpayer’s entire income tax liability. In this case, the credit does not just reduce income tax liability; it will also result in an outright payment (hence, refundable) to the taxpayer claiming it. Recipients of these refundable tax credits are, by definition, low-income taxpayers—those with low income tax liability. Besides making the lives of these low-income households more anxious, these audits also just failed to generate much revenue—again, because the group being audited was generally low income and didn’t owe significant taxes in the first place.

The Biden administration included significant new money to boost IRS enforcement capacity as part of the 2022 Inflation Reduction Act (IRA). This extra enforcement capacity was paired with new mandates to reduce the tax gap by increasing enforcement efforts on rich taxpayers.

However, the IRA additions to IRS resources were already being chiseled away before the 2024 presidential election. The Trump administration clearly has no interest in whether or not the IRS consistently enforces revenue collection from the rich. The budget reconciliation bill that Republicans passed through Congress in July rolled back the expanded funding for IRS enforcement. Trump’s proposed fiscal year 2026 budget for IRS funding would chip away at that even further. 

The IRS has also not been immune to the Trump administration’s attempt to make life miserable for federal employees. The agency has lost a quarter of its workforce since 2025 to layoffs, the deferred resignation offer pushed by Elon Musk’s so-called Department of Government Efficiency, early retirements, and other separations (TIGTA 2025).

The sharp turn away from the Biden administration’s support of the IRS represents a missed opportunity. While it would be near impossible to fully close the tax gap, Sarin and Summers (2019) estimate that some modest and doable steps could reliably collect significantly over $100 billion per year over the next decade from increased enforcement efforts.

How much could a campaign of confidence-building measures to tax the ultrarich raise?

These measures to enact a series of tax reforms laser-targeted at only the rich could raise significant revenue. One obvious benchmark suggests itself: the current fiscal gap. The fiscal gap is how much (as a share of GDP) taxes would need to be raised or spending would need to be cut to stabilize the ratio of public debt to GDP. Today this gap stands at roughly 2.2%.

Table 1 gives a rough score for each of the provisions mentioned above. It then conservatively estimates the combined revenue-raising potential of this package. It assumes that the whole policy package is equal to 70% of the sum of its parts. This would help account for some fiscal “externalities” (i.e., taxing wealth means wealth grows more slowly over time and, hence, reduces tax collections on income earned from wealth going forward). It also would help account for some potentially duplicative effects that could reduce some revenue collected by the combination of these reforms. For example, if the step-up in basis were eliminated, the incentive for rich households to finance consumption with loans would be reduced, so the revenue generated by treating the pledging of collateral as a realizable event would likely be reduced.

Table 1

This combination of confidence-building measures to tax the rich would unambiguously be able to close the nation’s current fiscal gap. The sum of the parts of this agenda would raise roughly 4% of GDP over the long run, and even if the sharp 30% discount on the sum of these parts was applied, it is still just under 3% of GDP. Telling the American public that this package of tax increases on the ultrarich had put the nation on a fully sustainable long-run trajectory while still leaving enough money to fund something as large as universal pre-K for 3- and 4-year-olds or a radical increase in more generous coverage in the nation’s unemployment insurance system could be seismic for changing the tax debate in the United States.

For those like us who advocate for even larger expansions of the U.S. system of income support, social insurance, and public investment, the future political debate over how to finance them would be on much more favorable ground with the public’s support. The conditions of the debate would change if the public could shake the (too often true) impression that the U.S. government is failing to ask the ultrarich and corporations to do their part to contribute to the nation’s fiscal needs.

Conclusion

Obviously, this program of laser-targeting tax increases on the ultrarich is not the policy of the current Trump administration or the Republican majority in Congress. They have already spent the first half of 2025 forcing through a monster of a reconciliation bill, which extended the expiring provisions of the TCJA, provisions that provide disproportionate benefits to the very rich. The reconciliation bill represents a shocking upward redistribution of income from the very poor to the very rich, paying for trillions of dollars in tax cuts that primarily benefit the wealthy by stripping health care and food assistance from millions of Americans. 

But as damaging as extending these expiring provisions will be to tax fairness and economic outcomes, they might be even more damaging to the public’s confidence that tax policy can ever be reoriented to ensure that the ultrarich and corporations pay their fair share. Instead, the debate over the expiring provisions will draw attention to two facts. First, the large majority of U.S. households will see a tax cut (relative to current law), but these cuts will be much larger for the rich. For example, the bottom 60% of households will see a tax cut of just over $1 per day, while the top 1% will see a cut of $165 per day, and the top 0.1% will see a whopping $860 per day. Second, these regressive tax cuts are bundled with spending cuts that will sharply reduce incomes for the people in the bottom half of the income distribution, leaving them net losers overall.

This combination of facts will continue to feed perceptions that the only way typical households can get something—anything—out of tax policy debates is if they settle for crumbs from the feast enjoyed by the richest. And even these crumbs will be taken back in the form of cuts elsewhere.

It’s time to reverse these perceptions. If policymakers engage in a confidence-building set of measures to raise significant revenue only from the ultrarich, the public’s stance toward tax policy can be changed from being anti-tax to being willing to have debates about the pros and cons of public sector expansions, content in the knowledge that the very rich will neither escape their obligations nor claim the lion’s share of benefits yet again.

Notes

1. Obviously not all of this downward ratchet is bad. The steep decline in tax rates for the poorest families, driven by expanding Earned Income and Child Tax credits, has been a very welcome policy development in recent decades.

2. The strong relationship between the level of gross domestic product (GDP) per capita and the share of the public sector in a nation’s economy is recognized enough to have been named: Wagner’s Law.

3. On the relative smallness of the U.S. fiscal state (both spending and taxation as shares of GDP), see EPI 2025.

4. Bivens and Mishel 2021 note the number of intentional policy changes outside the sphere of taxation that have driven much of the growth in pre-tax inequality.

5. For example, both the Affordable Care Act (ACA) and the Inflation Reduction Act (IRA) paid for the additional spending on public investments and income support programs they called for with new taxes. That said, because Republican-driven tax cuts were passed in the interim, the upshot has been mostly larger budget deficits over time.

6. See Kogan and Vela 2024 for an explanation and estimation of the U.S. fiscal gap in 2024.

7. The rate of return assumption matters a lot for how durable revenue increases from a wealth tax will be over time. A rate of 8.5% is on the high end of many projections for rates of return to wealth in coming decades.

8. Specifically, they note about wealth taxes: “Set the rates medium (2%–3%) and you get revenue for a long time and deconcentration eventually” (Saez and Zucman 2019b). When they estimate the potential revenue of Elizabeth Warren’s 2% wealth tax on estates over $50 million (with an additional tax of 1% on wealth over a billion), they find it raises roughly 1% of GDP per year (Saez and Zucman 2019a).

9. This estimate comes from the Penn Wharton Budget Model 2022.

10. For a description of that surtax and the competing revenue options debated at the time, see Bivens and Gould 2009.

11. This number has been inflated to 2024 dollars.

12. See Gardner et al. 2024 on the effective corporate income tax rate before and after the TCJA.

13. For example, the Distributional Financial Accounts of the Federal Reserve Board (2025) estimate that the wealthiest 1% of households own over 30% of corporate equities, while the wealthiest 10% own just under 90%.

14. See Sarin and Summers 2019 for how much of the tax gap is driven by poor reporting requirements on income flows disproportionately earned by the rich—mostly various forms of noncorporate business income.

15. This range of estimates comes from the Joint Committee on Taxation (JCT) 2023, and Lautz and Hernandez 2024. Part of this variation is about how much extra revenue is allocated to the strict step-up in basis termination versus the extra revenue that is collected through the normal capital gains tax as a result of closing this loophole.

16. The details of this gap can be found in Office of Tax Analysis 2016. The upshot is that some business owners have managed to deny being active managers of their firms and have, hence, avoided being taxed on labor earnings, but they have somehow also managed to deny being passive owners of their firms, hence avoiding the NIIT as well. It is bizarre that this not-active but not-passive category of owner has been allowed to be given legal status, but that does seem to be the state of the law currently, until Congress acts.

17. See Bivens 2016 on how profits held abroad by deferring taxation were not a constraint on any meaningful economic activity.

18. I say “appear” because the ability and even the specific strategies corporations have to make profits clearly earned by sales in the United States appear on paper to have been earned in tax havens are all extremely well documented by now, including in Zucman 2015.

19. See Elzayn et al. 2023 for evidence that the audit patterns of the IRS in the mid-2010s were driven by these considerations.

References

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Bivens, Josh. 2016. “Freeing Corporate Profits from Their Fair Share of Taxes Is Not the Deal America Needs.” Working Economics Blog (Economic Policy Institute), September 27, 2016.

Bivens, Josh, and Elise Gould. 2009. House Health Care Bill Is Right on the Money: Taxing High Incomes Is Better Than Taxing High Premiums. Economic Policy Institute, December 2009.

Bivens, Josh, and Lawrence Mishel. 2021. Identifying the Policy Levers Generating Wage Suppression and Wage Inequality. Economic Policy Institute, May 2021.

Brun, Lidía, Ignacio González, and Juan Antonio Montecino. 2025. “Corporate Taxation and Market Power Wealth.” Working Paper, Institute for Macroeconomic Policy Analysis (IMPA), February 12, 2025.

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Federal Reserve Board. 2025. Distributional Financial Accounts of the United States. Accessed April 2025.

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“Donald Trump and Republicans have made crystal clear where their priorities lie with their so-called ‘One Big Beautiful Bill’—not with working Americans, but with billionaires and big corporations. That bill amounts to a Great Betrayal. It raises costs for American workers, cuts vital programs for families, and explodes the national debt—all in service of making the rich richer.

“We need to chart a better path forward, one where the wealthiest pay a greater share, and where we build an economy that creates more shared prosperity so everyone can afford a decent quality of life. We need to have a robust discussion outlining alternatives to the current tax system, and the Economic Policy Institute has put forward just that—including outlining many proposals that I support and have championed in Congress. These proposals include legislation I have introduced that would start to unrig the tax code for the ultra-wealthy, such as my Millionaires Surtax Act, which would implement a 10% millionaires surtax. I’ve also authored the Sensible Taxation and Equity Promotion (STEP) Act to close the stepped-up basis loophole, and I’ve previously introduced the Strengthen Social Security by Taxing Dynastic Wealth Act to raise the estate, gift, and generation-skipping transfer taxes. I appreciate EPI’s inclusion of key elements of these bills within this report.

“I strongly support the core argument made in this paper that the wealthiest Americans must begin contributing more to our shared future, and we need to start by gathering a wide range of tax policy proposals aimed at doing so. This is about showing the American people where we stand and making sure our economy–and tax policy–reward hard work, not just accumulated wealth,” said Senator Chris Van Hollen.

Read the full EPI report here.