As Democrats approach a November election that looks more winnable by the day, it will not be enough to run on what they've already accomplished. They must sell voters on bigger and better things to come if they hope to keep the House and expand their Senate majority.
Their case should start with the Inflation Reduction Act (IRA), particularly the tax provisions that proved to be the most popular pieces of the bill, but it can't end there. Voters are eager to see lawmakers tax the rich, and while the IRA was the most substantial win for tax fairness the U.S. has seen in decades, it isn't enough.
The IRA's changes were significant, but if we want a truly fair tax code, it will take much more aggressive measures. Here's where to start.
Any serious attempt at tax reform must include fixes to the ways our tax code gives preferential treatment to income from wealth over income from work. President Biden has proposed several reforms to sharply limit this disparity, at least for the very rich. Some have passed the House, but none have gotten through the closely-divided Senate.
First, under current rules asset appreciation is not taxed until someone sells an asset and realizes the profit on the sale as a capital gain. The Billionaires' Minimum Income Tax, introduced this summer, would limit this break to those with more than $100 million of income and tax their assets annually, whether they sell them or not.
Second, if an individual dies and transfers an asset to heirs, the unrealized capital gain is forever exempt from taxes, which allows ultra-wealthy families to pass on billions of dollars of accumulated wealth tax-free. The president's proposal would fix this by taxing unrealized gains as taxable income for the final year of a wealthy taxpayer's life.
Third, even when such assets sold, capital gains are taxed at much lower rates than ordinary income. Biden has proposed to limit this break by taxing all income above $1 million at the top "ordinary" personal income tax rate, regardless of whether it results from capital gains, dividends or any other type of income.
Together, this package of reforms would raise about half a trillion dollars over a decade. On the corporate side of the tax code, while the IRA's corporate minimum tax ensures that the very biggest companies pay at least 15 percent of their profits in taxes, corporations can still use accounting gimmicks to shift profits to offshore tax havens. Congress should pass a stricter minimum tax, in line with the international tax deal that Treasury Secretary Janet Yellen brokered with most of the world's leading governments, which account for about 95 percent of global economic output.
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Under the terms of that deal, other governments could increase taxes on companies based in countries that are not complying with it — which, at the moment, means corporations in the U.S.. It is in everyone's interest, including ultimately corporate America's interest, for the U.S. to enact this minimum tax and crack down on the worst tax evaders.
While raising taxes on the rich should be a priority, so should cutting taxes for the neediest.
Lawmakers should reinstate the American Rescue Plan's expanded Child Tax Credit, an incredibly effective anti-poverty policy that is estimated to have lowered the number of children living in poverty by 40 percent while it was in effect. It increased the credit per child, made the credit fully refundable to help families with low incomes, and provided the credit in monthly installments to match the monthly expenses of most families, rather than as an annual lump sum.
Democrats are also facing the expiration of one of the biggest tax cuts in Donald Trump's 2017 tax law, a 20 percent deduction for profits from pass-through businesses, which means companies whose profits are not subject to the corporate tax but instead "pass through" to the owners' personal income tax returns.
This was sold as a small-business tax cut, but most income of this type is actually generated by very large pass-through businesses, and most of the benefits of these tax breaks flow to the richest taxpayers. In fact, according to the Congressional Budget Office, in 2019, 88 percent of the benefits of this tax break went to the richest 20 percent of Americans — and half went to the richest 1 percent. Like many provisions in the 2017 law, this one expires at the end of 2025, but Republican lawmakers will try to extend it or make it permanent.
The IRA was certainly a significant step in the right direction for our tax code, but it was only one step on what must be a longer journey toward genuine tax fairness. There's much more work to be done, and it can only start if Democrats in the Senate unite around a more progressive tax platform.