Charles Bruner: Taxes, inflation, and essential services … there’s an obvious solution for Democrats.
President Joe Biden and Democrats in Congress have done much to support essential workers and provide economic help to working and retired Americans during the height of the COVID-19 pandemic. Several of those actions were designed to become permanent: improvements to the child tax credit, investments in child care, and expansion of home and community based services and the direct care workforce.
Established in the American Rescue Plan Act through a process known as reconciliation (which requires only a simple majority vote and therefore could be enacted without Republican support), these policies have proved both popular and effective.
The child tax credit alone, which expired a few months ago, reduced child poverty by 40 percent while it was in effect. Child care assistance has made it easier for families with young children to work while paying for child care. Home and community services have enabled persons with disabilities to live in dignity.
Sustaining and building on those gains, however, requires additional legislation.
President Biden has proposed making these policies permanent, but fears of inflation from government spending without offsetting revenue has stalled Senate action – even though these investments help individuals and families who feel the greatest pain from inflation. Senator Joe Manchin has been the main holdout, insisting on revenue neutrality in any reconciliation package.
But all of these improvements can be paid for and not contribute to inflation, simply by revising some of the tax cuts Congressional Republicans and President Donald Trump enacted in 2017. The Tax Cut and Jobs Act, which was also passed through reconciliation, added more than $1 trillion to the deficit and therefore was, by logical reckoning, inflationary. All Democrats in Congress, including Manchin, voted against that bill, because the cuts were skewed to the wealthiest and not the majority of Americans.
Taxes are complicated, but here are two examples of what could be done to roll back Trump tax cuts that only benefited the wealthiest, and use the savings to finance the child tax credit, child care, and direct care.
One such provision is the preferential treatment of “pass-through” income. A salaried individual pays on every penny received from employment, but independent contractors and members of a partnership or S corporation receiving payments as “pass through” income now only pay on 80 cents per dollar of income. This provision costs the federal government more than $20 billion annually, almost all of which benefits those making over $400,000 per year (and most not for their own work, but their profitable investments in others).
If such preferential treatment were to apply only up to the first $400,000 in taxpayer income, it would provide sufficient funding to make the child tax credit fully refundable and provided on a monthly basis, to permanently finance the enhanced support for home and community-based services established on a temporary basis, or to more than double federal support to make child care more affordable.
Another provision is the estate tax as it applies to the uber wealthy (think Gates, Buffett, Bezos, Koch, and DeVos). Remember the old adage, “Nothing in life is certain except death and taxes”? While they cannot escape death, the wealthiest often can and do avoid ever paying tax on much of the wealth they acquired.
Much of their wealth is in “unrealized capital gains,” the growth in the value of their business holdings. Unlike working people’s income, the growth in this wealth has never been taxed. When they die, all that wealth can go to their heirs without taxes—and those heirs can transfer it to their heirs without taxes. Another $20 billion annually in federal revenue could be secured by capping the amount of those unrealized capital gains not subject to the inheritance tax.
Of course, this may mean Jeff Bezos can make fewer trips into space or buy fewer islands, but Amazon doesn’t sell those and will do fine. That’s because those working (including those providing child care and in-home services) will have more income, as will those who are working because they can afford child care.
More importantly, working and retired people will be more secure and main street businesses and local economies will benefit from the increased purchasing power that people have.
If Democrats want to have accomplishments to campaign on in 2022, they would do well to enact such a package. Republicans should be encouraged to support it as well, but it really is in the Democrats’ court to follow through on what they started.
Charles Bruner served in the Iowa legislature from 1978 to 1990 and was founding director of the Child and Family Policy Center from 1989 through 2016. For the last six years, he headed a Health Equity and Young Children initiative focusing on primary child health care for the Robert Wood Johnson Foundation.
Top photo by Robert Kneschke of young children with teacher available via Shutterstock.