Democratic Tax Reform True tax reform should help working people, not the wealthy

The American people deserve a tax code that rewards hard work. Republican’s most consequential legislative achievement last congress was a tax scam—a tax cut for corporations and the wealthy that was sold as a “middle class tax cut.” They passed the bill with narrow margins through reconciliation and with no Democratic votes. 

My tax reform plan would undo the harm done by that bill and go further, creating a tax code that upholds American values and makes sure all Americans pay their fair share. It would do so by closing loopholes and expenditures only utilized by the wealthy and corporations while focusing IRS resources on tax shelters and cheats. 

This plan would raise nearly 3 trillion dollars in revenue, which we can reinvest in growing our middle class, combating climate change, providing good healthcare to all Americans, and tackling the other challenges of our time. 

 Here’s what my plan would do:

  • 1. Increase the Corporate Tax Rate to 25%
      • – A consensus 25% rate would bring U.S. corporate taxes in line with global averages, keeping America competitive while raising revenue.

 

  • 2. Equate the Rates
      • – Eliminate the rate difference between long term capital gains and ordinary income taxes.

 

  • 3. End Tax Shelters
      • – Move the corporate tax rate to a per-country minimum on worldwide income. 

 

  • 4. Reform the Estate Tax
      • – End stepped-up basis. 
      • – Lower the estate tax threshold to $3.5 million, $7 million for couples.

 

  • 5. Close Tax Loopholes
      • – Close the carried interest loophole.
      • – Close the real estate 1031 exchange loophole.
      • – And all other loopholes that allow the wealthy to have a lower tax burden than working families.

 

  • 6. Step up tax enforcement
      • – Tax cheats cost the United States $500 billion in yearly revenue. But the number of IRS auditors has shrunk by a third, and so has the percentage of millionaires under audit. Staffing up the IRS would generate significant revenue from only those who fail to pay their fare share.
      • – Spending two billion a year on IRS staff would raise tens of billions in additional revenue.

 

  • 7. End the pass-through deduction
    • – This deduction can be used to convert ordinary income into business income taxed at a lower rate. Closing it would ensure that business owners pay the same rate as their employees.

 

Background

The above outline would raise nearly three trillion dollars in federal revenue. According to an analysis by Natasha Sarin and Larry Summers, making these tax policy changes would boost federal revenue by $2.83 trillion over ten years—an increase in revenue larger than either a 70% top marginal rate or a 2% wealth tax. Their analysis thoroughly demonstrated that by broadening the tax base, we can create a more progressive tax code and reward those who already pay their fair share. 

Right now, our economy works better for investors than for working Americans. Those who make over $1 million a year accrue 81% of the benefit of lower long-term capital gains rates, giving an additional $40-100 billion a year to the wealthy. This worsens inequality and deprives our federal government of vital resources to combat poverty, grow the middle class, fix our climate, and protect the American people. In my administration, Americans who earn passive income will never come before the working class. 

My plan would also crack down on tax fraud and legal tax loopholes that have unduly benefited the wealthy. One such beneficiary of our unfair tax system was and is Donald Trump. From the incredible reporting by the New York Times, we know that Fred Trump was able to pass down over $400 million dollars to his children without paying estate taxes. Under my plan, the legal practices that allowed this theft from the American people will end—and the illegal practices that allowed it to happen will be stopped by a newly-empowered IRS.  

These policies will be easier to pass and implement, raise more revenue, and stand up better to constitutional challenges than a wealth tax. The idea behind the wealth tax is correct: a tax code that lessens inequality. But a wealth tax would be difficult to implement and present a target for years of court challenges. We should not risk our Democratic tax policy on the opinions on Brett Kavanaugh and the conservative court majority. 

Businesses should compete on the basis of their products, not their tax avoidance strategy. By eliminating the legal tax dodges of corporations and the wealthy, we would end the incentive to skirt the law with aggressive tax avoidance. The rules of our current system have disadvantaged honest businesses, putting them in a position where not pursuing tax dodges leaves them at a disadvantage. This tax policy would again make hard work and fair play pay off.