Big plan cements Dems’ bet on taxing rich
WASHINGTON — Three years after President Donald Trump rode a wave of populist anger into office, some of his top Democratic challengers are calling for a fundamental reordering of U.S. capitalism, arguing that voters will embrace bold plans to reverse decades of rising inequality by raising taxes on corporations and the rich.
The $20.5 trillion proposal for “Medicare for All” released by Sen. Elizabeth Warren of Massachusetts on Friday is the most prominent example of how a party that once bet on centrist economic policies to win elections is moving toward far more ambitious efforts to redistribute wealth and expand the government’s role in the economy.
In doing so, Democrats are trying to push the boundaries of how much a country can rely on a sliver of high-end investors and other wealthy citizens to fund widely used social programs and bankroll other services traditionally paid for by individuals.
Warren, who is leading in polls, has proposed a wealth tax on billionaires, along with new taxes on corporations and financial transactions such as selling or buying stocks. Sen. Bernie Sanders of Vermont has embraced raising taxes on billionaires and corporations, as well as on the middle class, to fund universal health care, free college, clean energy and other government programs. Another Democrat who is climbing in the polls, Pete Buttigieg, would reverse Trump’s corporate tax cuts to pay for a less expansive and expensive health plan and has also expressed support for higher taxes on the rich.
Liberal champions of these proposed shifts say they would restore economic fairness and security to millions of Americans who have fallen behind as the economy tilted in recent decades to favor the very rich. Conservative critics say they would cripple business investment, slow economic growth and dissuade future entrepreneurs.
While those objections may have held sway in the past, support for economic programs that redistribute wealth has grown along with voters’ increased anger toward big business and a sense that companies and the rich should pay a larger share of taxes. The top 1 percent of Americans held 29 percent of the nation’s wealth in 2016, according to the Federal Reserve, more than the combined wealth of the entire American middle class.
The proposals are a sharp departure from the recent past, both for Democrats and for the terms of political debate in a nation that for several decades rewarded candidates who promised to reduce taxes and scale back government’s role in the economy. While Democratic candidates often tiptoed around tax increases on banks or the rich, both Warren and Sanders have made tax increases a centerpiece of their campaigns.
Warren’s Medicare for All plan by itself includes $20.5 trillion in new government spending over a decade. The plans include direct repudiations of some policy initiatives of President Barack Obama, who sought to reduce corporate tax rates to bolster competitiveness for U.S. businesses, and whose health plan tried to enhance, rather than replace, the existing private health industry.
Supporters say the candidates are reacting to voter frustration over sluggish wage growth and spiking costs across working families’ lives, including housing, child care, schools and health care, along with concerns about inaction toward climate change.
“I think people don’t care as much about taxes as they care about how their life is going,” said Betsey Stevenson, a University of Michigan economist who helped develop a list of possible tax increases and spending cuts that Warren drew on to fund her health care proposal.
In the decadelong recovery from the Great Recession, real incomes for the top 1 percent of U.S. households have risen 38.5 percent, according to research by economist Emmanuel Saez at the University of California, Berkeley. Incomes for the bottom 99 percent grew 10 percent over that same time frame.
Still, not every Democrat is embracing the type of aggressive redistribution that Warren and Sanders propose. Former Vice President Joe Biden wants to reverse Trump’s tax cuts for corporations and the “super wealthy” and raise taxes on investment gains for multimillionaires.
But he has criticized Medicare for All, proposing instead to expand Obama’s Affordable Care Act, in part by giving Americans the option to buy into a government health plan — all funded by increased tax rates on capital gains.
Representatives for Biden said Friday it was not possible for Warren to pay for her plan without raising middle-class taxes, a criticism she brushed off while speaking to reporters in Des Moines.
“If anyone wants to defend keeping those high profits for insurance companies and those high profits for drug companies, and not making the top 1 percent pay a fair share in taxes and not making corporations pay a fair share in taxes,” she said, “then I think they’re running in the wrong presidential primary.”
But conservative economists who have long argued that tax cuts are the best fuel for economic growth and rising wages said Friday that Warren’s planned tax increases on corporations would rebound to hurt the middle class — along with everyone else.
“This would be pretty dramatic,” said Nicole Kaeding, an economist who is the vice president for policy promotion at the National Taxpayers Union Foundation, a Washington nonprofit that promotes lower taxes.
“Capital drives the U.S. economy,” she said. “Investment increases productivity, it creates jobs, it raises living standards and wages. Slowing or handicapping investment would negatively affect everyone in the United States.”
Perhaps the biggest unknown is how the capitalist U.S. economy would function with levels of taxation and spending more comparable to the social democracies of Scandinavia.
“It’s as much an art as a science, trying to figure out the economic effects of policies we haven’t seen before,” said Diane Lim, a former economist for congressional Democrats and senior economist at the White House Council of Economic Advisers. “I’m worried it’s unrealistic. It’s just unknown.”
Polls suggest a wide range of Americans support raising taxes on the rich, and in particular a tax on the very wealthy. They also show increased numbers of Americans saying the government should do more to help them. Those trends, in addition to the concentration of wealth at the very top, are helping to drive Democrats toward more efforts to tax the rich and redistribute through the government, said Gene Sperling, a National Economic Council director under Obama.
“The expansion of economic concentration and wealth inequality has put a greater focus on the top one-tenth of 1 percent,” Sperling said, “both because of the obscene economic inequality it signifies and as a practical matter — there is just more revenue to capture there than 30 years ago.”