The voices of Tax Policy Center's researchers and staff
Senators Elizabeth Warren (D-MA) and Kamala Harris (D-CA) both want to be elected President of the United States in 2020. Both believe that the federal tax system ought to be much more progressive than it is today. But they have come up with starkly different diagnoses of how the tax system affects income inequality and thus very different policy solutions.
They are designing their tax plans from opposite ends of the income distribution. Harris would reduce inequality by significantly cutting taxes for low- and moderate-income households. Warren, by contrast, would attempt to achieve the same goal by raising taxes on the wealthiest households.
Think of it this way: Both want to sail the great middle class ship to the promised land of economic well-being. Both see the vessel crashing into a bridge of inequality. The question is: Do you lower the river or raise the bridge?
Merits vs. politics
Harris may have the better argument on the merits. Warren, by contrast, may be more right on the politics. Neither plan is complete: Harris doesn’t really say how she’d fund her generous tax cuts; Warren has not been clear about how she’d spend all the tax revenue she’d raise. Thus it is not possible to calculate which candidate would ultimately do the most for low- and middle-income households. Still, the contrast between the two tax ideas is too striking to ignore.
Harris has proposed an extremely generous new tax credit for joint filers or singles with children making $100,000 or less. Singles without children would get at least a partial credit if they make $50,000 or less. Singles would get a refundable credit of up to $3,000 on top of any Earned Income Tax Credit or Child Tax Credit for which they currently are eligible. Couples filing jointly would get up to $6,000 more.
The Tax Policy Center estimates that about half of all households would get a tax cut under her plan. It would reduce taxes by an average of $3,200 or 1.8 percent of after-tax income. But it also would reduce federal revenue by $3 trillion over the next decade, and by $3.4 trillion in the 10 years after that.
Tax cuts or tax hikes
Harris has not said how she’d pay for all her largess. The two ideas she has proposed—repealing provisions of the Tax Cuts and Jobs Act that benefit taxpayers with income in excess of $100,000 and an unspecified tax on large financial institutions—would fall far short of covering the full cost of her plan.
Warren, by contrast, is focusing her attention on the opposite end of the income distribution. She’d raise taxes on what she estimates are the 75,000 wealthiest households in the US. Her idea: An annual 2 percent tax on every dollar of net worth above $50 million and a 3 percent tax on every dollar of net worth above $1 billion. Her advisers estimate the tax would generate $2.75 trillion in revenue over ten years.
Just as Harris has not said how she’d fully pay for her tax cuts, Warren has not said what she’d do with this potential pile of new money, though she separately has proposed a number of costly new federal initiatives in health care and education.
Cash vs direct subsides
And that is another interesting contrast. Harris would give low and moderate-income households cash to use as they want. Warren seems to prefer direct subsidies aimed at lowering or eliminating costs for certain purchases, such as health insurance premiums or college tuition.
Who has the better of this? On the substances, it may be Harris. If you are looking for an efficient way to improve the well-being of low- and middle-income people who work, using the tax code to write them a check based on their earnings has a lot to say for it. At a minimum, it is a pro-work tax incentive.
Warren’s plan to raise taxes on the uber-rich also would make the tax code more progressive, especially at the very top. But without knowing exactly what Warren would do with the money, it is hard to say how her tax increase on the mega-wealthy would help working families.
Are taxes fair?
The politics are a different matter. For decades, public opinion surveys have shown that most Americans think they are paying a fair share of taxes. There currently is no public clamor for tax cuts. Just ask the Republicans whose attempts to generate enthusiasm for the TCJA last November fell flat even though the vast majority of Americans got a tax cut.
As my TPC colleague Vanessa Williamson has reported, those same polls find that Americans strongly believe the rich and large corporations are not paying their fair share in taxes. And playing to that concern may be a political winner. It may be especially beneficial for Warren, who has spent the past decade building a brand around the idea that government and the establishment political class has rigged the system to give the rich a special deal.
There are real questions about the workability of her wealth tax (I’ll write about them another day). But it may be more of a political attention-getter than Harris’s tax credit.
If you are one of the many Democrats looking to run for president in 2020, your first job is somehow separating yourself from the growing herd of other hopefuls. Harris and Warren are using taxes as a key differentiator. It will be fascinating to see if either of their ideas, or either candidate, catches on.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Share this page
Michael Dwyer/AP Photo