As the 2020 race to White House progresses and the first presidential debates draw nearer, the candidates comprising the overcrowded democratic field continue to lay out more policies. Many of the economic policies presented by Democratic hopefuls have centered around an issue that, thanks to President Trump’s policies, democrats feel is ripe for reform-taxation. Many of the proposals involving taxes are directly linked to other policies that have formed the cornerstones of candidate campaigns.
Sen. Elizabeth Warren (D-MA) made many headlines when she rolled out a plan centered around making higher education more affordable. Under her plan, all tuition costs would be eliminated at every two and four year public college and university with additional $50 billion on aid provided to historically black colleges and universities. Warren also proposed a policy that, if implemented, would allow America’s buried in student loan debt with annual incomes below $100,000 to have $50,000 of their debt forgiven. Warren proposed paying for this plan, which would cost an estimated $1.25 trillion over a decade by implementing what she has referred to as an “ultra millionaire tax.” The tax would affect households with annual incomes of over $50 million and would involve a 2% tax on every dollar earned by each household over the $50 million threshold. For every dollar earned over $1 billion, the tax would be raised to 3%.
California Democrat Kamala Harris has proposed giving America’s teachers a 23% base pay increase, which would amount to roughly $13,500 per year. For teachers at underfunded schools with disproportionate student of color ratios, the raises would be higher. Harris has estimated that the ten year cost of this plan would be roughly $315 billion, a cost she intends to help cover by levying a further estate tax on America’s economic elite. According to Politico, her campaign is currently deciding how best to implement the necessary estate tax reform, considering options such as eliminating the current legal loopholes that have allowed Americans to altogether avoid paying any estate tax.
Other candidates seem more focused on workplace related matters Sen. Kristen Gillibrand (D-NY) has proposed the FAMILY Act, a plan that would guarantee paid leave from work of up to 12 weeks for both new parents and those caring for either ill or critically injured family members. The costs of such a policy would be covered by a payroll tax of 0.2 percent on the wages of each worker which would be divided between them and their employer.
Cory Booker (D-NJ) meanwhile, has focused on another problematic element-the racial wealth gap. His plan centers around providing savings bonds for all newborn babies worth $1,000 at the start. For babies born to low-income households, additional funds of up $2,000 would be provided. All such money would be kept in a low-risk savings accounts managed strictly by the U.S. Treasury Department. It has been estimated by Booker’s team that bonds given to children of low-income households could be worth roughly $45,000 by the time the children turn eighteen. Booker would cover the costs of this plan, estimated at roughly $82 billion per year, by curbing the estate tax exemption. His plan would include surcharges on all estates worth over $10 million, and prevent people reducing their capital gains on inherited assets, such as property and stocks.
Examining the policy proposals involving tax reform laid out by many 2020 democratic contenders, one theme immediately stands out-estate tax reform.
“Tax the rich” has long been a war cry among democratic politicians and voters but it certainly seems an opportune time for such legislation. The estate tax exemption system still has plenty of loopholes that allow America’s wealthiest and their decedents to avoid paying taxes on inherited wealth while the middle and lower classes struggle to pay theirs. Without these loopholes, the federal government would see an increase in tax dollars that would allow it to make significant strides toward repairing the loss in revenue and increased deficits inflicted by the tax policy of the Trump administration.
One of Senator Warren’s central arguments regarding her student loan forgiveness plan was that forgiving the majority of student loan debt would help spur economic growth. The evidence to support this claim is substantial. More than 44 million Americans are currently affected by student loan debt and when consumers are spending significant amounts of each paycheck on student loan payments, they aren’t spending as much as they could be on consumer goods and services. The Brookings Institute projected that more than 40% more borrowers were likely to fall dangerously behind on their payments by the year 2023. The looming crisis is likely to continue hindering economic growth if it is allowed to continue. Thinkers on the far right have argued that Senator Warren’s plan is unfair to those who have already repaid their loans but given how small that number is in comparison with those who are still buried in debt, it seems that the clear economic benefit of forgiving student loan debt outweigh the cost of doing nothing.
We cannot afford to ignore the economic benefits of Sen. Gillibrand’s FAMILY Act and Harris’ plan to increase teachers’ pay by way of implementing slight tax reform policies. Gillibrand’s plan would prove especially helpful for low-income parents, particularly mothers, who are forced to accept the financial burden of taking time off from their jobs for the birth of their children. Some women in such a situation risk losing their jobs altogether but are often faced with no alternative. It should also be noted that new parents are often faced with large bills so the loss of a second income can prove extremely problematic.
Harris’ proposal, meanwhile, highlights another important aspect of the American economy’s problems-that teachers are increasingly underpaid, particularly in low-income areas where public schools are underfunded.
We have some concerns about the economic implications of Senator Booker’s baby bonds plan. While the bonds that he wants to start awarding would likely prove an economic boon to the next generation, they do little to help our economy in the short term. The concept behind Senator Booker’s plan could almost be described as a double edged sword. While the positive attributes are quite clear, it will literally take eighteen years from the time the policy is implemented for them to materialize. In the time leading up to it, the U.S. will still be paying the price and unlike the plans laid forth by other candidates, they will do nothing to increase consumer spending and thereby spur economic growth for almost two decades. That will leave everyone else, including the parents of the baby bond recipients to continue struggling through an uncertain economy. While Sen. Booker’s plan is not without its positive aspects, it ultimately falls short of considering the economic growth factors that other candidates seem to have taken into account.
- The Tax Policy Center is a joint venture of the D.C. based think tanks the Urban Institute and Brookings Institution that provides expert research and analysis on tax, budget and social policy related matters.
- The Center for Economic and Policy Research is a nonprofit research organization that provides research on economic and social policy
- Bloomberg BNA is an online source for tax, accounting and legal information, research and analysis.
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