Democrats Plot Middle Class Tax Cuts

BY RICHARD RUBIN

WASHINGTON—A tax-cut competition is raging inside the Democratic Party.

Out of power and seeking ways to capture the attention of a financially strained electorate, Democrats are floating policy changes that would relieve millions of people of any federal income-tax payments.

Sen. Chris Van Hollen (D., Md.) plans to detail a proposal that would end income taxes on individuals earning less than $46,000 and married couples making less than $92,000. Sen. Cory Booker (D., N.J.) proposed a “Keep Your Pay” plan that would more than double the standard deduction to $37,500 for individuals and $75,000 for couples from $16,100 and $32,200, respectively, while increasing the child tax credit and the earned-income tax credit.

Either senator from the center-left of the Democratic caucus could be the presidential nominee. Their moves set a marker as Democrats wrestle over what issues should top the 2028 campaign agenda and the 2029 legislative session. Democrats, eager to reverse President Trump’s policies, expect a small window for action and fiscal constraints that could force them to choose among priorities.

Democrats want to flip the 2024 script after playing catch-up on tax policy. Trump ran on “no tax on” proposals targeted at tipped employees, overtime workers and seniors. Presidential nominee Kamala Harris backed the no-tax-ontips idea after Trump did but got little traction with a combination plan of top-end tax increases and targeted tax credits.

As a policy lever, tax cuts are appealing. They directly affect households’ costs and can be easier to implement than spending programs. “We shouldn’t be afraid of talking about a tax cut for working people that’s paid for by making big corporations and the wealthiest few pay their fair share,” said David Bergstein, a Booker spokesman.

But the Van Hollen proposal and the significantly larger Booker plan are stirring consternation inside the party, particularly among fiscal-policy experts who warn of a thinned-out tax base, diminished capacity to fund crucial programs and the dangers of trying to outdo Republican tax-cutters.

“There are some serious trade-offs that are going to be made, and I worry that proposals like this simply are not prioritizing correctly a limited set of fiscal resources,” said David Kamin, who was a taxpolicy adviser to Presidents Barack Obama and Joe Biden.

Booker and Van Hollen would pair their cuts with tax increases to avoid expanding budget deficits. But every dollar of new revenue used for tax cuts is a dollar that can’t go elsewhere. That means less money to cover the costs of reversing Trump’s tariffs, reviving health-insurance subsidies and reversing Medicaid and food-stamp cuts. Tax cuts could make it harder for Democrats to extend Social Security solvency and create programs for child care and family leave.

“It is hard to make the case that a multitrillion-dollar middle- class tax cut should be at the very top of the agenda,” said Bharat Ramamurti, who was an aide to Biden and Sen. Elizabeth Warren (D., Mass.).

Democrats should tackle specific problems, such as child poverty, job dislocation and housing costs, said Will Raderman, senior policy adviser at the Searchlight Institute, a group aiming to expand the Democratic coalition. “You can still deliver thousands of dollars in benefits to American families,” he said. “It just should not be in the form of tax exemptions that treat the tax code as the burden.”

Over the past 25 years, Republican presidents have pushed tax cuts through Congress. That culminated in last year’s law, which included permanent extensions of Trump’s 2017 tax cuts. Congress passed versions of Trump’s cuts for tips, overtime and senior citizens with an expanded deduction for state and local taxes. Those changes expire after 2028 or 2029.

Trump did raise taxes by imposing tariffs. He has tried turning that into a tax-cut argument too, contending that tariffs will yield enough money to eliminate income taxes, which they won’t.

Faced with Republicans’ “never increase taxes” posture, Democrats adopted a “never increase taxes on almost anyone” response. They calibrated it for their shifting Trump-era coalition, which includes professional-class voters in high-cost, high-income suburbs.

Obama said he wouldn’t raise taxes on households with incomes under $250,000. Biden updated that to $ 4 0 0 , 0 0 0 . Those pledges constrained D e m o c ra t s ’ ability to design tax proposals. Booker and Van Hollen don’t copy those pledges. Instead of protecting the middle class from tax increases, they offer new cuts. The contemplated changes would make the U.S. income tax system far more progressive and reliant on a smaller number of households. In recent years, about 40% of households have paid no income taxes, though many do pay substantial payroll taxes.

Van Hollen’s proposal phases out so new cuts don’t go to individuals with incomes above $80,500 or married couples above $161,000. Booker’s expanded standard deduction doesn’t shrink as income increases, delivering bigger benefits for people in higher tax brackets. According to a calculator on his website, a married couple making $400,000 with two young children would pay about $55,000 in income taxes, down from $69,000.

Both would raise top tax rates. Van Hollen calls for a surtax that climbs as high as 12 percentage points atop existing taxes for individuals starting at $5 million and married couples at $7.5 million. Booker would turn the 35% and 37% individual income tax brackets into 41% and 43% brackets.

There are problems ahead. When Democrats last controlled the White House and Congress, they couldn’t muster enough Senate votes for taxrate increases. They could face similar challenges in 2029.

“Unless there’s some big sea change,” Ramamurti said, “we’re going to be somewhat constrained, and we have to pick and choose carefully.”