The progressive push to raise taxes on the rich is gaining new momentum.
Sen. Elizabeth Warren (D-Mass.), who has already proposed a wealth tax to raise funds for a variety of new government programs, on Thursday unveiled a plan to expand Social Security by creating two taxes on wage and investment income for wealthy Americans.
The proposal comes as Warren enjoys a long stretch of momentum in the Democratic presidential primary race that has lifted her in polls and put her side-by-side with former Vice President Joe Biden during last week’s debate.
Separately, Sen. Ron Wyden (Ore.), the top Democrat on the Senate's tax-writing committee, rolled out his own proposal designed to prevent the rich from avoiding taxes on their investment gains.
Since the start of the year, much of the debate around taxes among Democrats has been over how much and how best to raise taxes on the rich.
Democrats have been interested in increasing taxes on those with high incomes and net worths in order to combat wealth inequality and raise revenue to finance spending priorities.
Ideological differences between centrists and progressives have characterized the presidential race, with Biden to the right of Warren and fellow progressive Sen. Bernie Sanders (I-Vt.).
Some Democrats have voiced concern that their party could lose the White House to President Trump if they nominate a candidate too far to the left.
Yet that narrative obscures the fact that Democratic presidential candidates across the board have proposed ways to increase taxes on the rich.
The developments have encouraged liberal groups pressing for higher taxes on the wealthy.
“It’s really encouraging to see the ranking Democrat on the Senate Finance Committee as well as a top-polling presidential candidate introducing proposals on taxing the rich,” said Maura Quint, executive director of the liberal group Tax March.
Warren has been a leader in the 2020 Democratic presidential field in calling for higher taxes on the rich.
She regularly talks about the wealth tax she proposed in January, which would impose a new tax on people with net worth above $50 million.
Her Social Security proposal would impose a 14.8 percent tax on individual wages above $250,000 — split between the employee and employer. Families with income more than $400,000 would pay a new 14.8 percent tax on net investment income.
Warren told CNN shortly after the debate that her Social Security plan “will literally lift millions of people out of poverty.”
“And you know who is going to pay for it? The top 2 percent,” she added.
The white paper that Wyden released on Thursday shows how congressional Democrats are also readying plans to hit the rich.
His plan would overhaul how capital gains are taxed to extend Social Security’s solvency.
Under Wyden’s proposal, capital gains and ordinary income would be taxed at the same rates. Additionally, those who have had more than $1 million in income or $10 million in assets in three consecutive years would be subject to new anti-deferral rules, such as being required to pay taxes annually on investment gains from tradable assets and being required to pay a lookback charge on nontradable assets when those investments are sold or transferred.
Under current law, people don’t have to pay capital gains taxes until they sell their investments.
Addressing that tax deferral ability “has to be a priority for tax reformers in 2021,” Wyden said at an event Thursday hosted by the Center for American Progress (CAP) Action Fund. The Oregon Democrat would likely become chair of the Senate Finance Committee if Democrats regain control of the Senate after the 2020 elections.
Wyden’s plan had been eagerly awaited by many left-leaning tax experts, since the senator had announced in April that he planned to release a paper on taxing wealthy people’s investment gains annually.
Frank Clemente, executive director of Americans for Tax Fairness, said it’s “historic” that the top Democrat on the Finance Committee put out a proposal that is as progressive as Wyden’s and that tackles structural reforms with the tax system.
“It’s a game changer,” Clemente said. “This is the direction that progressive tax reform has to go in.”
Many of the Democratic presidential candidates across the ideological spectrum have called for capital gains and ordinary income to be taxed at the same rates, but experts said that making that change alone might not raise much revenue because investors have the ability to defer realizing and paying taxes on their capital gains.
“If one really wants to equalize the capital gains and ordinary rates, the best solution is to start looking at provisions that reduce or eliminate the tax benefits of deferral,” Lily Batchelder, a professor at New York University’s law school, said at the CAP Action Fund event. “And I think this is why Sen. Wyden is looking at this proposal and advancing it.”
Progressives say it makes sense from both a policy and a political standpoint to propose using revenue from tax increases on the rich for Social Security. The reserves for the Social Security trust fund are projected to be depleted in 2035.
Nancy Altman, president of Social Security Works, said that it’s “completely justifiable” that Warren and Wyden would dedicate revenue from tax increases on the wealthy’s unearned income to Social Security because income and wealth inequality are among the reasons that the program is projected to have shortfalls.
Altman noted that Wyden and Warren aren’t the first lawmakers to propose using tax revenue from wealthy people’s nonwage income for Social Security.
Sen. Chris Van Hollen (D-Md.) introduced legislation in June that would return the estate tax to its 2009 parameters and deposit the revenues raised from that change into the Social Security trust fund.
And Sanders, the Democratic presidential candidate and Vermont senator, has legislation to expand and extend the solvency of the retirement program that would subject all income above $250,000 to the Social Security payroll tax. Sanders’s bill is co-sponsored in the Senate by two fellow presidential candidates, Sens. Kamala Harris (D-Calif.) and Cory Booker (D-N.J.), and a version of the bill in the House is co-sponsored by Rep. Tim Ryan (D-Ohio), who is also running for president.
Michael Linden, a fellow at the left-leaning Roosevelt Institute, said that proposals to tax the rich tend to garner public support, but linking them to Social Security could make them even more well-regarded.
“When taxes are tied to a specific thing they often can be more popular. And nothing’s more popular than Social Security,” he said.
Trump’s reelection campaign criticized Democrats for proposing tax increases — particularly the repeal of Trump’s tax cuts, which could result in tax increases for the middle class.
“Make no mistake: the only thing Democrats know about taxes is that they’ll raise them,” Trump campaign spokesman Daniel Bucheli said in a statement.