How Harris Can Outfox Trump (and Vance) on Taxes
The presumptive Democratic nominee can appeal to the working class by slapping a higher tax rate on corporations that lavish money on their chief executives but don’t adequately pay their workers.
The post How Harris Can Outfox Trump (and Vance) on Taxes appeared first on Washington Monthly.
The presumptive Democratic nominee can appeal to the working class by slapping a higher tax rate on corporations that lavish money on their chief executives but don’t adequately pay their workers.
By Bill Scher
Mounting a presidential campaign in 100 days comes with a myriad of challenges, one of which is developing a distinctive policy agenda. And for Democrats, developing a tax policy is inherently fraught.
As members of a party that takes governing seriously, Democrats can’t echo Republicans and blithely promise tax giveaways. They are relatively safer political ground when targeting tax increase proposals on the wealthy and corporations. But they still try to avoid being tarred as harmful to business—especially small business—and, in turn, harmful to the overall economy.
For example, in the 2017 Tax Cuts and Jobs Act, Donald Trump cut the corporate tax rate from 35 to 21 percent. Democrats are eager to repeal some of the law. But for Joe Biden, during the 2020 campaign, going back to 35 percent was too much for him. Instead, he proposed an increase to 28 percent, with a 15 percent minimum for businesses earning profits of $100 million or more. Once in office, after the knock-down, drag-out negotiations with Senator Joe Manchin, which produced the 2022 Inflation Reduction Act, Biden was forced to leave the corporate tax rate at 21 percent. He did win a 15 percent minimum, but only on billion-dollar businesses.
Deciding how to reform the tax code now has more urgency because most tax provisions in the Tax Cuts and Jobs Act expire in 2025. What to keep, what to modify, and what to let expire will be some of the first decisions the next president will have to make.
Most of what expires involves tax cuts for individuals, estates, and businesses not subject to the corporate tax rate.
What doesn’t expire is the 21 percent corporate tax rate. Paul Ryan, who shepherded the bill as Speaker of the House in 2017, explained several years later that “we made temporary what we thought could get extended. We made permanent what we thought might not get extended that we wanted to stay permanent.”
However, if Kamala Harris leads Democrats to a trifecta—winning the White House, House, and Senate—then raising the corporate tax rate through the filibuster-proof budget reconciliation process becomes plausible. Granted, this is what Biden hoped to do with budget reconciliation in 2022, but Manchin and Senator Kyrsten Sinema, another at-the-time Democrat sensitive to the concerns of corporations, complicated his plans.
Neither will be in the Senate come 2025, which may make things easier for a President Harris. Or not. Legislating is always harder than it looks. Other senators could still get squeamish over how any particular tax policy could impact the economy.
Harris, like Biden, has already said that she won’t raise taxes on individual annual income under $400,000, effectively embracing an extension of a large component of Trump’s tax law. What she will propose regarding corporation taxation is still unknown. (Trump has proposed cutting the corporate tax rate again, down to 15 percent.)
One idea Harris should consider embracing, both to impress working-class voters on the campaign trail this year and to help navigate the legislative thicket next year: is to raise the corporate tax rate only on corporations that pay their chief executives absurdly more than they pay their workers.
In 2021, writing for the Washington Monthly, Carter Dougherty urged Biden to adopt a version of a policy that originated in Portland, Oregon: Companies that pay CEOs 100 times more than their median worker must cough up a 10 percent tax surcharge. If the ratio is 250-to-1, then the surcharge is 25 percent. In 2023, also in the Monthly, Jessica Church argued such a law could have rendered the protracted United Auto Workers strike unnecessary.
The appeal of the approach is clear. CEO compensation has skyrocketed in the last few decades, fueled by financial instruments like stock options, while worker compensation has lagged. This is a way to help increase the pay packages of average Americans without complex government bureaucracy or contentious labor strikes. As a Portland City Council member told Dougherty, “The goal was not to make money. The goal is to get employers to raise median wages.”
Trump has been trying to build on his longstanding support among the white working class by making inroads with African-American and Latino workers and rebranding the GOP as a working-class party, despite his continued deference to corporations on taxes and regulation, his inability as president to support manufacturing, his disinterest in raising wages, and his dislike of policies that would benefit union organizing. In addition to prosecuting the case against Trump, Harris could use a signature policy—one not adopted by Biden—which shows she is serious about not just competing for working-class votes but ready to deliver for the working class with smart policies.
Federal legislation inspired by Portland has been introduced in the last several sessions of Congress but has not gained traction. The Tax Excessive CEO Pay Act of 2024, the most recent version, has several tiers of tax penalties, with companies offering CEO compensation at 50-to-100 times the median worker receiving a 0.5 surcharge, and those at 500 times the median worker faced with a 5 percent surcharge.
However, the bill only has 15 sponsors in the House and 5 in the Senate. The lack of interest from most members of Congress probably stems from the aggressive specifics. As the sponsors note, citing data from the Economic Policy Institute, “In 2022, big company CEOs were paid 344 times as much as a typical worker, up from an average pay ratio of just 21 to 1 in 1965.” This highlights how absurd the pay gap has become and the difficulty of returning to the past. There’s no way corporations will suddenly slash the CEO-to-worker compensation ratio by 85 percent to avoid a tax surcharge.
As Harris considers what to keep and what to change in the Tax Cuts and Jobs Act, she can embrace the concept of tying corporate tax treatment to worker pay without wedding herself to the specifics of the Tax Excessive CEO Pay Act. Instead of surcharges, she can propose keeping the 21 percent corporate tax rate for companies with a relatively reasonable CEO-to-work pay ratio (lower than 344-to-1 but probably higher than 50-to-1) while hiking it to 28 percent for the rest. Or she can sweeten the deal by offering Trump’s new level of 15 percent for the best-paid workers.
If she determines using the corporate tax rate to improve worker pay is too blunt an interest, she could consider the cudgel of the new stock buyback tax. Stock buybacks are when companies buy back their stock to distribute profits to investors, but as the Tax Policy Center notes, “stock buybacks allow foreign investors to avoid US taxation.” In the Inflation Reduction Act, Biden got a new excise tax of one percent slapped on stock buybacks. And in his 2023 State of the Union address, Biden proposed, “We quadruple the tax on corporate stock buybacks to encourage long-term investments instead.” Harris could institute a higher tax only on companies with poor pay practices.
Harris can even borrow some of the rhetoric from Trump’s running mate, Senator J. D. Vance. “Let’s tax the things that are bad and not tax the things that are good,” he infamously said on a right-wing podcast, arguing for higher tax rates on people who don’t reproduce.
Harris can say, “I agree we should tax things that are bad and not tax the things that are good. But I believe the thing that is bad is not people who don’t choose to go into labor, but corporations who don’t adequately compensate people for their labor.”
The post How Harris Can Outfox Trump (and Vance) on Taxes appeared first on Washington Monthly.