Low-income families are understandably focused on the immediate necessities: raising kids, caring for family members, trying to put food on the table. Tax policy may seem removed from the stresses of daily life. But the fairness of our tax system, or the lack of it, has a big impact on all of us. Whether there are good jobs near you, how well they pay, if you get a raise or get laid off can all be influenced by how we tax corporations and those who run them. The cost of healthcare, education and housing can hinge on how much tax revenue we raise from billionaires. Your children’s success in life is connected to how well we use the estate tax to curb the advantages of rich kids from economic dynasties.
An unfair tax system also leads to broader social ills that impact everyone. When corporations can write off the cost of busting unions and offshoring jobs, opportunities for good paying jobs disappear and our society weakens. While undertaxed ultra-wealthy people live in a privileged paradise of jets, yachts and private islands, our shared investments in schools, parks, libraries and other public facilities and services like Social Security inevitably suffer. If billionaires can pour unlimited amounts of cash into our political process to handpick their favored candidates and policies, our democracy is threatened.
It’s because of these personal and collective effects of an unfair system that everyone should care about reforming our tax code. And this year is an important time to turn that concern into action, because there’s going to be a big change in our tax laws at the end of 2025. Whether that change will be for the better or worse depends on all of us.
A Big Chunk of the Trump Tax Law Is Expiring–Will We Replace It With Something Better?
Most of the 2017 Trump-GOP tax law, which heavily favors the wealthy, is set to expire at the end of 2025. Republicans want to permanently extend the expiring parts, adding almost $5.5 trillion to our national debt and continuing to mostly benefit the rich. If the cuts are extended, in the first year of the extension the highest-income 1%–households with income over $900,000–would get a tax cut of nearly $46,000. A family in the middle of the income ladder, making between roughly $50,000 and $100,000, would get less than $3 a day. Folks making less than $50,000 will get about a buck a day.
But even those few dollars a day would quickly be wiped out by the higher costs Republicans want to impose on low-income families to help partially pay for their tax cuts mostly for the wealthy. The House of Representatives has already voted to cut $880 billion from Medicaid and $230 billion from food assistance, meaning millions of low-income families will face higher medical and grocery bills.
We all have a stake in not only blocking the bad tax-and-spending plans of the GOP, but of promoting progressive fiscal policies that would actually help low-income families.
Tax Reforms That Would Help Low-Income Households
Taxing Wealth Like Work
Right now a Wall Street banker can pay a lower tax rate on his stocks than a worker pays on her hard-earned wages. That’s not fair. We should end the nearly half-off tax-rate discount on capital gains and dividends received by the very highest-income taxpayers, as the Biden-Harris administration repeatedly proposed. Not only would this reform honor the dignity of work, it would raise taxes on people making over a million dollars a year and generate nearly $300 billion in tax revenue. That’s money we can use to make people’s everyday lives better: lowering household costs, improving public services and expanding lifetime opportunities.
Raising the Corporate Tax Rate
The centerpiece of the 2017 Trump tax law was a massive two-fifths cut in the corporate tax rate, from 35% to 21%. This was the most expensive tax cut in the law, losing over $1.3 trillion in revenue over 10 years. And unlike the tax-law changes affecting individual taxpayers, the corporate tax cut was not given an expiration date. But that doesn’t mean it can’t be substantially or completely reversed as part of the negotiations over the expiring components of the law. Even Republicans are considering raising the corporate tax rate. Every percentage point increase would raise $130 billion in revenue that we could invest in working and low-income communities, including communities of color that have been left behind by corporate America.
Special Taxes on Billionaires
Billionaires and other hyper-wealthy people not only have a lot more money than the rest of us – they also make their living in entirely different ways that are not currently taxed. Instead of selling winning investments and paying tax on the profits, for instance, they can borrow against their rising fortunes at low interest rates and live tax free. That’s how some billionaires can go years paying zero federal income tax despite their mountains of money. The Biden-Harris administration and the top Democratic tax writer in the U.S. Senate both proposed special rules for the handful of wealthiest households in the nation that would tax the annual increase in the value of their investments even if they aren’t sold. Both plans would raise about a half trillion dollars over 10 years, money we could use to expand needed tax credits for the rest of us like the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC).
Low-income families have a big stake in the fight for tax fairness. Together we can make 2025 a banner year in the movement towards a tax code that serves the needs of all of us, not just big corporations and billionaires.