Democrats have released a $2.9 trillion tax proposal that they hope might stifle debates about how they will fund a $3.5 trillion social spending plan meant to boost the economy by addressing income inequality and decades of uneven prosperity. Washington being Washington, those debates are about to get heated.

Inflation-adjusted wages for workers have barely budged. Mandel Ngan/AFP via Getty Images via TNS

What isn’t debatable is how we got here. The country thrives when there’s a transparent and equitable social contract between capital and labor. Capital provides the money needed to start and grow companies, and labor provides the sweat and talent necessary to turn ideas into thriving businesses. If they succeed, capital and labor share the spoils in a way that allows both to prosper. In theory, everybody wins.

Around the late 1970s, however, that social contract began to break down. While corporate America has enjoyed booming profit growth and soaring stock prices, inflation-adjusted wages for workers have barely budged. The disparity is now starker than ever: Companies are minting record profits while millions of full-time workers struggle to get by.

The decades-long neglect of workers has had predictable and inescapable consequences. It now takes two working parents to support blue-collar and middle-class families, which means someone else has to look after young children. But for many families, two paychecks don’t pay for child care – or adequate health care, housing, retirement and post-secondary education. Workers have also been forced to move farther from work, adding to commute times and further limiting parenting time. Public schools, already understaffed and underfunded, are forced to extend school days into evenings, making them de facto parents for many kids.

Corporate America says it understands the brutality of those hardships, and there’s been no shortage of talk from executives about the need to give workers a greater stake in the economy. But aside from modest pay increases from some employers such as Walmart and Amazon.com, most businesses have failed to make any meaningful changes. And if businesses are unwilling to provide for workers’ basic welfare, they leave employees no choice but to seek relief elsewhere.

So here we are, with Democrats crafting legislation aiming to correct many of the ills wrought by four decades of stagnant wages. Their plan is abundantly necessary, and the federal government and its citizens have the financial wherewithal to fund it – through taxes and debt. If we kick the can and just walk away from the problems confronting us, they won’t disappear. They will continue to express themselves in noxious politics and subpar economic performance for the foreseeable future.

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A $1 trillion public infrastructure bill shoring up transportation, broadband and utility systems and built upon President Biden’s American Jobs Plan passed the Senate in August with strong bipartisan support. It still awaits a House vote, which is scheduled for Sept. 27. Progressive Democrats have been withholding their support for that bill unless a meatier $3.5 trillion social spending plan passes simultaneously.

That latter bill, inspired by Biden’s American Families Plan, supports universal pre-K education, expanded child care benefits, paid parental and medical leave, enhanced health care, two free years of community college as well as new green energy and climate initiatives. The Democrats will need every vote they have in the Senate, and almost all their House votes, to pass that bill. Sen. Joe Manchin, a Democrat from West Virginia, has asked his party to slow down, suggesting that $1 trillion to $1.5 trillion would be a more appropriate level of spending.

Manchin, like others, has argued that the $3.5 trillion package would raise the national debt to perilous levels and ignite inflation. Neither of these arguments hold water, however. While there certainly have been inflationary signs lately, none of it points to the kind of nightmarish “stagflation” that stalked the economy in the early 1970s. A debt apocalypse isn’t in the cards either. That $3.5 trillion in new spending would be spread across a decade, amounting to roughly $350 billion annually, which, as E.J. Dionne pointed out in The Washington Post, amounts to about 1.2 percent of economic output over the same period.

A recent analysis of the $3.5 trillion package by the Center on Budget and Policy Priorities, a liberal think tank, also points out that “the overall legislation’s net cost – spending increases and tax cuts less spending reductions and tax increases – will be far less than the gross cost of $3.5 trillion because the package will include revenue increases and spending reductions.”

What ultimately matters is matching spending that boosts economic growth and well-being to viable and equitable funding.

Democrats say their new funding proposal would generate $2.9 trillion through tax increases and other revenue sources. It would raise the corporate tax rate to 26.5 percent from 21 percent for businesses with annual revenues greater than $5 million. That rate would drop to 18 percent for small businesses that make less than $400,000 and stay at 21 percent for all other enterprises. The top personal income tax rate would rise to 39.6 percent, from 37 percent, and individuals earning more than $5 million annually would be subject to a 3 percent surtax.

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We also continue to believe that it makes sense to fund new spending with debt, at least for now. The federal government has never been able to borrow more cheaply, and even with an additional $3.5 trillion in new borrowing, the national debt would still be manageable relative to the size of the economy. Even so, taxpayers shouldn’t continue to subsidize companies’ labor costs, and tax policy can be used to push labor costs back to companies, which may be needed if interest rates move higher and raise the cost of federal borrowing.

There still can be – and should be – reasonable disagreements and constructive solutions about how much it will cost to pay for the needs of a healthy and productive workforce. But something bold needs to be done.

As we have noted before, the United States’ unusually large middle class has been a bedrock of economic growth for decades, with consumer spending fueling about 70 percent of the country’s gross domestic product. Yet the American middle class has been eroding for some time, and batterings from the 2008 financial crisis and the 2020 pandemic have further undermined its prospects.

The private sector has had decades to tackle this problem. It didn’t. Now it’s government’s turn.


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