Democrats’ new plan to appeal to their unhappy base is the same old crap – smoke and mirrors

By Robert A. Vella

Stung by electoral defeats, low voter turnout, and a rebellious progressive base, the Democratic Party unveiled its new plan to address economic inequality and the growing ranks of populist discontent.

From The Atlantic – The Democrats Call Dibs on the Middle Class:

On Monday, one of the leading Democratic policy-makers in the House, Representative Chris Van Hollen of Maryland, offered a new and more aggressive economic blueprint that may well become a rallying point for the party in 2016. The headline proposal is a $1.2 trillion package of tax cuts for middle-income earners, including a $1,000 “paycheck bonus credit” for individuals making less than $100,000 a year, and twice that amount for couples earning less than $200,000 annually. Van Hollen, who is the top Democrat on the Budget Committee, would also expand the earned income tax credit and the child care tax credit, along with offering an even bigger break for people who devoted a portion of their tax credit to retirement savings. Additionally, the plan would try to prod CEOs to give their employees raises by changing the rules for companies that claim deductions for executive pay.

Where would all the money come from? For the most part, the rich. Van Hollen is proposing to scrap tax breaks that go disproportionately to the wealthy and to add a new tax on stock trades that he is dubbing “a high roller fee.” The latter tax could hit anyone who is active in the stock market, but Van Hollen argues it would only really effect wealthy high-frequency traders. “We must ensure that all Americans who work hard and play by the rules are rewarded with a fair share of a growing economic pie,” he said in a speech laying out his plan in Washington.

Although this proposal points in the right direction, it is just more of the same old smoke-and-mirrors political rhetoric Americans have lost patience with.  Let me explain why:

To being with, the plan does nothing to correct the fundamental structural problems within our economic and political systems which are the root cause of wealth inequality, social stratification, and lost occupational opportunity.  These problems cannot be solved through minor tweaking of the tax code.  In fact, it’s been the continuous legislative manipulation of tax law that had created much of these conditions in the first place.

While a financial transaction tax is long overdue and sorely needed (see:  Democrats Finally Found a Smart Way to Stop Wall Street’s Reckless Behavior), a modest $1000 tax cut for middle-income earners and an expansion of low-income tax credits are hardly bold proposals.  Such minor stimuli would only slightly boost consumer demand and GDP, and would only marginally assist affected families.

Furthermore, this new tax plan has absolutely no chance of becoming law now that the GOP controls both houses of Congress.  It would be rather easy to speculate on the Democrats’ real motivation here.  In my opinion, they are simply using the same tactics against Republicans which failed miserably in the 2014 midterms – that is, trying to discredit them by forcing their members into taking unpopular positions (see:  Dems pitch controversial plan to tax Wall Street, to pay for new middle-class credit).

Isaiah J. Poole of Campaign for America’s Future shared part of this assessment of Van Hollen’s plan in an editorial titled Is New Democratic Tax Plan The Best Way To ‘Grow Paychecks’?:

A central element of the Van Hollen proposal is a new, $1,000 middle-class tax cut, which raises an important question: Is the best way to help workers is to give them a tax cut, or to put that money into programs that will speed up and broaden economic growth and job-creation, thus boosting wages? Of all the elements of his proposals, that question really deserves a serious conversation.

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While it is hard to deny the political and popular appeal of a $1,000 tax cut for middle-class and low-income people, the question that should be debated in the coming weeks is whether the goal of raising wages is better served by investing more in efforts that would create jobs and put future economic growth on a more sound, sustainable footing. That includes shoring up our decaying infrastructure, including our transportation systems, water and electric grid; helping local economies left behind by today’s uneven economic recovery; and funding the research and development needed to accelerate the growth of the green energy economy.

Taking these steps would create millions of new, good-paying jobs and would have arguably a more dramatic effect on the economy than would a tax cut that would amount to an additional $19.23 a week for each individual. If you create more jobs, thus tightening the labor market, that forces employers to raise wages. That’s even more likely if this spending is coupled with measures to increase the bargaining power of workers.

If the Van Hollen proposal becomes the opening bid in a competition with Republicans over who can give people the biggest tax cuts, that could be a losing proposition for Democrats and for the middle-class taxpayers that the Democrats are trying to win. But Van Hollen is right that we need a tax code that rewards workers for work, and gets the government out of the business of subsidizing the salaries of CEOs who boost their income while freezing the incomes of their workers or cutting their jobs altogether.