It’s pretty much impossible to create and sustain a more compassionate, powerful government, one that’s up to the huge challenges of our time, without raising taxes. The public sector at every level—federal, state and local—needs more revenue. To deal with our crumbling infrastructure and failing schools. To expand the safety net. To pay the vast costs of responding to climate change. And much more.
But it’s not just higher taxes that America needs. It’s also smarter taxes. We need to tax the people and corporations who can most afford it. And we need to root out the economic and social distortions that can flow from bad tax policy, not to mention collect the hundreds of billions of dollars lost annually to tax evasion.
I’ve been super-interested in tax policy for years. To me, there are few more important issues. Because when progressives and Democrats lose the battle on taxes, as we so often have, we lose the larger war over the role of government.
It’s been baffling to me that tax policy doesn’t get more attention from those leaders and institutions working to create a fairer, more equitable America. Most think tanks and policy groups on the left do zero work on tax policy. In contrast, conservatives have been obsessed with this issue for decades. And they’ve won a series of huge victories since 1981—passing trillions of dollars in tax cuts that have served to hobble government. Which, by the way, is very much part of their plan.
It’s only been in recent years that tax policy has generated real interest in progressive circles, thanks to bold proposals for a wealth tax. Now, with President Joe Biden in office and Democrats in control of Congress, we’re likely to be talking a lot more about this topic. Biden has pledged to raise taxes by more than $3 trillion.
One organization that has been waiting for this moment is the Institute for Taxation and Economic Policy, which is based in Washington, D.C., and led by Amy Hanauer. I’ve known Amy for a long time, and for most of that time, she was the director of Policy Matters, a think tank in Cleveland focused on Ohio. She started her current job last year. You can listen to my conversation with her, as well as other episodes of my podcast Inside Change, or read an edited transcript below.
This transcript has been edited for clarity and length.
David: Hi, Amy. Thanks for coming on the show.
Amy: Hey, David, great to see you.
David: Before we get into stuff happening in Washington, and also tax issues at the state level, I want to ask you if you share my longstanding frustration that tax policy tends to get ignored by a lot of people and institutions, including funders that care a lot about government and have all sorts of ideas for new government spending—but seem to care not at all about taxes, and ignore this issue. Is that also your sense?
Amy: Absolutely. There’s no question that everything that we want to accomplish as progressives—if we want a robust climate justice policy, if we want to address longstanding racial inequities and racism in public policy, if we want better schools for our kids and better childcare, and better healthcare in a pandemic—all of that depends ultimately on having a revenue system that raises adequate amounts of revenue from those most able to pay.
Everybody is happy to talk about where they want to spend the money, but often not nearly as happy to talk about where they want to get the money. I think that’s a huge mistake, because I think there’s a thirst among the American public for a fair tax system. Most people don’t think that the wealthy and corporations pay their fair share—and they’re right about that. Most people would like to see the wealthy and corporations paying their fair share. So I think there’s just a lot of room, not only from a policy perspective, but also from a political perspective, to build support for a robust revenue program that taxes those most able to pay.
David: So why do you think it is that people’s eyes glaze over? I’m super-fascinated by tax policy, but I’ve noticed, just over the years, people’s eyes glaze over. Even smart people who know a lot about public policy just seem to know zero about tax policy and have no interest in the topic. Do you have any psychological insights as somebody who leads a tax policy center?
Amy: First of all, tax policy can seem complicated, especially since we’ve had moneyed interests chipping away at the tax code in a kajillion different ways for decades. There are these complicated changes in rules that people don’t understand and that very well-compensated people are paid to understand that are difficult to explain to a regular person, even a regular reporter, or a state-level lawmaker. So I think that’s one reason.
Another big reason is this very false, right-wing narrative on how the economy works that makes people nervous. That the very things that would make our economy work better, people fear will somehow have some unanticipated consequence.
There’s a fear that somehow, if we have people pay their fair share, that’s going to suppress the economy. There’s no evidence for that, but it’s a fear that people have.
David: The conservative movement has been laser-focused on tax policy for 40 years, and it’s been one of their animating issues. It seems like they have just done a much better job of mastering the complexities of this issue and influencing tax policy. Is that your sense—that the right has just completely cleaned the left’s clock on this issue for a generation?
Amy: Yes and no. The fact is that the Trump GOP tax law passed in 2017 was not a popular piece of legislation. So in a sense, they are winning because when Republicans get into power, it is guaranteed that wealthy people and corporations will get a tax cut. That’s the implicit promise, that they will use race wars and culture wars to bring along some parts of the white working-class community. Then they will keep their promise to the wealthy community, to the business elite, and Wall Street that they’re going to lower their taxes.
It’s worked for them in part because we don’t have a real democracy in a lot of ways. But it is true that they have managed to have the power to push through tax cuts that mostly benefit the wealthiest and corporations, and that leave working people, poor people, and our planet struggling because we can’t pay for the things that will make it a better place going forward.
David: I want to talk about Biden’s effort to hopefully pass a big tax increase in the coming months. But first, before we get to the federal level, I want to talk about the state and local level, because this is another area where there’s a huge need for revenue. It’s an area where taxes are highly regressive, as your institute has documented, hitting the poor the hardest. In some key states, Texas, Florida, there’s no income tax at all. There are legal obstacles to raising taxes in some states—like Proposition 13 in California, where I live. Why are tax systems at the state level so unfair?
Amy: There are a whole bunch of reasons for that. Part of the reason is the same reason that the federal tax system doesn’t do what it should, which is that it’s complicated and some lobbyists are paid a lot to get breaks for their particular interest and their particular community.
Part of the reason is that there’s this real race to the bottom among states. Greg Leroy of Good Jobs First has documented this over and over again. It’s really easy for governors to feel that if they have a lower tax rate than the neighboring states, that’s going to somehow enable them to have more jobs. It’s untrue because the conditions that make for a strong economy require that you educate your workforce. They require that you have a good infrastructure to get products out to market. They require that you have a great university system so that you can do research that supports the industries in your community.
But it’s easier to say, “I cut taxes” than to build up all of those powerful public institutions.
David: In the last election, there were at least two major state ballot initiatives to raise taxes on the wealthy. One was in California, which was aiming to try to reduce the dampening effect of Proposition 13 by raising taxes on commercial real estate. That was voted down.
There was another ballot initiative in Illinois that would have moved that state to a progressive income tax, with a big hike in taxes on the rich in Illinois. That was voted down. A single hedge fund guy, Ken Griffin, spent $50 million, I believe, trying to stop that ballot initiative.
To me, the one moral of the story of both those ballot initiatives is that while raising taxes on the rich is very popular in principle, in practice, proposals for tax increases are easily demonized, easily politically attacked, and quite vulnerable to not succeeding.
Amy: That’s a great point. I think that there’s a lot that we have to learn from Illinois and California. At the same time, we won a big tax justice fight in Arizona in 2020 [Proposition 208], and we also won a legislative initiative in New Jersey.
One of the things about Arizona, where we raised taxes on the wealthy to pay for schools, is that it was years of organizing and building toward this. It was years of investing in people and teachers and in community organizing in Arizona that helped to turn that around, as well as a crisis situation for the Arizona schools. I think that we do have to acknowledge that if it’s an ad war, it’s perhaps really challenging for progressives to win, especially given the way that ad campaigns are funded, and campaigns, in general, are funded. But then if we take the time to build and work with people and hear people out, especially working-class and low-income people, about what is and isn’t working in their communities, and what their communities need, I think we can get some wins as well.
David: Let’s talk about Biden’s tax plan. Two months ago, it wasn’t at all clear that he would get a shot at raising taxes because the Senate was still up for grabs. But now, he’s really in a position to get through that $3.3 trillion tax plan, or at least some large components of it.
The budget, of course, is one place where a president can achieve a lot with only 51 votes in the Senate. I have a few questions for you about how this might play out. First, did you think that Biden’s tax plan is big enough? While $3 trillion sounds like a lot of money, that’s only $300 million a year, at a time when the federal budget is now north of $4 trillion a year. It doesn’t sound like a lot of money to me. We have trillion-dollar-plus deficits. So is it big enough? And why isn’t it bigger?
Amy: I do agree that there are lots of things that we could do to make this package bigger and more robust, that would make it a fairer economy going forward. We can get into the nitty-gritty of that on each of the pieces.
David: I’m also wondering about whether that $3 trillion tax plan is going to get through the Senate. Do you have a sense of how moderates, Joe Manchin, in particular, feel about this? What does the John Tester and Joe Manchin wing of the party in the Senate think about this $3 trillion proposal?
Amy: I understand why Joe Manchin is a more moderate Democrat on a lot of things, but I’ve never understood why he would be a more moderate Democrat when it comes to economic justice issues, given that he represents one of the poorest states in the country, if not, on some measures, the poorest.
It doesn’t make a lot of sense when you represent a lot of poor people and a lot of working-class people, to say that you’re not for things that would put more money in the pockets of working-class families. I also think that there are procedural reforms that are being thought about that could be helpful to making deals again.
One thing about Joe Biden is that he does understand how the system works. He believes in making deals and that has its strengths and its weaknesses, but it means that he doesn’t view everything as an ideological war. He views it as people who are trying to represent their constituents, and what is it that your constituents need, and how can we get to a situation that works better? I think tax justice is very much what Joe Manchin and John Tester need for their states.
David: What’s not to like? Raise taxes on a bunch of rich people who live in California, New York and Florida, and get more services for the residents of West Virginia and Montana. It seems like a win. I think you’re right there, that on those economic issues, Joe Manchin is very different than he might be on issues of guns or marriage equality or other hot-button cultural issues which so animate his constituents. West Virginia, by the way, has the highest percentage of people in the country who depend on government benefits.
Let’s talk about a couple of details of the Biden tax plan. I’m going to start with the proposal to roll back the cap imposed under Trump on state and local taxes.
This made lawmakers from New York and New Jersey go ballistic. That provision hurt a lot of blue states and affluent suburbanites, and getting rid of it is definitely in Biden’s plan. I can see the political argument for that. Democrats rely heavily on affluent, suburban voters. I can’t see the fairness argument for it. Why, if you live in a wealthy suburb, and you pay $40,000 in taxes to send your kid to a great public school, you should be able to get to write off every last cent of that? Do you see an argument for why that should be in that tax plan?
Amy: It’s not a very fair proposal. The fact is that if we replace the SALT deductions, it will benefit wealthy families the most. I think that what we need to do is to reform deductions more broadly in a way that doesn’t enable people to deduct nearly as much, but does allow working-class families to have deductions in place.
David: I want to build on that question. Since Obama, there’s been this mantra around taxes among Democrats—that “we’re never gonna raise taxes for anybody who makes under $250,000.” More recently, it seems to have been that “we’re never going to raise taxes for anybody who makes under $400,000.” As I understand where the revenue is, yes, you can get a lot of revenue from rich people, but you need a broad tax base. You need to tax the upper-middle class to raise more revenue. Democrats seem to have put themselves in this position where they’re unwilling to even think about it. I wonder if you share my concern about that.
Amy: I do. Let’s face it—if you earn $350,000 in the United States of America, you’re wealthy. You’re doing much better than most people by a long shot.
It makes a lot of sense to not box ourselves in that way and to put in place some tax changes that would generate revenue from the upper-middle class, the wealthy, and the very, very wealthy.
David: In the Biden plan, there is no wealth tax. During the primaries, both Elizabeth Warren and Bernie Sanders proposed pretty groundbreaking wealth taxes on fortunes of $50 million or more. It would have raised a ton of money. This is a huge source of possible revenue that could finance a lot of things. And it’s nowhere to be seen in the Biden tax plan. Why do you think that is? Is that something you’re worried about?
Amy: It is something I’m worried about. I think that we need a wealth tax in the United States. We’re never going to get to an equitable economy where black and Brown people and working-class people have a fair shot at anything as long as people can pass along wealth in this dynastic way to generation after generation. The way that wealth is under-taxed in comparison to compensation for working also makes no sense. So I was disappointed that was not part of the Biden tax plan. What I will say is that I think that there are a lot of elements in the Biden tax plan that begin to get us in that direction.
For example, capital gains enjoy a lower tax rate than wages. That’s another return to wealth that doesn’t seem fair, and Biden has talked about reforming that. I think we can start with those things, and look, let’s show Americans that we can deliver economic justice with a Democratic House, Senate and President. Then in two years, let’s take it further.
David: Is there anything else before we close about the Biden tax plan that you’re excited about or any other aspects that you’re seeing happening around tax policy in Washington that you want to spotlight for people?
Amy: There’s one just really quick thing, as we try to work through a system where we’ve got a very slim majority. The IRS devotes more of its resources to auditing low-income families and far less than it used to, to auditing the top. That’s part of the reason that someone like Trump is able to get away with paying no taxes while living a life of luxury and bragging about it. A really quick thing we could do is redirect resources within the IRS away from auditing people who qualify for low-income tax credits and toward people who are evading taxes on enormous estates. That’s just one quick thing that I’d like to see happen with more speed.
David: It’s estimated that the IRS loses hundreds of billions of dollars in tax revenue every year to cheating. That does seem like low-hanging fruit of money that you could get without having to impose more taxes.
Amy: Absolutely. That’s another thing about our tax system that gets back to your very first question, which is that part of the reason that people fear that taxes are unpopular is people don’t think that everybody’s paying them, and they’re right. Most people pay their taxes, right? Most people pay what they owe. And why is it that we should have a system where the very wealthiest, the very ones who need the resources the least, are the ones who get away with not paying everything that they owe?
We can do a lot just to restore faith in government by making sure that we’re enforcing our tax code.
David: Amy, thanks for coming on the show.
Amy: Great talking to you, David.
