Unfortunately, the very tax structure that hypothetical proposal envisions already exists. Yet, amazingly, many of those who would adamantly oppose the creation of a society where the income tax impoverishes struggling workers to enable those with seven-figure incomes to pay low rates are working overtime to maintain that very same situation.
Recognizing that taxing hardworking people into poverty is both morally wrong and economically asinine, earlier this year, Sen. Chris Van Hollen (D-Md.) and Rep. Don Beyer (D-Va.) introduced the Working Americans’ Tax Cut Act (WATCA). Twenty-one senators and 13 representatives have signed on. The AFL-CIO has endorsed WATCA, as have the American Federation of Teachers, Oxfam, Americans for Tax Fairness, Take on Wall Street, and nearly a dozen other tax and justice organizations.
WATCA is based on the simple concept that workers with incomes equal to or less than the basic cost of living should not be required to divert income needed for basic necessities to pay federal income tax. WATCA provides an exemption from federal income tax for income up to the basic cost of living, $46,000 per year for a single American with no children, and recovers the lost tax revenue with a surtax on incomes over $1 million.
Criticism of WATCA has been fast and furious, coming mostly from folks who purport to advocate for average Americans. Their commentary, which can be found in American Prospect, Democracy, The New York Times, and even Rolling Stone, is chock-full of concocted reasons why continuing to oppressively tax struggling Americans is a fine idea. Mostly, their arguments are a repackaged version of billionaire Republican Sen. Rick Scott’s (R-Fla.) idea that he pushed in 2022 that the income tax requires all Americans to have “skin in the game.” Scott’s idea bombed badly—so badly, in fact, that he shelved it after just a few months.
The Working Americans’ Tax Cut Act fixes a fundamental structural flaw in the federal income tax: We’re taxing those with no ability to pay into poverty, while maintaining top rates that are absurdly low.
The words used by WATCA critics differ, although often not by very much, but the concept is the same. A Roosevelt Institute blog post explains how tax policy should “bind us all to one another.” In an impressive mental gymnastics routine, former Larry Summers acolyte Natasha Sarin acknowledges that ordinary Americans are “right to resent a tax system that’s skewed against them,” but that making those at the top pay their fair share would not be enough, so it’s the civic duty of everyone, no matter their level of income, to pay federal income tax. In Democracy, writers from the Tax Law Center at NYU Law, including two Obama and Biden administration alums, somehow manage to start by recognizing that the income tax "embodies the principle that the government should be financed based on ability to pay” yet end by attacking a proposal based on its recognition of the inability of those with income below the basic cost of living—or income below any threshold for that matter—to pay income tax.
You can’t top the tone-deafness of a billionaire Republican senator insisting that all Americans pay income tax to have “skin in the game.” But you know what comes close? A group of ivory-tower policy wonks ensconced in air-conditioned offices and drawing comfortable six-figure salaries insisting that exempting janitors making $40,000 a year from federal income tax would be a tragic policy mistake. No, they don’t use the phrase “skin in the game,” but they may as well.
And let’s be clear, all Americans have a lot of skin in the tax game whether or not they pay federal income tax. In fact, if Social Security and Medicare taxes were labeled to reflect what they actually are—income taxes—all but the lowest income Americans would be considered to be paying federal income tax.
Other attacks on the Working Americans’ Tax Cut Act are equally off base. The second favored theme is to mischaracterize WATCA as a middle-class tax cut. That attack line seizes on the reality that it’s never possible to craft a tax bill that precisely addresses its underlying policy objective. Exempting income up to the basic cost of living from income tax unavoidably confers an incidental benefit on those with incomes at a slightly higher level, a benefit that is rapidly phased out under WATCA.
So, yes, Americans with incomes considered middle class stand to benefit from WATCA. The benefit, however, becomes vanishingly smaller as income increases into middle-class range. But that didn’t stop former Biden National Economic Council member Bharat Ramamurti from referring to WATCA as a “very sweeping middle-class tax cut” which he suggested reflected poor prioritization. Consider how flat Ramamurti’s criticism would fall had he said that a tax cut for underpaid workers struggling to make rent reflected poor prioritization.
The Working Americans’ Tax Cut Act fixes a fundamental structural flaw in the federal income tax: We’re taxing those with no ability to pay into poverty, while maintaining top rates that are absurdly low. We can quibble about the details of fixing that flaw. Maybe the basic cost of living in America is not exactly $46,000. Maybe the cost-of-living exemption should be phased out over a narrower income range.
When our organization, Patriotic Millionaires, worked with congressional offices to develop WATCA, we fully expected commentary along those lines. But ironically enough, there has been remarkably little of it. Instead, we’re hearing that the fundamental structural flaw—and the misery it inflicts on struggling workers—should be left unaddressed. And as a result of their moral ambivalence, we’re left with a Democratic Party that can’t understand why working-class Americans have left them. We can.
