Van Hollen Presents Far-Reaching Economic Proposals at EPI’s Taxing the (Very) Rich Conference
Today, U.S. Senator Chris Van Hollen discussed his proposals to improve our tax code and boost the U.S. economy at the Economic Policy Institute’s Taxing the (Very) Rich Conference. The full text of the Senator’s remarks is below:
Thank you very much. Let’s give it up for Thea and all the good work she does. Thank you to Thea Lee. And I am glad to be off of Capitol Hill right now and with all of you, as we plan what we need to do as we go forward in the coming years on Capitol Hill. I want to -- in addition to thanking Thea -- thank her whole team at the Economic Policy Institute for the work that you do that brings the needs of every-day families into the discussion of economic policy.
Sometimes, as all of you know, we have a lot of economic policy wonks in the room it can get really dry. We need to make it alive and real. And, that’s what you do at EPI in terms of the impact in the lives of working Americans. And you also provide that rigorous and trustworthy information that we all need as we take on the myths and a lot of the falsehoods that are perpetrated by very powerful special interests who are trying to craft the tax codes and economic policy, generally, to serve their interests at the expense of the interests of the American public. So, I want to thank you, EPI for hosting us today. I want to thank all the folks at Americans for Tax Fairness, as well as others in this room who have contributed your ideas and talents to this very important conversation.
And we have to push back. And we have to push back very hard. Because we know that Donald Trump and the Republicans in Congress are pushing some of those economic myths and falsehoods just as hard as they possibly can. They use the so-called Laffer curve -- which Art Laffer, drew on a napkin for Dick Cheney and Donald Rumsfeld in 1974 -- they’ve used that to claim that tax cuts for the rich somehow pay for themselves. Of course, we know that the Trump tax cuts do not pay for themselves. And, what the Laffer curve ideology -- and it is ideology not economics -- what that has done is increase economic inequality and add trillions of dollars to our national debt.
Now, you may have seen that Donald Trump gave Art Laffer a Presidential Medal of Freedom. I would say a much better symbol for trickle-down economics is the Laffer curve napkin in the Smithsonian. I don’t know if you saw the article, but it turns out that the napkin at the Smithsonian is not the real Laffer napkin. In fact, it was a napkin he made several years after the fact. So, what we know is that that napkin is a fake and trickle-down economics is a fraud. And we need all of you. But just because it’s a fraud doesn’t mean it has hasn’t been applied -- because it has. And it’s created a lot of damage at the expense of working families. So, it is really important that we come together, and we think of ways to fairly raise the revenues we need to invest in an economy that brings opportunity and fair wages and benefits to the American people. And that’s what this is all about.
So let’s take a look at the economy. It is, of course, good news that the economy has been growing for ten years. But while many economists like to focus on the aggregate growth rates within our economy, people in this room know that the aggregate numbers often hide the economic hardship being experienced by millions of our fellow Americans. After all, if Bill Gates walked into this room right now, our aggregate income growth would skyrocket and on average we would all be multi-millionaires. So aggregate numbers and averages often hide the real world economic hardship being experienced by American families.
In a recent report by the Federal Reserves, that many of you have seen, reinforced that reality. It stressed the financial fragility facing American families despite the strong economy and those average numbers. Here’s just one finding from the report -- that 39 percent of adults in America cannot cover an emergency expense of $400 without borrowing or selling something -- and that’s if they can do one or another of those things at all. So that’s a staggering percentage and fact to think about at a time when, you know, people think the economy is doing great. The reality is that it is not doing great for tens of millions of Americans.
So while the economy is growing, and if we’re not seeing shared prosperity, the question of course is where is all that money going? And it’s not a surprise to people in this room to find out that it’s going -- not just to the rich -- but to the very, very rich and the very wealthy in this country. In 1979, the top 0.1 percent received 4 percent of our national income. So the top 0.1 percent had a 4 percent share of the national income. Today, that figure has more than doubled to 10 percent. So the top .1 percent now receive 10 percent of our total national income.
And when you look at wealth inequality, you see an even worse situation -- even larger a disparity. In 1979, if you look at the top 0.1 percent of Americans, they owned 7 percent of the wealth in the United States. By 2016, that figure had skyrocketed to 19 percent. So, the top 1/1000th of Americans controlled 19 percent of America’s wealth. And, if you look at those very wealthy households, you’ll find they make money in a very different way than most Americans. Because most of the money they make comes from the money they already have -- rather than from their work.
If you look at the bottom 90 percent of income earners, investment gains do not tend to be a large source of their income. That’s not surprising. But when you look at the figures, they’re pretty stark. Because for the bottom 90 percent of income earners, income from investments comes to about 15 percent of their total income. Whereas for the top 0.1 percent, I’m talking point 0.1 here, a full 67 percent of their income derives from investment gains generated by their massive wealth. So people making money off of money they already have -- rather than money after hard work.
And so that’s where the income gains are going primarily -- to the already very rich both in terms of income and in wealth. And of course, the stock buybacks that we saw in the aftermath of the Trump tax cuts just reinforced that pattern -- close to 2 trillion dollars in stock buybacks. Which contrasts very distinctly from some of the patterns we saw in the aftermath of World War II, where we know that the paychecks of most workers tracked the increase in productivity. So as workers worked harder and they provided productivity gains, that productivity gains was captured in increasing wages for those workers.
But since the mid-1970s -- I’m sure many of you have seen those charts -- there’s that great disparity between worker productivity and wages for workers. And even though, since the mid-1970s, worker productivity has increased by 77 percent, pay for non-managerial workers have risen by just 12 percent. So the benefit of that increased productivity has not gone to the workers. It’s gone to the big corporations and their owners.
So we need to confront this problems with solutions. We need to build a dynamic economy that works for everybody rather than dynastic economy based on existing wealth. And that needs to be our goal. So I just want to mention some of the proposals that I’m going to be introducing in Congress -- some I’ve introduced. There are lots of good ideas out there and the key is for us to coalesce around some major proposals, so that when there’s a majority in Congress -- and that will be sooner rather than later -- to get this done, we’ll be able to hit in the ground running.
So I would start with the proposal that you’ve discussed today for a 10 percent surtax on incomes above 2 million dollars. That corresponds to the top 0.1 percent of the income range that I was talking about earlier. So we’re talking about a surtax on one of every 1,000 households. And I will be introducing that legislation later this summer.
Unlike the existing tax system, this surtax on very high income earners will not give special treatment to people who make their money off of money -- compared to people who make their money from work. The surtax will apply equally to labor and investment income. And to make sure that the wealthiest family dynasties pay their share of this surtax, this legislation will pair the surtax with provisions to close a major loophole that wealthy households use to shield their investments from income taxes -- the so-called, “stepped-up basis” provision in the law. We will close that down.
Here’s how it works right now. Normally, when you sell an investment -- whether it’s stock or some other kind of investment -- you pay capital gains on the profit that you make at sale. But when someone holds that investment -- like a stock -- until they pass away, their heirs inherit the asset without anyone ever paying income taxes on the gains that accrued during that person’s lifetime. In fact, if you look at the estates worth more than 100 million dollars, you will find that 55 percent -- 55 percent -- of that value has never been subject to a tax and never will because of stepped-up basis.
So as we work with tax experts to design provisions to close this loophole, we will start with something that President Obama had put forward in his budget that contained a similar measure to close the loopholes -- but also made sure we put some provisions in place to protect truly middle-class households and truly family-owned farms and businesses.
I think it’s important when we talk about generating more revenue to build an economy that works for everybody, that we also let the American public know how we intend to invest these dollars in order to build an economy that works for everyone. And I propose to direct the revenues generated from this surtax to funding a piece of legislation that I’ve introduced already called the Keep Our Pact Act. What does that mean? It stands for Keep Our Promise to America’s Children and Teachers. And what it will do is address a huge shortfall in federal funding for education K-12. Let me give you a couple facts here. Because if you look at the root of our education funding system -- and I’m referring to our K-12 education funding system -- it is based on a fundamental inequality. Which is that in the United States, we developed a system where the property tax is the primary funding source for our schools. Well, not surprisingly, if you come from a relatively wealthy community, you’re going to be able to generate a lot more revenue for educating the kids in your school system. Whereas, lower-income neighborhoods do not have that capacity.
Now state government and federal government are supposed to address that fundamental inequality. But we are falling woefully short at the federal level. I just want to give you a couple figures to highlight that point. If you look at the formula -- this is for Title I -- Title I funding is the main source of federal funding to correct this inequity. If you look at the funding formula in law, it would’ve authorized funding for Title I schools at 48.7 billion dollars in 2017 -- 48.7 billion dollars. Instead, Title I was funded at just 15.4 billion. That is a 33 billion dollar one-year shortfall in the federal government’s commitment to K-12 education in the United States of America. We have the formula in law. But what happens is that whatever money’s appropriated, it just gets prorated. So, although our law says we’re authorizing K-12 at what we think is necessary to provide a quality education for every child, we are short-changing them in a massive way.
If you look at the special education funding formula, you’ll find the same thing. This is the IDEA, Individuals with Disabilities Education Act -- a very good thing Congress did back in the 1970s, saying every child should get an equal education, regardless of disability. And Congress made a commitment at that time to fund special education at 40 percent of what the cost would be. They said this is not going be an unfunded mandate -- we’re going to share with local school districts in the costs of meeting this common goal.
Well, if you look at the funding for IDEA today, it’s not at 40 percent. It’s at about 15 percent in terms of the federal share to the cost. And what does that translate into real dollars? Well, if we’d been at the 40 percent promised level in 2017, it would’ve been 33.5 billion dollars from the federal government. But Congress appropriated about 12 billion dollars. So that’s a shortfall in one year for special education at 21 billion dollars. And of course when schools are shortchanged on special education funding, it means they have less funding overall to meet the needs of our kids and their educational requirements.
And if you look at just 12 years, over the last 12 years -- which is you know, is first grade to twelfth grade -- if you look at the shortfall in Title I and IDEA funding over that period of time, it comes to a whopping 580 billion dollars. So we have lots of conversations at the local level in terms of class size, teacher pay, and trying to make sure that our kids are getting adequate education when the federal government is -- by its own measure -- falling hugely short of what we as a country said would be required. So I propose to make those investments using some of the additional revenues generated through this surtax.
And I should point out that this bill has become a top-priority. I have introduced this bill for many years. But it is now getting some important attention. It’s a top priority of the National Education Association, the American Federation of Teachers -- there is an Alliance to Reclaim our Schools -- it’s supported by the National Urban League, the Leadership Conference on Civil and Human Rights, and many other civil rights organizations who believe that if we’re going to really meet the dictates of Brown v. Board of Education, we need to deal with this fundamental inequity.
So let me also turn now to another group of Americans that is often forgotten. And those are people who are long-term unemployed. So for the economists in the room who follow it, we have a definition of what it means to be long-term unemployed -- it’s somebody who’s been out of a job and looking for work for six months. If you’re not looking for work over the last six months, you’re not actually counted in the technical definition of long-term unemployed. But if you think about it, the economy is doing relatively well overall compared to what it was ten years ago. And yet, even in this economy, we have 1.3 million people who are out of work and have been looking for work for over 6 months. And what happens when you start to fall into that category is you become harder and harder to employ as time goes on. Because employers look at that as one of the factors in making their hiring. So the challenge gets harder and harder for the long-term unemployed.
So, I’ve teamed up with Senator Ron Wyden -- just this week we introduced the Long-Term Unemployment Elimination Act. This bill will generate real job opportunities for anyone who is long-term unemployed. How do we do it? We propose that the federal government will cover two-thirds of the costs of wages and benefits for these jobs for a one year period. And then, in some cases -- where that job is leading to a particular certificate in a particular skill -- extend that up to two years. And the idea is to get these individuals who want to work into the workplace, on their feet, and into the overall economy. As opposed to the Republican approach which is: well for the people out of work, we just want to take away some of their benefits, right? If you’re not working, we’re going punish you -- the Republicans say -- by denying you access to things like food and nutrition programs.
But, if you’re looking for work for six months and can’t find it, it’s not your fault that there’s not a job out there for you. So this idea is to really make sure that we get these individuals who’ve been really left behind into the workforce, on their feet, and I hope you’ll all have the chance to take a look at that legislation.
That bill, Senator Wyden and I proposed to fund by closing some of the outrageous overseas tax breaks that were included in the 2017 tax bill, which actually took the problem of encouraging businesses to move overseas even worse. In other words, that legislation created even more incentives for U.S. corporations and businesses to move their plant and equipment overseas. And unless we fix this, we will begin to see that happen -- because it will be in their self-interest to do so. So I’ve co-sponsored legislation along with Senator Whitehouse, and Senator Klobuchar, and Senator Duckworth to close down some of those big loopholes. And instead of incentivizing U.S. companies to move their plant and equipment overseas, let’s shutdown that loophole and use that revenue to help with put these long-term unemployed individuals back to work right here in the United States of America.
Finally, I want to address one other tax break that we need to address. That relates to the estate tax. As all of you know -- if you look at the 2017 law -- Republicans provided a big giveaway to the wealthiest estates in the country. And the reality is that Republicans continue to pretend that the estate tax as it was somehow impacts lots of Americans. It’s simply false -- like the Laffer curve. Less than one percent of the estates in this country pay any kind of estate tax. Less than one percent of the estates, under the earlier formulation, pay any estate tax. And of course it’s intended to prevent the rise of a permanent aristocracy in the country. But as the figures I cited earlier show, we are building a bigger and bigger aristocracy every day when you have the top 0.1 percent of the country controlling 19 percent of the nation’s wealth.
So I introduced a bill today to take the estate tax levels back to where they were before the Trump tax giveaway to these big dynasties. And it’s got a very simple title, appropriate for today -- because I’m going to use these funds for Social Security strengthening -- the Strengthen Social Security by Taxing Dynastic Wealth Act. What we would do is take the estate tax back to where it was, as I said, which still means that the first 3.5 million of someone’s estate is exempt from estate taxes. That’s down from what the Republicans raised it to which is 11.4 million dollars. And the legislation would also take the estate tax rate back up to 45 percent from 40 percent.
And the idea of investing funds from the state tax to provide retirement security has an interesting and long pedigree. First of all, more recently -- I mean in the last couple decades -- Nancy Altman, who is the president of Social Security Works, has advocated for this proposal. Before Nancy, Bob Ball, who is our nation’s longest Social Security Commissioner, proposed that we direct revenues from the estate tax to Social Security. And if you go way back, Thomas Paine, in a pamphlet entitled “Agrarian Justice” advocated an estate tax to fund payments for the elderly and people with disabilities. So you see that this has a distinguished heritage. And here’s what Thomas Paine said, “It is from overgrown acquisition of property that the fund will support itself.” In other words, use the estate tax revenue to support this retirement fund. And that’s exactly what the bill I introduced today will do.
Now, this one measure will close 21 percent of the total long-range shortfall in the Social Security Trust Fund. So, obviously it is not the entire solution, but it is a piece of it when you can address 20 percent of the shortfall -- 21 percent the short fall. And we know that Social Security is one of the -- if not the most successful -- anti-poverty programs in the country. Without it 22.1 million more Americans would be in poverty today. Now it’s important to understand that Republicans keep claiming that in order to prevent Social Security running out of its funds, we need to cut benefits to millions and millions of Americans. But that simply is not true.
The provision I’ve introduced shows one piece of that puzzle. But I’ve also introduced legislation -- along with Senator Blumenthal in the United States Senate and the leader of this bill in the House, John Larson, called the Social Security 2100 Act -- which shows very clearly that you can extend Social Security solvency for at least the next 75 years while also increasing benefits. So I encourage you to take a look at that legislation as well. But If you take these two bills together, it’s just an example of the options that we have to shore up the social security system and make sure that it continues to meet the goals that it was established to meet.
The last thing that I want to mention is the financial transactions tax. As you all saw, Senator Sanders introduced something the other day. Senator Brian Schatz and I have previously introduced legislation to create -- what we call a Wall Street tax -- because that’s what it is. It’s a very small fee on a lot of different Wall Street transactions. And the Tax Policy Center… have found that nearly one fourth -- so 25 percent -- of all the revenues generated by such a Wall Street Tax would come from the top 0.1 percent of Americans. Almost as much as the tax would collect from every household in the bottom 80 percent combined.
So what we have is an enormous of very risky trading and speculation on Wall Street, and in addition to raising money, putting this fee on those transactions would cut down significantly on those risky trading practices -- which we all end up paying for in a different way, if we don’t take some kind of measure.
So lots of things we should be pressing for in order to build an economy that really does work for everybody. We can generate the revenue we need to invest in our kids’ education, to invest in other major policies that will help lift everybody up and make sure that everybody has a fair shot. Thank you very much for being a part of that effort. And now let’s just go out, work hard, and get it done. Thank you all very much.
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