The False Premise Behind New Democratic Tax Proposals

When impartial statistics cast the wealthy as anything other than culpable for the plight of lower-income working households, politicians often brush them aside. Income tax proposals advanced earlier this month by Sens. Chris Van Hollen (D-Md.) and Cory Booker (D-N.J.) exemplify how readily Democratic lawmakers subordinate facts to that enticing but false narrative. The result is that they stitch together bespoke and tailored income tax proposals that poorly fit the American economy. While the two proposals from Van Hollen and Booker may help Democratic leadership preserve the appearance of standing up for working Americans, they rest on a misguided perception of both who bears the federal income-tax burden and how much redistribution to lower-income households has already occurred. Neither proposal would restore tax fairness.

Van Hollen’s proposal would exempt workers earning at or below a defined “living wage” from federal income tax, increasing the number of filers with no federal income-tax liability from 37 million to roughly 66 million. He intends to finance that relief through a new surtax on millionaires—an additional 5 percent, 10 percent, and 12 percent on incomes above $1 million, $2 million, and $5 million, respectively.

Similarly, Booker’s bill would eliminate federal income taxes on the first $75,000 of income for most households by sharply increasing the standard deduction, cutting the median family’s federal income-tax burden by an estimated 85 percent, to be compensated for with higher taxes on corporations and wealthy individuals.

In touting this legislation, both senators invoke a familiar argument, well captured by Van Hollen’s claim, that Americans are “working harder and longer and still can’t make ends meet” because the tax code fails to ensure that “the wealthiest few pay their fair share.”

However, that argument founders quickly on the federal income-tax data the Internal Revenue Service publishes for all to see.

For example, in the twenty years after 2002, the share of federal individual income taxes paid by upper-income taxpayers rose progressively. In fact, the share increased for the top 50 percent, increased more for the top 10 percent, and increased most for the top 1 percent. In particular, the top 1 percent, paid 33.1 percent of federal individual income taxes in 2002; that share rose to 38.1 percent in 2012 and reached a record 40.4 percent in 2022 (the latest year available).

By contrast, the bottom 50 percent of filers paid just 3 percent of all federal individual income taxes in 2022, despite earning 11.5 percent of the nation’s adjusted gross income. That group of taxpayers—with incomes of up to $50,339 in 2022 dollars—paid an average federal income-tax rate of only about 3.7 percent.

Moreover, as the share of the income-tax burden borne by higher earners has grown, so too has redistribution to households relying on government assistance—but more rapidly. Over the same 20-year period (from 2002 to 2022) inflation-adjusted Medicaid benefits (both state and federal) rose by about 111 percent. Some forms of assistance closely tied to household affordability did not merely expand; they exploded. From 2002 to 2024—a period that excludes the massive pandemic-era relief outlays—inflation-adjusted Supplemental Nutrition Assistance Program benefits grew by about 216 percent, while inflation-adjusted child-related refundable tax credits grew by about 223 percent.

Although affordability concerns among lower-income working households undoubtedly merit political recognition, they do not arise from an excessive federal income-tax burden or from any shortage of redistribution through federal policy. The statistics on federal income taxes and transfer-program outlays do not permit a different conclusion. Nor do those statistics suggest that relieving millions of low- and middle-income households of what little federal income-tax burden they still pay would substantially lower the high cost of living that many face.

Instead, the data show a tax system disproportionately skewed against higher-earning taxpayers and far removed from any plausible notion of fairness, which is best manifested in simplicity and broad-based application. To institute a truly fair tax system, Democratic leadership should advance a tax bill that would simplify the Byzantine structure of the current code, which contains granular tax brackets and ever-increasing deductions and exclusions.

A fair tax code would rest on a broad base and impose relatively low rates, without the distortionary provisions that reward some forms of income, penalize others, and shift burdens onto a narrow selection of higher-income taxpayers. Lawmakers can make that happen, but not with the flawed proposals before them.