Democrats say 'tax the rich,' but their plan may fall short

Washington (AFP) –


A proposal making its way through Congress and even adorning the dress of one of its most prominent lawmakers, "tax the rich" has become a rallying cry for Democrats as they seek to remake the United States' social safety net.

It received a prominent airing on Monday when Alexandria Ocasio-Cortez, a Democratic House representative who often decries the country's economic inequalities, wore a gown bearing the slogan written in scarlet capital letters to New York's splashy Met Gala.

"The time is now for childcare, healthcare, and climate action for all. Tax the Rich," Ocasio-Cortez wrote on Instagram along with a photo of the white off-the-shoulder dress she said she had borrowed.

The lawmaker is expected to support a plan backed by President Joe Biden to spend $3.5 trillion over 10 years that would pay for expanding a host of social services by upping taxes on wealthy Americans and corporations.

But experts argue that while some rich people may see their taxes go up, the very wealthiest will experience less impact than advertised because the bill fails to levy taxes on the increase in value of assets such as real estate and stocks.

"It depends on how you define rich. The bill certainly raises taxes on very high earners and does so in many different ways," Corey Husak, senior government relations manager at the Washington Center for Equitable Growth, told AFP.

"The bill taxes multimillionaires and people who are merely rich, much more than it's going to affect people who are outrageously rich."

Some of the proposed tax changes represent "a real though modest increase in the progressivity of the US tax code rate," said Samuel Hammond, director of poverty and welfare policy at the Niskanen Center.

But by wearing her motto-bearing dress to an event where tickets cost $35,00 and tables are up to $300,000, New York-area representative Ocasio-Cortez "did the rich a great service, not unlike when an Oscar winner uses their award speech to chastise Hollywood.

"It allows a wealthy audience to feel progressive without any real costs," Hammond said.

- Narrow path -

Branded "Build Back Better," Biden's plan is intended to "transform" American society by instituting universal pre-kindergarten, reducing child care costs, improving health care access, boosting investments in public housing, legalizing millions of migrant workers and expanding measures to fight climate change.

Republicans say they won't support it, and Democrats intend to pass it with their votes alone -- a difficult task given that they control both the House and Senate only by razor-thin margins.

Aiming to raise nearly $3 trillion in new revenue, a plan circulated by the Democratic leadership of the tax-drafting House Ways and Means Committee would see tax rates for America's top-tier earners rise from 37 percent to 39.6 percent.

The rate for the most-profitable businesses would jump from 21 percent to 26.5 percent.

However, centrist Democratic Senator Joe Manchin, who has called for negotiations on the plan to be slowed down and won't support a bill as large as proposed, prefers a lower 25 percent tax rate.

And the plan may not raise as much revenue as Democrats believe: Congress's nonpartisan Joint Committee on Taxation released an estimate saying it would bring in around $2.1 trillion over 10 years.

- 'Sweat of their brow' -

Husak said provisions in the bill, like a three percent surtax on people making more than $5 million a year, would indeed increase taxes on the rich.

But the plan doesn't levy taxes on increases in the value of assets owned by the wealthiest Americans, nor does it close a loophole that allows their heirs not to pay tax on the capital gains when they inherit them.

"When you're talking about billionaires, they're not making wealth by the sweat of their brow, so to speak. They're getting it because they have large capital assets that increase in value," Husak said.

The Senate must also back the plan, and after stock markets surged during the Covid-19 pandemic, the head of the Finance Committee has objected to the fact that billionaires won't pay taxes on their investment gains.

"I feel very strongly that, yearly, billionaires who did extraordinarily well in the pandemic should make tax payments," Senator Ron Wyden said Tuesday.