Dems propose tax cut to raise workers wages and a financial transaction tax

US House of Representative member Chris Van Hollen on January 12 laid out what he described as an action plan to raise wages for workers by cutting their taxes.

In addition to cutting workers’ taxes, Van Hollen’s action plan includes tax incentives that encourage companies to raise wages and a financial transaction tax on those he called Wall Street “high rollers.”

Van Hollen is the ranking Democrat on the House Budget Committee and his action plan has the support of Democratic leaders in Congress.

“There’s a disconnect between the value workers are creating and what they are taking home,” said Van Hollen at a January 12 media conference held to announce his plan. “So it’s no wonder that so many Americans feel they’re on a treadmill falling behind.”

The major feature of Van Hollen’s plan is a $1000 tax credit for workers. Two earner families would be eligible for a $2000 tax credit. The tax credit would increase workers’ take-home pay.

His plan would also allow families a 20 percent tax deduction on income up to $60,000 a year and would make the few worker friendly elements of the tax code such as the child care credit and the earned income tax credit permanent features of the tax code.

“The proposal that I’m making today to reform the tax code began from (the) premise that we need a tax code that rewards those who earn their living through hard work and rebalance it against the fact that it’s tilted today in favor of people who make money off of money” said Van Hollen.

Van Hollen said that action to increase workers wages is needed because so far the market has failed to do so.

Despite steady job growth since 2010, workers wages have remained flat and in some instances haven’t kept up with inflation.

In fact, since the 1970s, there has been little wage growth despite the fact that productivity has increased substantially.

Instead of being shared broadly, most of the wealth created by the gains in productivity has gone to the wealthiest.

“The income gains from increased productivity have gone overwhelmingly to those at the very, very top of the income scale, the top 1 percent,” said Van Hollen. “Their after tax income between 1979 and 2010 grew by 200 percent.”

These results show that wealth doesn’t automatically trickle down.

Today’s tax code, said Van Hollen, largely rewards those who make money off money rather than those who make their money through hard work.

Van Hollen said that his plan seeks to correct some of this imbalance in the tax code by offering more tax benefits to working people.

To help pay for these corrections to the tax code that help working people, Van Hollen also proposed a modest financial transaction tax similar to one that existed in the US before 1966.

Van Hollen’s proposal would levy a 0.1 percent tax on financial transactions such as trades in stocks, derivatives, and equities.

In addition to raising money to pay for the tax cut for workers, a financial transaction tax would discourage the kind of reckless speculation that led to the financial crisis of 2008 and the Great Recession.

Richard Trumka, president of the AFL-CIO responded favorably to Van Hollen financial transaction tax idea.

“A modest Wall Street speculation tax, or ‘high-roller fee’ as Rep. Van Hollen has proposed, will help curb harmful Wall Street practices and raise billions of dollars annually,” said Trumka. “These are critical funds that could pay for infrastructure and education to lay the foundation for long-term productivity growth.”

In addition to reforming the tax code so that it corrects its current imbalances, Van Hollen is also proposing legislation to encourage companies to give their workers a pay increase.

His bill, entitled the CEO-Employee Paycheck Fairness Act, would limit deductions that corporations can take when they give their CEOs bonuses unless those corporations also give their employees a fair raise.

According to Van Hollen CEO bonuses have gotten out of hand and are one reason that gap between those at the top and the rest of us has increased so dramatically over the years.

In the 1970s CEOs’ average pay was about 30 percent higher than their average workers’ pay. Today, CEOs’ average pay is more than 300 times the average pay of their workers.

Van Hollen said that taxpayers shouldn’t be subsidizing these bonuses unless there is an attempt share the rewards when a company does well.

“Pay yourselves what you want, but if you want the taxpayers to allow you to deduct your bonuses and performance pay, for goodness sakes, you better be giving your employees a fair shake,” said Van Hollen.