Democrats' New Plan for Helping the Middle Class

Congressman Chris Van Hollen unveiled a proposal to, among other things, incentivize saving, ease the cost of child care, and stabilize the growing income gap.

U.S. Rep. Chris Van Hollen of Maryland
U.S. Rep. Chris Van Hollen of Maryland speaks at the 2012 Democratic National Convention.
MCT/Harry E. Walker
Democrats on Monday unveiled a new plan to try to combat persistently stagnant middle class wages. The proposal includes offering tax credits for savings and increasing child care credits while requiring corporations to link executive bonuses to employee raises.

The announcement by Maryland Congressman Chris Van Hollen came three days after a record-setting jobs growth announcement by the U.S. Department of Labor. According to the latest figures, 2014 marked the country’s best year for job growth since 1999 and the unemployment rate fell faster last year than any year since 1984. Still, data released Monday by the National Association of Counties shows that the nation’s recovery from the 2008-09 recession has been extremely uneven with the biggest growth areas in major metropolitan areas and oil-producing states in the middle of the country. Just 65 counties out of more than 3,000 have regained their pre-recession peaks in all four of the association’s metrics: economic output (GDP), employment, unemployment rates (in this case, the pre-recession low) and home prices.

Van Hollen, the ranking Democrat on the House Budget Committee, noted that of the roughly $1.1 trillion in tax deductions, exemptions and credits the federal government awards each year, nearly one-fifth goes to the nation’s top 1 percent of earners.

“Our tax code today is stacked in favor of people who make money off of money and against those who make money off of hard work,” he said at Monday’s Center for American Progress event.

Most immediately, Van Hollen said he will introduce the CEO-Employee Paycheck Fairness Act this month, which would bar a company from claiming tax deductions for CEO bonuses and other performance-based compensation that exceeds $1 million unless it also boosts worker pay to keep pace with increases in living costs and labor productivity.

Van Hollen is also taking a cue from some states, like South Carolina, that offer a business tax credit for apprenticeships. Van Hollen is proposing a similar credit on the national level for businesses. The bulk of Democrats’ agenda, however, centers on more tax breaks for working families. The biggest break would be a so-called “paycheck bonus” credit. The proposed policy would award a tax credit of $1,000 per worker and $2,000 per couple. The bonus would phase out after individual earnings top $100,000 or a couple's earnings exceed $200,000 a year. Other credits include a $250 credit for setting aside money in a retirement account and an increase to the childcare tax credit, which has remained stagnant for more than a decade while the cost of childcare has skyrocketed.

To pay for the credits, Van Hollen proposes adding a 0.1 percent transaction fee to stock market trades, noting that financial markets in the United Kingdom and Hong Kong already have such fees and the European Union is also considering adopting one. Together with fewer tax breaks for the rich, the added fee would generate about $1.2 trillion over 10 years, Van Hollen said.

With Republican majorities in both houses of Congress, the plan is not expected to gain much momentum. Instead, experts say, it offers a preview of the kind of national economic agenda Democrats will push over the next two years of the Congressional session. Within hours of Van Hollen’s speech Monday morning, Republican leaders had labeled the proposal as a punitive tax hike on the wealthy that would stagnate economic growth.

Liz Farmer is a former GOVERNING fiscal policy writer.