Democratic presidential hopefuls are talking a big game about taxing the rich to pay for social programs.
Some ideas they’ve proposed so far—such as Senator Bernie Sanders’s plan to expand the estate tax, Senator Elizabeth Warren’s idea to impose an annual wealth tax on millionaires, or Senator Kamala Harris’s intention to repeal the Republican tax cuts—would raise some new tax revenue that Democrats would need to expand the social safety net. But Democrats will need trillions more to pay for key portions of some of the favored policy promises, including universal health care or free college tuition.
There are dozens of options of how to do that that haven’t yet been seriously discussed this cycle. Some potential revenue makers—such as increasing taxes on banks and hedge fund managers—are likely to be popular with many Democratic voters. But other proposals, such as introducing a carbon tax or eliminating a popular tax break for homeowners are likely to be less so, and could force a conversation in the party about what people might be willing to pay for a progressive agenda.
Here are a few of the possible ideas:
Tax Carried Interest
Revenue Projection: $15 billion
Democrats would like to get rid of a tax break on profits, known as carried interest, enjoyed by managers of hedge funds and private equity funds. Currently, those earnings are generally subject to the capital gains rates—23.8 percent—rather than income, which tops out at 37 percent.
Pros: Democrats nearly universally agree that private equity and hedge fund managers should pay higher rates on their profits. Even President Donald Trump has complained about the breaks they get.
Cons: The industry is likely to lobby heavily against changing this popular tax break. The $15 billion it would raise would not give Democrats a big advantage to fund their programs.
Increase the Gas Tax and Peg It to Inflation