Gloom shrouds the news on the economy. Workers get blamed for inflation and the common solutions on offer bring more pain. But when we center the interests of workers and communities, we get a different picture of the causes and cures for our economic woes. While wage increases can contribute to inflation, they don’t have to. Corporations can absorb higher wages by cutting profits or CEO salaries, for example. In fact, the increases in workers’ wages have barely brought them up to pre-COVID levels, while CEO pay and profits have increased exponentially. And there are other key sources of inflation such as energy prices and supply chain issues, that are more significant than wage increases.
The Federal Reserve, usually presented as a gray eminence above the fray, actually plays out a distinct neoliberal agenda—one that sees higher unemployment as an aid in disciplining the workforce. Raising interest rates is far from the only answer to inflation. Investments in clean energy could help bring down fossil fuel prices, for example; targeted policy interventions could help un-kink the supply chain. And powerful people-centered movements could rein in corporate power.
Our new series, “People-Side Economics,” expands on these perspectives, exposing the bias and half-truths we hear every day, and bringing ideas we can use in organizing. In this second installment of the series, Amy Hanauer, Executive Director of the Institute on Taxation and Economic Policy, speaks with Convergence editorial board member Stephanie Luce about the impacts of the Inflation Reduction Act on the U.S. economy.
Stephanie Luce: Can you share with us your assessment of the Inflation Reduction Act (IRA) that just passed last month?
Amy Hanauer: I was excited about it. After the threat that this very assertive, very progressive initial Biden agenda was going to die completely, I was pretty thrilled that something emerged. Here are four important features of the legislation:
First, the bill imposes a 15% minimum tax on corporations that have over a billion dollars in book profits, which are the profits they state to shareholders. This is a significant, meaningful step. We’ve mostly cut taxes on corporations for the past 40 years, and this was a meaningful tax increase on the largest, most profitable corporations who managed to use existing loopholes to reduce their tax obligations legally. They got out of paying for the things that they benefit from and that we all benefit from.
My organization has been monitoring corporate tax avoidance for decades. We found most recently that 55 very large, profitable corporations paid zero in taxes in 2020. And a whole bunch more paid less than half the corporate rate.
It will not get at all the corporations that pay too little in taxes. I don’t see any reason why a corporation that has $500 million in profits shouldn’t also pay a minimum tax rate. But this is a strong starting point and I think we’ll be able to show some successes from it, which will build the case for additional reforms.
The second big element of this bill was to better fund the Internal Revenue Service (IRS), which will more than pay for itself and bring in between $200 and $400 billion in revenue over 10 years. That revenue will come from very wealthy individuals and corporations that are outright cheating on their taxes. So, the IRA is basically taxing cheaters to pay for green energy, which is what we need.
The third element is to eliminate a loophole that enables corporations that provide stock buybacks to their shareholders to pay a lower tax rate than other corporations. This brings in less revenue than the other two components of the bill. But still, it’s bringing in tens of billions of dollars over a decade.
And the fourth thing that I think is important about all this revenue is that it’s being spent on things that I think our economy really needs. For me, the most important element is greening our economy, which will create lots of jobs and will begin to take on our terrifyingly warming planet. This constitutes the biggest climate investment that any country has ever made. And yet we are still far behind in addressing climate change, so this is important.
There are also elements of the bill that do more to fund health care and to make healthcare dollars go further by enabling us to negotiate with drug companies. So I think it’s all incredibly exciting and important.
SL: Can you talk more about the second point: the better funding of the IRS? Can you explain how this will work?
AH: First, the increased funding for the IRS will be used to hire a variety of personnel so there will be people there who can answer questions. I know, for example, low-income parents of young children who haven’t gotten the Child Tax Credit, who were eligible, and couldn’t get answers from the IRS, because the IRS was so underfunded that they couldn’t staff their phone lines. So some of that will simply enable people to get the help –– to pay their taxes and get their tax refunds. This will be helpful to families of all incomes.
But some of it will be to better enforce the tax laws that are already on the books. We know that most working people pay everything they owe, because their taxes are deducted from their paycheck. And there’s really no way to get around that. So, it’s really wealthier people who are able to cheat on their taxes, and not pay taxes that they actually owe. There’s a directive from the president’s office and from the Treasury to make sure that the money for greater enforcement is only spent on individuals who earn more than $400,000 a year. And that makes sense because that’s the category of people that are better able to cheat. But it’s also the category that’s much harder to enforce the tax code on because they’re able to hire expensive accountants and tax lawyers to sort of push back and the IRS finds itself sometimes stymied and outmatched in terms of staffing power.
And then there are corporations that don’t pay the taxes that they owe, and this will better enforce the code. It will increase compliance because wealthy individuals and corporations are audited, but also increase compliance because now they know they’re going to be audited. So, they’re just going to be a little more likely to pay what they owe in the first place to avoid potential negative consequences down the road.
SL: It sounds like it will make a big difference in some areas, but of course some people are frustrated by what was dropped –– the things they were organizing around that were not included in the final bill. What is the next level of the fight?
AH: In terms of taxes, there’s so much more that we can do to tax wealthy people and corporations. There’s plenty more that we could do to make a fair tax code.
In terms of spending priorities, I think what taxing does is enable us to have revenue to spend on things we all need. It’s clear that we need an expanded Child Tax Credit. The short-term one passed during the pandemic drastically reduced child poverty. There’s just no reason not to do that again. And obviously, there’s the care economy that is just essential if people are going to be able to take care of their families going forward and would be incredibly job-generating at the same time. I’m talking here about fully funding childcare, pre-K, elder care and care for people with disabilities, so that families don’t have to shoulder all those care responsibilities on their own.
SL: Can you say anything about exciting opportunities at the state level?
AH: Absolutely. Most state tax systems are upside down, meaning lower-income people are paying a higher share of their income in taxes than higher-income people. So there’s a lot of room for improvement. A lot of states, especially in the South, are instead going backwards. But there’s a huge and important movement to add new top tax brackets, so that wealthier people pay a little more, and to use that new revenue to pay for better schools, to help with housing, or for other things our communities need. A lot of states are adding refundable tax credits, particularly for families with kids. There is a lot of room to tax wealth and income more progressively, so that we can pay for things that all of our families need, in any state anywhere in the country.
SL: Opponents often tell us that if we raise taxes in a state, the wealthy people and corporations will just leave. What do you say to that?
AH: We have done extensive writing about “The Millionaire Migration Myth.” It’s simply not accurate. Historically, we have found that raising taxes on the wealthy is worth doing. There may be some people who make their locational decisions in that way but there are enough people who don’t, that you can more than make up the revenue.
And that just makes sense. Because if people are that wealthy, they’re making their locational decisions based on where they have a high quality of life. And if they are employers they go where they can find skilled workers. And the thing about lower tax environments is that quality of life is lower, and worker skills end up being lower, because we’re putting less into making sure kids, and students, get the support they need.
The pandemic changes this a little bit and makes people a little less tied to cities. So, we are still waiting to see what the fiscal consequences for cities will be from that. But I don’t think it changes it enough to not make it worthwhile to do these tax changes.
SL: I remember when we were trying to pass a living wage ordinance in New York City and the New York City Nightlife Association said, “If you pass a living wage in this city, we’re going to have to take our business elsewhere.” Really? Like they are going to move to Kansas?
AH: Exactly.
SL: Is there anything else you would say to an organizer about how to think about the economy right now?
AH: I think we’re seeing a lot of policy movement in the right direction. It’s not everything that organizers want and dream of in terms of creating the America that we want and need, but it’s a positive movement in the right direction. And that is a challenging thing to do in this country, because our democracy is so flawed.
So I personally believe that organizers should continue to push for more but should be excited about the very real tangible benefits to individuals from some of these actions.
On the day the student loan relief was announced I saw people on Twitter saying, “This is so low, it’s not going to mean anything.” But at the time, I was with a middle-aged working-class woman who doesn’t have a college degree, and when she saw the news, she got up and started dancing. I had no idea that she even had college debt. But she had college debt, she just hadn’t gotten a degree. I think a lot of us are really under-estimating what it means to regular people to get $10,000 in debt relief, or potentially $20,000, depending on their income level. So, we have to lift up the wins. We must push further but recognize that these reforms are really good for regular people.
And progressives should take ownership of their role in having pushed for these wins. Progressives put student debt relief on the agenda. Decades ago, progressives started talking about creating green jobs and what that would do for the economy. And progressives have been relentless on the fact that zero-tax corporations are not acceptable, and that the tax code should be more progressive.
And so these are wins for progressives. We should be happy about that. And then we should push to go further. It’s outrageous that women in much of America can now be forced to have a child they don’t want –– and we’ve found that the states that are enacting abortion bans do the least for kids and families. As much as I’m psyched about the climate and tax bill that passed, nobody thinks that this answers climate change, and nobody thinks that this answers child poverty, especially since so many of those care economy pieces were left out of the final deal. But I think it affirms that we need multiple different strategies to get to a win. We need people organizing in the streets and getting regular people engaged. And we need people negotiating and getting to a deal.
Featured Image: A woman in Liberty Square Manhattan holds a sign saying “Tax the Rich” at Occupy Wall Street. Credit: Timothy Krause (CC 2.0), reproduced with modifications, original here.