For the first time in half a century, a Democratic member of Congress has released a tax reform plan that would grow the economy.
Sen. Ben Cardin, D-Md., has designed a tax reform plan that would reduce individual and corporate income taxes, but implement a value added tax similar to the kind used in 164 countries.
According to the nonpartisan Tax Foundation, Cardin's plan would spur economic growth. When asked how many other congressional Democrat tax plans they had found to be pro-growth, they acknowledged such plans are exceedingly rare.
"There aren't any other examples of Democratic tax plans that we've found to be pro-growth, at least in the last 50 years," Colby Pastre, a communications associate at the Tax Foundation, told the Washington Examiner. "We modeled the Kennedy tax cuts from 1964, and they were pro-growth."
Pastre noted that President Clinton's capital gains tax cut in 1997 was pro-growth, as well as Gov. Jerry Brown's tax plan proposed in the 1992 presidential primary. Those proposals aside, Cardin's plan is still the first pro-growth plan from a Democratic member of Congress.
The Cardin plan would simplify the individual income tax down to three brackets. Most people would not have to pay any income tax, thanks to new allowances. Single filers would receive a $50,000 allowance, with $100,000 for joint filers and $75,000 for head of household filers.
The federal corporate income tax, one of the highest in the world, would be cut to 17 percent from 39 percent. That would put the United States below the average corporate tax rate in the developed world.
To help offset all those tax cuts, Cardin would implement a progressive consumption tax to raise new revenue. That tax, also known as a value added tax, is similar to a retail sales tax that most states impose, but it is collected over the course of the production process rather than only at the point of sale. Cardin's plan proposes a 10 percent progressive consumption tax rate, but he's open to shifting the rate to whatever number achieves revenue neutrality. The progressive nature of the tax comes from three rebates that phase in and out for low income families. Those families could get an earned income supplement, a child benefit and an additional child benefit.
Assuming a 10 percent consumption tax rate, the Tax Foundation says the economy would grow by 4.4 percent over the long term. More than one million jobs would be created and after-tax wages would rise by 6.5 percent. But federal tax revenue would drop by $163 billion a year, even after accounting for the economic growth.
All income groups would see a rise in adjusted gross income under Cardin's plan. Low-income earners would see the biggest raises, while gains for the upper-class would slightly out-raise the middle-class.
Since Cardin is aiming for revenue neutrality, the Tax Foundation re-analyzed the plan, keeping everything the same but using a 14.2 percent consumption tax rate. Over the long-run, the economy would grow by 2.6 percent, with wages rising by 3.7 percent. But 187,000 jobs would be lost. The 14.2 percent tax rate achieves Cardin's aim of virtual revenue neutrality without accounting for economic growth, losing only $2 billion a year. Including the effects of economic growth, $80 billion a year in new revenue would be created.
There are also a couple of recent examples of positive Democratic tax reform at the state level. In 2014, Gov. Andrew Cuomo, D-N.Y., reformed the state's corporate income tax. The Tax Foundation also applauded the tax reform passed in the District of Columbia in 2014.
Update: This article was originally published on July 13 and updated with information about President Clinton's and Gov. Jerry Brown's federal tax plans.