Key Takeaways
- Two Democrats recently released plans to exempt more Americans from income tax.
- While they provide tax relief, some on the left fear this plays into an anti-tax message.
- Debates about who should be covered by the federal income tax have a long history.
- Top Treasury official defends partnership rules.
- Taxpayers still see confusion in OT, tips deduction.
Democrats are a long way from being in control of the levers of power in Washington. But they've already started to plan for what policies they'd like to push when the time comes, especially regarding the tax code.
Two high-profile Democratic senators and potential 2028 presidential contenders released proposals last week to reduce the number of Americans paying income tax. According to the Washington Post, a bill from Sen. Chris Van Hollen, D-Md., would eliminate income tax for individuals earning $46,000 or less, or couples earning $92,000 or less. Sen. Cory Booker, D-N.J., announced on Tuesday the “Keep Your Pay Act,” which would expand the standard deduction to $75,000, effectively negating income tax for those earning less than that amount.
The plans come as many Democrats have mulled how to come up with their version of "no taxes on tips"—a provision that's intuitive and easy-to-identify by voters, even if it's not ideal policy.
Indeed, many tax and policy experts in the Democratic sphere have reservations about these approaches, claiming it continues an anti-tax trend that Democrats should be fighting to reverse, not accelerate.
"It's a mistake to treat federal income taxes as the problem," Will Raderman, a policy analyst at the left-leaning Searchlight Institute, wrote.
The politics of who should be covered by the income tax system have always been tricky—as captured by former Louisiana Sen. Russell Long's famous quip that tax reform means "don't tax you, don't tax me, tax that fellow behind the tree."
Before World War II, when the federal income tax was only a few decades old, only the wealthiest Americans paid it. That changed when military expenses surged and Congress reduced exemptions. The Roosevelt administration also argued that it was important for all Americans to feel financially invested in the country and its defense.
In the years since, not everyone has treated the wide income tax base as a beneficial goal. Both Democrats and Republicans passed the landmark 1986 tax reform bill—and one of its most touted accomplishments was moving 6 million Americans off the tax rolls.
During the push for the Tax Cuts and Jobs Act in 2017, Republicans said they were looking to “broaden the base” and “lower the rates.” But in the One Big Beautiful Bill Act, passed last year, Congress added many new exemptions to the tax code, shrinking the tax base rather than expanding it.
As the national debt continues to skyrocket and costs keep going up, the decisions about how to best share the tax burden will likely only get harder.
Recent Tax Pieces:
Kies Defends Repeal of Basis-Shifting Reporting Regs – Kristen Parillo, Tax Notes ($):
But “that does not mean we are not actively pursuing situations where there is a violation of the economic substance doctrine,” Kies continued. “Nobody should read that article in the Washington Post . . . and think the party’s on [and] we can do anything we want.”
Taxpayers Still Craving Clarity On Tips, OT Amid Tax Season – Asha Glover, Law360 Tax Authority:
"As tax season gets further underway, more detailed guidelines on these matters would provide greater confidence and consistency in reporting," Richards said. "Without clear guidance, taxpayers and payroll systems may interpret the law differently, creating a 'wait and see' environment that increases the risk of inconsistent reporting, amended returns and audit scrutiny."
Epstein Files Reveal Tax-Advantaged Trusts – Lauren Loricchio, Tax Notes ($):
The life insurance trusts — which can be used to avoid estate taxes — are listed among the documents and appear to have been established to hold life insurance policies. Records show payments from one of the trusts to Jackson National Life Insurance Co. and from another trust to General American Life Insurance Co.
IRS Reform Bill Is Good Start That Falls Short of Modernization – Chuck Marr, Bloomberg Tax ($):
I hope this effort will eventually generate a more robust, bipartisan effort to rebuild and modernize the agency so it can fulfill its mission of collecting the revenue needed to fund public services.
Lessons From the Energy Tax Credit Market in 2025 – Marie Sapirie, Tax Notes ($):
Make a habit of sustained success.
