Democratic Tax Policy: Middle-Class Cuts, Wealth Taxes, and State Moves

Democratic tax policy in 2026 has coalesced around a single pitch: cut federal income taxes for working and middle-class households and pay for it with higher taxes on millionaires, billionaires, and corporations. That pitch now runs through competing Senate bills, wealth-tax proposals, unrealized-gains plans, and state-level campaigns, with a moderate wing pushing back in favor of targeted credits instead of broad cuts.

The Working Americans’ Tax Cut Act

The centerpiece proposal is the Working Americans’ Tax Cut Act, introduced March 12, 2026, by Senator Chris Van Hollen of Maryland with Senators Mark Kelly, Kirsten Gillibrand, Cory Booker, and Andy Kim, and Representative Don Beyer.¹ It has drawn 20 Senate cosponsors, including Bernie Sanders, Dick Durbin, Adam Schiff, and Tammy Baldwin, and was referred to the Senate Finance Committee.²

The bill works through an “alternative maximum tax” that caps income tax liability at 25.5% of adjusted gross income above a cost-of-living exemption. Anyone earning at or below the exemption owes zero federal income tax. The exemption is $46,000 for single filers, $64,400 for heads of household, and $92,000 for married couples filing jointly. The benefit phases out at $80,500 for individuals, $112,700 for heads of household, and $161,000 for joint filers.³

The cuts are paid for by a graduated surtax on high earners. It starts at 5% on adjusted gross income above $1 million for individuals ($1.5 million for couples), rises to 10% above $2 million ($3 million for couples), and reaches 12% above $5 million ($7.5 million for couples). The surtax applies to wages, capital gains, and other investment income.¹

Independent scorers say the numbers work. The Penn Wharton Budget Model estimates the tax cuts would cost $1.37 trillion over ten years while the surtax raises $1.63 trillion, producing a net revenue increase of $263.9 billion. The Yale Budget Lab reached a similar conclusion, calling the package roughly budget-neutral over ten years and slightly revenue-positive in the long run.⁴

The distributional picture from Penn Wharton: benefits concentrate in the second through fourth income quintiles, with average tax cuts of $465 to $1,545. The lowest-income quintile, which already owes little or no federal income tax, sees no direct benefit. Earners between the 99th and 99.9th percentiles face an average increase of $18,260. The top 0.1% face an average increase of roughly $1.19 million, a 9.2% decrease in after-tax income for that group.³

The Institute on Taxation and Economic Policy analyzed the Van Hollen bill together with two companion measures: the American Family Act, which would raise the Child Tax Credit to $3,600 for children age six and older and $4,320 for younger children with a $6,360 first-year “baby bonus,” and the Tax Cut for Workers Act, which would roughly double the Earned Income Tax Credit for childless workers. Combined, the three would reduce federal revenue by more than $100 billion a year but deliver average tax breaks of $1,400 to $2,000 for the bottom 80% of taxpayers while raising taxes on the richest 1%.⁵

Booker’s Keep Your Pay Act

Senator Cory Booker introduced a competing plan on March 9, 2026. The Keep Your Pay Act would make the first $75,000 of income tax-free for married couples filing jointly, with proportional relief for single filers and heads of household. It also includes a $2,400 baby bonus in the year a child is born, an expanded Child Tax Credit, and an expanded Earned Income Tax Credit.⁶

Booker has said the plan would be funded by raising the corporate tax rate and increasing taxes on stock buybacks but has not specified the rates.⁷ Without those offsets, the Penn Wharton Budget Model estimates the plan’s core provisions would reduce federal revenue by $6.4 trillion over ten years. The Yale Budget Lab puts the cost at $5.4 trillion.⁸

Wealth Tax Proposals

Several Democrats have pushed a separate track that taxes accumulated wealth rather than income. Senator Bernie Sanders and Representative Ro Khanna introduced the Make Billionaires Pay Their Fair Share Act, which would impose an annual 5% tax on the net worth of individuals with $1 billion or more in assets. The bill identifies 938 American billionaires holding a combined $8.2 trillion and is projected to raise $4.4 trillion over a decade. The revenue would fund $3,000 direct payments to households earning under $150,000, affordable housing construction, childcare subsidies, Medicare expansion to cover dental, vision, and hearing care, and a reversal of Medicaid cuts enacted in the One Big Beautiful Bill Act.⁹

Senator Elizabeth Warren’s Ultra-Millionaire Tax reaches lower down. It would levy a 2% annual tax on net worth between $50 million and $1 billion, and 6% above $1 billion. Warren’s plan is estimated to raise $3.75 trillion over ten years and includes a 40% exit tax on wealthy Americans who renounce their citizenship.¹⁰

Taxing Unrealized Capital Gains

A third mechanism targets the strategy by which ultrawealthy individuals borrow against appreciated assets rather than sell them, deferring or avoiding capital gains taxes indefinitely. The Biden administration’s fiscal year 2025 budget proposed a minimum 25% income tax on households worth more than $100 million, including unrealized gains, which Treasury estimated would raise $500 billion over ten years. That proposal would also end the stepped-up basis loophole for married couples with at least $10 million in unrealized gains.¹¹

Senator Ron Wyden of Oregon, the ranking Democrat on the Senate Finance Committee, has proposed a “mark-to-market” system that would tax large capital gains on securities held by wealthy households annually rather than only at sale, and would tax capital gains at the same rates as ordinary income.¹¹ In April 2026, Wyden introduced a package of five revenue-raising bills: eliminating the carried interest loophole, reforming the taxation of derivatives, cracking down on abusive trusts, limiting tax advantages for private placement life insurance, and providing $83 billion in IRS enforcement funding.¹²

What Democrats Are Doing at the State Level

The tax-cut message has spread to gubernatorial candidates and governors. In California, Katie Porter is running on a plan to eliminate state income taxes for families earning under $100,000, funded by a progressive corporate tax her campaign estimates would generate up to $8 billion in annual revenue.¹³ In Georgia, Keisha Lance Bottoms is campaigning to end state income taxes for public school teachers.¹⁴

Washington moved in the opposite direction on the wealthy. Governor Bob Ferguson signed S.B. 6346 on March 30, 2026, establishing a 9.9% income tax on household income above $1 million, the state’s first-ever income tax. It takes effect in 2028 and is projected to raise up to $3 billion in 2029.¹⁵ The law faces anticipated legal challenges.¹⁶ Governors JB Pritzker of Illinois and Josh Shapiro of Pennsylvania have leaned into tax-cut messaging in their reelection campaigns, with Pritzker promoting cuts for working families and Shapiro touting cuts enacted during his term.¹⁷

The Moderate Counter-Framework

Not every Democrat is on board with sweeping cuts. The New Democrat Coalition, the party’s House centrist bloc, released a tax reform framework in June 2025 built on three principles: lowering costs for middle-class families through targeted credits, expanding economic opportunity for small businesses and innovators, and maintaining fiscal responsibility.¹⁸

Instead of broad income exemptions, the coalition emphasized expanding the refundable Child Tax Credit, strengthening the Earned Income Tax Credit, extending enhanced Affordable Care Act premium subsidies, expanding the Low-Income Housing Tax Credit, and preserving Biden-era clean energy tax credits, with an explicit focus on deficit reduction.¹⁹

Democrats and the One Big Beautiful Bill Act

Every Senate Democrat voted against the One Big Beautiful Bill Act when it passed 51-50 on July 1, 2025, with Vice President JD Vance casting the tiebreaking vote.²⁰ The law permanently extended the individual income tax rates from the 2017 Tax Cuts and Jobs Act, raised the SALT deduction cap to $40,000, boosted the estate tax exemption to $15 million for individuals, temporarily added deductions for tips and overtime pay, and increased the Child Tax Credit to $2,500 through 2028.²¹ Democrats objected that the package paired popular tax provisions with roughly $1.2 trillion in spending cuts concentrated on Medicaid and food assistance, along with rollbacks of clean energy tax credits.²²

In the months after passage, some Democrats introduced bills to widen the law’s narrower provisions. Representatives Tom Suozzi and Emilia Sykes pushed to extend the overtime tax break to union workers and railroad employees excluded by the law’s reliance on the Fair Labor Standards Act. Representative Steven Horsford and other Nevada Democrats proposed expanding the tip tax break to cover automatic gratuities. Representative Angie Craig and Senator Ruben Gallego introduced legislation to eliminate income taxes on Social Security benefits, funded by expanding payroll taxes to wages above $250,000.²³

The Debate Inside the Party

The pivot to broad tax cuts has drawn sharp pushback from progressive policy experts. Critics have labeled the trend “slopulism,” a term for policies pitched as making life more affordable that could produce negative consequences if enacted. Alex Jacquez of the Groundwork Collaborative called the proposals “clearly suboptimal policy,” arguing that trillions spent on tax cuts represent revenue that can’t be used for childcare, housing, or health care.¹⁷

Representative Ro Khanna has argued against adopting what he calls a “Reagan frame” that treats taxes as inherently harmful, advocating instead an “FDR frame” that emphasizes the government’s role in providing services. Senator Elizabeth Warren has stayed focused on higher taxes on billionaires rather than broad-based cuts. Vanessa Williamson of the Urban-Brookings Tax Policy Center called the tax-cut focus “ill-conceived,” arguing that Democrats historically succeed when they make a candid case for the public value of taxation. Zach Moller of the centrist think tank Third Way warned that “Democrats are going to have a math problem at the end of the day” if they keep narrowing the tax base.²⁴

Supporters counter that the affordability squeeze demands proposals voters can grasp quickly. Booker has said the party needs “big bold ideas that voters could quantifiably say, ‘this is going to make my life better.'”²⁵ The advocacy group Patriotic Millionaires has described the Working Americans’ Tax Cut Act as a “litmus test” for Democratic candidates.²⁶ None of these bills has become law, and each would need to move through a Congress the party doesn’t currently control, so the practical effect for taxpayers depends on the 2026 and 2028 elections.

1
U.S. Senate. Van Hollen, Kelly, Gillibrand, Booker, Kim, Beyer Introduce New Bill to Cut Taxes for Millions of Working Americans
2
Congress.gov. S.4083 — Working Americans’ Tax Cut Act
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Penn Wharton Budget Model. Working Americans’ Tax Cut Act Revenue and Distributional Effects
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Yale Budget Lab. Senator Van Hollen’s Working Americans’ Tax Cut Act
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Institute on Taxation and Economic Policy. Senator Van Hollen Working Americans’ Tax Cut Act Analysis
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U.S. Senate. Booker Announces Keep Your Pay Act
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Penn Wharton Budget Model. The Keep Your Pay Act Budgetary and Distributional Effects
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Yale Budget Lab. Senator Booker’s Keep Your Pay Act
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U.S. Senate. Make Billionaires Pay Their Fair Share Act Summary
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ElizabethWarren.com. Ultra-Millionaire Tax
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Center on Budget and Policy Priorities. Arguments Against Taxing Unrealized Capital Gains of Very Wealthy Fall Flat
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Committee for a Responsible Federal Budget. Senator Wyden Introduces Tax Week Revenue Raisers
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KatiePorter.com. Fighting Income Inequality
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The Atlanta Journal-Constitution. Democrats Usually Avoid Tax Cuts. In This Governor’s Race, They’re All In
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Institute on Taxation and Economic Policy. Washington Millionaires’ Tax, Working Families Tax Credit
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BDO. Washington Enacts Millionaires’ Tax, Changes to Estate Taxation
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Axios. 2028 Democrats Tax Cuts
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New Democrat Coalition. New Dems Unveil Comprehensive Tax Reform Framework
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Semafor. Moderate Democrats Offer Counter Tax Plan
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PwC. Overview of Senate Passed Version of H.R. 1 One Big Beautiful Bill Act
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Bipartisan Policy Center. What’s in the 2025 House Republican Tax Bill
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PBS NewsHour. Senate Narrowly Votes for Trump’s Big Beautiful Budget
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Craig.house.gov. Some Democrats Want to Upsize Trump’s New Tax Cuts
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NBC News. Tax Cuts Are the Hot New Idea for Democrats
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Bloomberg Tax. Democrats Go Big on Tax Cuts Ahead of 2028 Presidential Race
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Patriotic Millionaires. Patriotic Millionaires Applaud Landmark Tax Legislation