Candice Horbacz
Two prominent Democratic senators, Chris Van Hollen of Maryland and Cory Booker of New Jersey, have separately introduced comprehensive legislative proposals designed to significantly reshape the federal tax landscape. Both initiatives aim to provide substantial tax relief to lower- and middle-income Americans while concurrently increasing the tax burden on high-income earners. These proposals, the Working Americans’ Tax Cut Act (WATCA) from Senator Van Hollen and the Keep Your Pay Act from Senator Booker, represent a concerted effort to further enhance the progressivity of the U.S. tax code. However, analyses by non-partisan organizations such as the Tax Foundation indicate that while these plans would achieve their distributional goals, they also pose substantial questions regarding federal revenue stability and long-term economic growth.
The introduction of these bills comes amidst ongoing national discussions about economic inequality, the fairness of the tax system, and the fiscal health of the nation. For decades, policymakers have grappled with how to balance the need for government revenue with the desire to stimulate economic activity and ensure a fair distribution of wealth. The current federal tax code is already considered highly progressive, meaning that the average tax burden increases with income, with higher-income families paying a disproportionate share of total income taxes. The Van Hollen and Booker proposals seek to amplify this trend, which critics argue could narrow the tax base and introduce economic distortions, while proponents champion it as a vital step towards greater equity.
Detailed Examination of Senator Van Hollen’s Working Americans’ Tax Cut Act (WATCA)
Senator Van Hollen’s Working Americans’ Tax Cut Act is designed to effectively eliminate income taxes for a significant segment of lower-income taxpayers through an innovative “maximum tax” calculation. Under WATCA, a substantial exemption would be established: $46,000 for single filers and $92,000 for joint filers. Taxpayers whose income falls within 175 percent of this exemption would calculate their tax liability under two scenarios: their ordinary tax liability and a new calculation applying a 25.5 percent tax rate to income above the cost-of-living exemption. They would then be required to pay the lesser of these two amounts, effectively ensuring that many lower-income individuals and families pay no federal income tax.
To offset the considerable cost of this tax cut, WATCA proposes a series of new surtaxes on high-income taxpayers. These surtaxes would be incremental, starting with a 5 percent levy on income exceeding $1 million ($1.5 million for joint filers). A 10 percent surtax would apply to income above $2 million ($3 million for joint filers), escalating further to a 12 percent surtax on income above $5 million ($7.5 million for joint filers). Crucially, all exemption amounts and surtax thresholds within WATCA would be adjusted annually for inflation, ensuring their relevance over time and preventing "bracket creep," where inflation pushes taxpayers into higher brackets without an actual increase in purchasing power.
Senator Booker’s Keep Your Pay Act: Expanding Deductions and Credits
Senator Cory Booker’s Keep Your Pay Act takes a different, yet equally ambitious, approach to tax relief and progressivity. At its core, the proposal aims to more than double the standard deduction, a crucial mechanism that reduces a taxpayer’s taxable income by a set amount. Under Booker’s plan, the standard deduction would surge to $37,500 for single filers, $75,000 for joint filers, and $56,250 for head of household filers. This dramatic increase would significantly lower the taxable income for a vast majority of Americans, particularly those who currently take the standard deduction rather than itemizing.
Beyond the standard deduction, the Keep Your Pay Act seeks to substantially expand refundable tax credits, which are particularly beneficial for low-income families as they can result in a refund even if no tax is owed. The Child Tax Credit (CTC) would be increased to $4,320 for children under six and $3,600 for children aged six to seventeen. Additionally, a $2,400 bonus would be provided in the year a child is born, and the entire credit would be made fully refundable. These expanded CTC amounts would begin phasing down for joint filers earning above $150,000 and single filers above $112,500, with all CTC values also subject to inflation adjustments. The Earned Income Tax Credit (EITC), another vital anti-poverty tool, would also see significant enhancements. It would triple for workers without qualifying children by increasing the phase-in rate to 15.3 percent and modestly expanding the income thresholds. The age range for EITC eligibility would also be broadened to include individuals aged 19 to 24 and those over 65, extending its reach to more demographics.
To partially offset the considerable cost of these expanded deductions and credits, Senator Booker has specified increases to the top two individual income tax brackets. The current rates of 35 percent and 37 percent would rise to 41 percent and 43 percent, respectively. While not fully detailed in the initial announcements, Senator Booker has also indicated plans for additional revenue generation through unspecified increases to the corporate income tax rate and the stock buyback excise tax rate.
Fiscal Implications: Revenue and Budgetary Impact
The financial implications of both proposals are significant, though Senator Booker’s plan presents a much larger potential impact on federal revenue.
According to estimates from the Tax Foundation’s General Equilibrium Model (March 2026), Senator Van Hollen’s Working Americans’ Tax Cut Act is projected to reduce federal tax revenue by approximately $86 billion over the 2026-2035 period. This figure reflects a static analysis, which assumes no change in economic behavior due to the tax changes. The "living wage" exemption is estimated to cut taxes by nearly $1.6 trillion, while the millionaire surtax is expected to generate approximately $1.5 trillion in new revenue, bringing the proposal close to revenue neutrality on a static basis. However, when accounting for dynamic effects – the changes in economic output and behavior caused by higher marginal tax rates – the revenue reduction expands to a larger $180 billion over the same decade. The imposition of higher marginal tax rates on high-income earners, which includes a significant portion of business income, is expected to slightly depress economic activity, leading to a larger deficit than static scoring suggests.
Senator Booker’s Keep Your Pay Act, in contrast, is projected to result in a far more substantial reduction in federal tax revenue, estimated at up to $6.7 trillion between 2026 and 2035 under a static analysis. The dramatic increase in the standard deduction accounts for the largest share of this revenue loss, cutting taxes by nearly $5.9 trillion. The expanded Child Tax Credit would cost an additional $1.8 trillion, and the enhanced Earned Income Tax Credit an estimated $112 billion. The proposed increases to the top two individual income tax rates are projected to increase revenue by $1.1 trillion, offsetting only about 14 percent of the total tax cuts proposed. Dynamically, reflecting the anticipated decline in GDP due to higher marginal tax rates on labor and capital, Booker’s proposal is estimated to reduce revenue by an even larger $6.9 trillion over the decade. The Tax Foundation notes that its current model does not yet incorporate the unspecified business tax increases (corporate income tax and stock buyback excise tax), which would raise additional revenue but also produce further dynamic effects on the economy and revenue.
Distributional Effects: Who Benefits Most?
Both proposals unequivocally aim to shift the tax burden, providing relief to lower- and middle-income taxpayers while increasing it for high-income individuals. However, the specific distribution of benefits varies between the two plans.
Senator Van Hollen’s plan would, on average, increase taxes for the top 1 percent of filers. All other income groups would experience a decrease in their tax burden, with the most significant tax cuts, as a percentage of after-tax income, directed towards taxpayers in the middle quintile. In 2027, it is estimated that 38 percent of filers would receive a tax cut, while a mere 0.4 percent would face a tax increase. Taxpayers in the middle quintile could expect an average tax cut of $2,273 in 2027, translating to a 3.9 percent increase in their after-tax income. Notably, the bottom quintile would see relatively little change in after-tax income, primarily because many filers in this group already pay little to no federal income taxes under current law.
Senator Booker’s proposal also targets the top 1 percent of filers for tax increases, while decreasing taxes for all other income groups. However, the largest tax cuts, relative to income, would be provided to taxpayers in the bottom quintile. Booker’s significant expansion of refundable tax credits plays a crucial role here, substantially boosting after-tax income for the bottom two quintiles – a more pronounced effect for the lowest earners compared to Van Hollen’s plan, which largely addresses existing tax liabilities. In 2027, under Booker’s proposal, approximately 82 percent of filers would receive a tax cut, while 2.8 percent would experience a tax increase. Taxpayers in the middle quintile would see an average tax cut of $3,398 in 2027, representing a 5.8 percent increase in after-tax income. Crucially, the bottom quintile would experience an average tax cut of $1,257, an impressive 11.4 percent increase in after-tax income, reflecting the profound impact of the expanded refundable tax credits on this demographic.
Economic Consequences: GDP, Jobs, and Investment
Beyond fiscal and distributional impacts, the proposals carry implications for the broader economy, particularly regarding long-run GDP, investment, and employment.
Senator Van Hollen’s proposal is estimated to have a slightly negative overall economic effect, reducing long-run GDP by 0.1 percent and leading to a reduction of approximately 133,000 full-time equivalent jobs. The "alternative maximum tax" component is projected to have a positive effect by reducing marginal tax rates for many affected taxpayers whose income falls below the exemption threshold. However, for some filers above this threshold, the 25.5 percent tax rate could represent a higher marginal rate than they currently face, potentially dampening work incentives despite overall lower tax liability. This positive effect is largely offset by the proposed surtax on high incomes. Given that business income constitutes roughly 29 percent of earnings for tax returns reporting $1 million or more in total income, higher marginal tax rates on labor, investment, and business income are expected to shrink the capital stock and reduce hours worked. This leads to the overall slight decline in economic output. American incomes, as measured by Gross National Product (GNP), are projected to be 0.3 percent lower under the plan, reflecting that the combination of higher marginal tax rates and a larger budget deficit causes income to decrease more than the decrease in GDP.
Senator Booker’s Keep Your Pay Act is estimated to result in a 0.3 percent smaller long-run economic output. The capital stock is projected to shrink by 1.1 percent, and wages by 0.4 percent. Interestingly, hours worked are estimated to expand by 216,000 full-time equivalent jobs, a nuance likely driven by the structure of refundable credits which can incentivize some low-income individuals to enter or remain in the workforce. However, American incomes (GNP) are projected to decline by a more significant 1.5 percent, largely attributable to the substantial increase in the federal budget deficit. The expansion of the standard deduction under Booker’s plan could boost output and hours worked by lowering marginal tax rates for some who move into lower tax brackets. Conversely, it could increase marginal tax rates for those who previously itemized, potentially disincentivizing activities like charitable giving and homeownership. The changes to the CTC and EITC also play a complex role in labor supply. While the CTC’s phase-in currently reduces marginal tax rates for some, making it fully refundable and extending its phase-out range could increase marginal tax rates for low-income taxpayers within those ranges, potentially reducing work incentives for affected individuals. Similarly, expanding the EITC lengthens its phase-in and phase-out ranges, impacting marginal rates for more workers. The expanded standard deduction is projected to drastically reduce the number of filers who itemize, from 14 percent under current law to only 2 percent.
Global Context: Top Tax Rates
Both proposals would significantly elevate the top federal income tax rates in the United States. Under Van Hollen’s plan, the top rate would reach 49 percent, while Booker’s proposal would set it at 43 percent, compared to the current 37 percent. To put this in perspective, the average top personal income tax rate among European OECD countries stood at 43.4 percent in 2026. This means that both proposals would place the U.S. among nations like the Netherlands, Spain, and France in terms of headline top rates.
However, a crucial distinction lies in the income thresholds at which these top rates apply. For instance, the Netherlands’ top rate of 49.5 percent applies to income above approximately $91,000, and France’s top rate of 45 percent applies above approximately $210,000 (with an additional 4 percent surtax above $580,000). In contrast, the top tax rates proposed by Van Hollen and Booker would apply at much higher income levels in the United States, typically above $1 million or more. This means that while the headline rates might appear comparable, the U.S. approach would continue to apply these highest rates to a much narrower band of the highest earners.
Conclusion: Balancing Equity and Economic Growth
The tax reform proposals from Senators Van Hollen and Booker underscore a clear policy objective: to enhance the progressivity of the federal tax system and provide substantial relief to lower- and middle-income Americans. Both plans would undeniably achieve higher after-tax incomes for these groups, particularly Senator Booker’s plan through its expansive refundable credits.
However, these benefits are projected to come with significant trade-offs. Both proposals would lead to substantial reductions in federal revenue, especially Booker’s, thereby increasing the federal budget deficit. Furthermore, the reliance on higher marginal tax rates on labor and capital, particularly on high-income earners and potentially businesses, is consistently projected to reduce investment, hours worked, and long-run economic output. The analyses indicate a delicate balance between achieving greater income equality through tax policy and maintaining robust economic growth. As these proposals advance, they will undoubtedly fuel further debate on the optimal structure of the U.S. tax system and its role in shaping both societal equity and national prosperity. The legislative journey of these acts will be closely watched by economists, policymakers, and taxpayers alike, as they represent a pivotal moment in the ongoing discussion about America’s fiscal future.
