HOW BIDEN PLANS TO DEBUNK TAX SCARE TACTICS
Brian Deese, as director of the National Economic Council, plays a critical role in formulating and explaining the Biden administration’s economic proposals. In a call with a small group of journalists on Thursday, he made the case for both the American Jobs Plan and the American Families Plan — and in the process laid out how Democrats can debunk scare tactics about raising corporate taxes.
Regarding President Joe Biden’s jobs plan, Deese argued that there is “a large and well substantiated body of research” that investing in infrastructure is among the best methods to secure long-term economic growth. He urges Americans not to mush Biden’s different plans together. The rescue plan was about immediate needs; the jobs plan is about “sustained productivity.”
Things get dicey when it comes to paying for the investment of trillions of dollars. Rather than explicitly borrowing to pay for the infrastructure plan or to rely on dynamic scoring, the administration settled on a scheme to pay for the eight-year spending over a 15-year time period by raising the corporate tax rate to 28%. The plan also envisions a negotiated minimum corporate tax of 21% with other developed countries to prevent a “race to the bottom” in which U.S. corporations base their operations in the lowest-tax jurisdictions. However, when I asked whether such a deal was a condition for raising the corporate rate, he made clear it was not. In addition, the plan would strengthen tax laws that discourage companies from shifting operations overseas.
All of this would be coupled with tax increases on very rich individuals to pay for the American Families Plan. These include raising the top income tax rate back to 39.6%, eliminating loopholes that rich people can use to avoid paying taxes on inherited assets and, for those making more than $1 million a year, raising the capital gains tax rate to the same 39.6% level that would be applied to regular income.
What does this all amount to? Deese said the practical result would be reverting back to the pre-2017 tax code of the Obama administration, with an eye toward shifting more of the tax burden to corporations. I asked how the administration plans to respond to corporate caterwauling that higher taxes would kill jobs. His answer: The 2017 tax cuts shows that lower tax rates do not increase jobs or investment, so it stands to reason that resetting it (only part of the way back) won’t cost jobs or hinder investment. In essence, they are calling foul on supply-side tax theory.
Later in the day, I asked Deese whether this would be perceived as just too much taxing and spending. He tried to put this in context. “The president’s proposed investment agenda would take us back to the levels of investment in the 1960s, when we were pursuing the space race,” he said. “So, while it is historic, it is not revolutionary, and in fact, it is well justified. And on the revenue side, the proposals would take revenue and GDP back to the range in the late 1990s,” Deese said. He argues, “That is also not revolutionary, and in fact very well justified because we have seen an increase in pretax inequality since then, and the erosion in public investment has created deferred maintenance challenges on physical and human capital stock.” Of course, the country is paying a much greater share of its budget to service the national debt now than in previous decades.
On a microlevel, the administration is walking a fine line, stressing its plans’ boldness while maintaining that it does not amount to that much more taxing and spending. However, virtually all polling shows that taxing corporations and the very wealthy is very popular. That may explain why the administration is not overly concerned about “sticker shock.” Most people are happy to let someone else pay the bill for a load of expensive goodies.