Biden’s new tax plan misses an opportunity

If Joe Biden becomes president and has a Democratic Congress behind him, there will be an opportunity for extraordinary change in all sorts of policy areas. While we’ve anticipated battles over whether Biden goes far enough in a progressive direction on health care and climate, one issue that hasn’t gotten as much attention - but that is profoundly important - is tax reform.

With their “law and order” demagoguery having failed miserably, the Trump campaign is now saying Biden will destroy the economy by raising everyone’s taxes. Which is, of course, false. The truth is that there’s a lot to like in Biden’s tax plan; in many ways, he’s going further than President Barack Obama did, one more indication of how Biden has been pulled in a progressive direction as the Democratic Party has moved left.

But he’s also missing an opportunity. Biden is taking a grab-bag approach to tax policy, tossing out a dozen different proposals that are perfectly worthy but might fall away as the complex machine of legislation grinds its gears. He may get some of it passed, but probably not all, and the result could be a series of incremental adjustments to tax rates that will be easily reversed the next time a Republican president takes office.

But let’s give him credit where it’s due. In the primaries, Biden’s tax plan was contrasted with those of Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, DMass., because they both proposed a wealth tax, something Biden rejected. Nevertheless, his plan is firmly progressive and covers a wide swath of tax policy.

On a conference call with reporters Thursday, the Biden campaign stressed two messages: First, while President Donald Trump wants to help the wealthy, Biden wants to help working people (“Park Avenue versus Scranton,” as one staffer put it). Second, he will absolutely, positively not raise taxes on anyone making less than $400,000 a year.

You can see the political logic. The Trump campaign will repeat the lie that Biden wants to raise everyone’s taxes approximately 28 bazillion times, so the Biden campaign wants to reassure people that everything will be fine for you, unless you’re rich.

What he actually proposes is a range of increases on corporations and the wealthy: Raise the corporate tax rate to 28 percent; require a minimum tax on overseas corporate earnings; raise the top marginal income tax rate back to 39.6 percent; eliminate the “stepped-up basis” loophole that allows people to inherit investments tax-free; cap the amount of tax deductions the wealthy can take; impose payroll taxes on high incomes. And he proposes a raft of tax credits for the non-rich for child care, buying a first home and more.

These really would make the tax system more progressive. But there’s one more Biden proposal that represents the real missed opportunity: He says that investment income should be taxed at the same rate as wage income but only for those making over $1 million a year. As a revenue-generator, it’s a great idea. The problem is that it’s buried in the grab bag, when it should be the centerpiece of Biden’s tax agenda. And it should apply to everyone.

Right now, investment income (money you make when your money makes you more money) is taxed at a lower rate than wage income (money you make by working). According to the values Democrats hold, if anything that’s upside-down. At the very least, all income should be taxed the same.

Instead, we have a spectacularly complex set of loopholes and adjustments and different rates, a system crafted by and for the wealthy so that the money they make gets taxed less.

If you ask most elected Democrats, they’d say, “It would be much more fair if we just taxed all income at the same rates.” But they don’t actually try to make that happen. Instead, like Biden is doing, they propose to close a loophole here and increase a tax rate there, while leaving in place the fundamental inequity of the system.

I’ve asked Biden’s campaign why he proposes finally taking the step of equalizing the treatment of wages and investment income, but only for people who make over $1 million a year. I haven’t gotten an answer yet, but I think it’s because they want to steer clear of anything that can be called a middle-class tax increase, no matter how misleading that attack might be.

Here’s why this is such a missed opportunity: On first glance this may sound technical, but it isn’t at all. It’s a straightforward statement of policy principle, one that can link general expressions of values (“Taxes should be fair”) to the super-specific proposals Democrats gravitate toward (“We should increase the capital gains tax rate for those in the top 10 percent by an amount adjusted by the inflation rate multiplied by the airspeed velocity of an unladen swallow”). Biden could say that this one of his fundamental principles: All income should be taxed the same. No more loopholes, no more preferential treatment for the rich. You worked, you have investment income, you got an inheritance? It’s all taxed the same. It’s easy to understand, and it can guide the writing of legislation.

I suspect Biden wouldn’t mind going there. But instead, he chose a more timid route.

Which makes it all the more likely that when his tax reform legislation is finally passed after all that furious lobbying from the rich, it will fall by the wayside. And another opportunity will be lost.