Ignore GOP fearmongering about Democrats’ tax plans

Republicans and business lobbyists are waging war against the tax provisions in Democrats’ big budget bill. Don’t listen to them. No, the bill isn’t perfect. There are better ways to revamp the tax code. But the deal is worth doing all the same.

Most media coverage of the surprise agreement between Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Joe Manchin, D-W.Va., has focused on its spending and social policy programs. The legislation would represent the biggest investment in fighting climate change in U.S. history. Its health provisions would also make care more affordable.

The bill could modestly reduce prices over the long run — even if the “inflation-reducing” power of this “Inflation Reduction Act” has been overstated.

The bill’s weak spot, at least politically, lies in how it will raise revenue to pay for everything. Republicans are falsely claiming that middleclass taxpayers will foot the bill. Or that the economy will collapse. Or something similarly horrific.

In reality, the tax-side changes are so narrow that relatively few people should even notice. Even the biggest chunk of the revenue raisers— on mega-corporations — is effectively only a partial clawback of the huge GOP corporate tax cuts passed in 2017.

“If you’re not a tax cheat, hedge fund manager or a corporation making over $1 billion, you’re not affected,” summarizes Steven Rosenthal, a senior fellow at the Tax Policy Center.

Let’s go through the measures one by one.

First, the bill would give money to the IRS for enforcement, customer service and IT modernization. It’s a long-overdue investment: Beefing up the IRS enables the agency to identify and collect tax bills already owed, and it encourages compliance. Both of these things bring in more money — especially from the ultra-rich and large corporations, whose audit rates have plummeted in recent years as Congress starved the IRS of resources. Congress’s official scorekeepers estimate these initiatives would net Uncle Sam an additional $124 billion.

The second key tax measure would narrow the carried-interest loophole. Under current law, managers of private equity and other investment funds can pay taxes on some of their earnings at capital gains rates, rather than at the higher rates at which ordinary labor income is taxed. This means wealthy investment managers can pay much lower tax rates than their receptionists.

Finally there’s the most controversial provision, which raises $313 billion: a so-called book corporate minimum tax. Some mega-companies pay zero in corporate income taxes, despite telling shareholders they brought in big bucks, because there are different rules for how profits are calculated for financial markets vs. for tax purposes. Under this bill, companies that report at least $1 billion in profits to shareholders must pay at least 15% of that amount in taxes.

It doesn’t seem fair that companies get to report one set of profits to investors (typically, the largest possible number) and another to Uncle Sam for tax purposes (the smallest possible number). But there are drawbacks to this approach. For example, it effectively creates two parallel corporate tax systems, and the one we already have is complicated enough. It would disproportionately affect the manufacturing industry, which benefits from a key tax break that would become less valuable.

There are more efficient, less convoluted ways to wring money out of these companies. But given the challenges lawmakers faced in developing a bill acceptable to all Democratic senators, this is the best corporate tax revenue tool left standing. Even the 10th-best solution is still a solution — and one worth seizing when the future of the planet is at stake.