Democrats are poised to raise taxes on business and the rich
Democrats have spent the past several years clamoring to raise taxes on corporations and the rich, seeing that as a necessary antidote to widening economic inequity and a rebuke of former President Donald Trump’s tax cuts.
Now, under President Joe Biden, they have a shot at ushering in the largest federal tax increase since 1942. It could help pay for a host of spending programs that liberal economists predict would bolster the economy’s performance and repair a tax code that Democrats say encourages wealthy people to hoard assets and big companies to ship jobs and book profits overseas.
The question is whether congressional Democrats and the White House can agree on how sharply taxes should rise and who, exactly, should pay the bill. They widely share the goal of reversing many of Trump’s tax cuts from 2017 and of making the wealthy and big businesses pay more. But they do not yet agree on the details — and because Republicans are unlikely to support their efforts, they have no room for error in a closely divided Senate.
For Biden, the need to find consensus is urgent.
The president is set to travel to Pittsburgh on Wednesday to unveil the next phase of his economic agenda: a sprawling collection of programs that would invest in infrastructure, education, carbon-reduction and working mothers and cost $3 trillion to $4 trillion.
The package, which follows on the heels of Biden’s $1.9 trillion economic aid bill, is central to the president’s long-term plan to revitalize American workers and industry by funding bridges and roads, universal prekindergarten, emerging industries like advanced batteries, and efforts to invigorate the fight against climate change.
Biden plans to finance that spending, at least in part, with tax increases that could raise more than $2.5 trillion in revenue if his plan hews closely to what he proposed in the 2020 presidential campaign. Aides suggest his proposals might not be entirely paid for, with some one-time spending increases offset by increased federal borrowing.
“I think what you’re going to see is the administration is going to put a pay-for on the table for at least some and maybe all of the infrastructure plan,” said Sen. Tim Kaine, D-Va. “If Team Biden makes a proposal, I’m sure we’ll make adjustments, but that’s a good way to start.”
Others in his party, including his own transportation secretary, have pushed Biden to explore tax plans he did not campaign on, like taxing consumption, wealth or vehicle miles traveled. Biden has stressed his broad-brush desire to increase the tax burden on wealthy Americans who largely earn their money through inheritance or investment, to fund spending programs meant to help people who earn their money primarily through wages.
“I want to change the paradigm,” Biden said Thursday during a news conference. “We start to reward work, not just wealth.”
Democratic lawmakers have promised for decades to raise taxes on companies and the wealthy, a desire that kicked into overdrive after Trump signed a tax-cut package that delivered an outsize share of its benefits to corporations and high earners. But they have struggled to muster the votes for large tax increases since President Bill Clinton signed a 1993 law that included a variety of hikes intended to help reduce the budget deficit.
Business groups, conservative activists, lobbyists and donors across the ideological spectrum largely have blocked such attempts.
President Barack Obama campaigned on ending tax cuts for the rich signed into law by President George W. Bush, but after the 2008 financial crisis, he cut deals with Republicans to extend those cuts before allowing some of them to expire at the end of 2012.
Liberal economists say this year could be different, thanks to the unique political and economic circumstances surrounding the recovery from the pandemic recession. With Biden’s signing of a $1.9 trillion economic relief bill, financed entirely by federal borrowing, forecasters now expect the economy to grow this year at its fastest annual clip since the 1980s. Republicans and some economists have begun to warn of overheating growth spurring runaway inflation, which could reduce the salience of warnings that tax increases would cause growth to stall.
Public polling shows broad support, even among many Republican voters, for raising taxes on large corporations and highincome individuals. The most conservative Democrats in the Senate, who hold great sway over Biden’s legislative agenda, say they favor trillions of dollars in infrastructure spending, so long as there is a plan to pay for it.
That includes Sen. Joe Manchin, D-W.Va., who told reporters this week that Biden’s infrastructure plan was “going to be enormous” and that its costs needed to be covered.
He signaled openness to making changes to the 2017 tax overhaul.
“Where do they think it’s going to come from? How are they going to fix America?” he said, when asked about Republican resistance to tax increases.