Republicans are threatening to default on the US national debt. Don’t believe them
President Biden is proposing to trim the federal budget deficit by close to $3tn over the next 10 years. He was an FDR-like spender in the first two years of his presidency. Has he now turned into a Calvin Coolidge skinflint?
Neither. He’s a cunning political operator.
Biden knows that he – along with his three immediate predecessors (Trump, Obama and George W Bush) – have spent gobs of money. In addition, Bush and Trump cut taxes on the rich and on corporations.
Not surprisingly, the national debt has soared. It’s not so much an economic problem as a political one. The huge debt is giving Republicans a big, fat target.
House Republicans are planning to stage theater-of-the-absurd pyrotechnics – refusing to raise the debt ceiling. Which means that at some point this summer, Biden’s treasury department will say that the nation is within days (or hours) of defaulting on its bills. A default would be catastrophic.
To counter this, Biden is planning his own pyrotechnics.
In the budget released this week, he’s proposing a “billionaire minimum tax” that would require wealthy American households worth more than $100m to pay at least 20% of their incomes in taxes (most middle-class Americans pay about 30%). Plus, they’d have to pay 20% a year on unrealized gains in the value of their liquid assets, such as stocks, which can accumulate value for years but are taxed only when they are sold (and not even then, if left to their heirs).
Here’s the important thing: the tax would apply only to the top one-100th of1% of American households. Over half of the revenue would come from those worth more than $1bn.
Biden is proposing additional tax hikes on the wealthy: reversing the Trump tax cut by raising the top tax rate to 39.6% from 37%, increasing the corporate tax to 28% from 21%, and raising the tax on stock buybacks from 1%
to 4%.
All told, Biden’s new tax proposals would amount to an almost $3tn tax increase over a decade – on the richest of the rich. Oh, and did I say? Taxing the rich is enormously popular.
Biden also wants to let Medicare officials negotiate with pharmaceutical companies for lower drug prices and cap the costs of drugs for seniors – a proposal that is also hugely popular.
But here’s the dirty little secret. Neither of these two theatrical productions – neither the Republicans’ refusal to raise the debt ceiling norBiden’s big tax hike on the super-rich – will ever happen. They’re both fantasies.
A default on the nation’s obligations would bring on an economic calamity that Republicans don’t want to be responsible for. And a giant tax increase on the super-rich would be a miracle, given their political clout.
These two productions are being staged for the public – two competing performances, each intended to score political points against the other.
Biden’s performance is rational, and the Republicans’ is irrational and unserious, but that doesn’t really matter.
They will both end in a dramatic flurry of last-minute negotiations, seemingly death-defying moves and countermoves, and breathtaking cliffhangers.
Exciting? Of course. Important? Meh.
The denouement? The debt ceiling will be raised. The national debt will be lowered a bit. Social Security and Medicare will be left alone. And Biden and the Democrats will have leeway to do one or two more things before the gravitational pull of the 2024 election pulls them in – perhaps expand childcare or pre-K or enable more students to attend community college.
Robert Reich, a former US secretary of labor, is professor of public policy at the University of California, Berkeley, and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
This article was amended on 9 March 2023 to correct an editor’s error in the standfirst. Biden has proposed tax hikes for wealthy Americans, not tax cuts.