The Washington Post
A plan with big ‘ifs’
Democrats propose large tax hikes but still have far to go to fund big plans.
SEN. JOE MANCHIN III ( W.VA.), the key 50th Senate vote Democrats need to pass the massive social spending and climate bill they are writing, doubled down Sunday on his concerns that the legislation might bust the budget and ignite inflation. House Ways and Means Committee Chairman Richard E. Neal (D-mass.) on Monday gave Mr. Manchin a partial response: The House’s top tax-writer released a sprawling outline of new taxes and other revenue sources that would raise some $2.9 trillion over 10 years. If Democrats raise the revenue Mr. Neal proposes, if they eschew accounting gimmicks and if they bring their spending plans in line with their willingness to pay for them, the government would avoid stimulative deficit spending.
But those are big “ifs.”
Mr. Neal would raise the corporate tax rate from 21 percent to 26.5 percent — not as high as it was before the Republicans’ 2017 tax cut, but still a substantial hike. The proposal would restore the top 39.6 percent income tax rate, though only on people making more than $400,000 annually, and it would impose a 3 percent surcharge on people making more than $5 million per year. The plan would also make some modest moves to address massive wealth inequality, raising the top capital gains tax rate to 25 percent from its current 20 percent and cutting in half the $23.4 million estate tax exemption, an unjustifiable giveaway to wealthy heirs.
Unsurprisingly, special interests such as the Chamber of Commerce and the American Farm Bureau are lobbying against practically every one of these ideas. Meanwhile, some Democrats would make the price tag even harder to cover. Republicans imposed in 2017 a $10,000 cap on the state and local tax deduction, a regressive benefit for wealthy tax-filers. Democrats from states with high state income tax rates insist that they would kill any bill that fails to roll back the cap, and Mr. Neal signaled Monday that the Democrats’ legislation will include some kind of state and local tax “relief.”
Democrats do not have the luxury of expanding a needless and expensive tax break. Even if they passed Mr. Neal’s proposal intact and held the line on loopholes, they would still struggle to pay for their bill without embracing accounting gimmicks. Mr. Neal’s plan would raise $2.9 trillion, but Democrats seek to spend $3.5 trillion — and experts say the real cost of the programs they desire would be far higher than that estimate. Democrats argue that the economic growth their bill spurs would fill the gap. This is wishful thinking.
If anything, Democrats should be reexamining some obvious pay-fors that Mr. Neal failed to propose, such as closing the carried interest loophole, which allows hedge fund managers to avoid income taxes. A carbon tax would help fight climate change, and it would not impact most taxpayers if a chunk of its revenue were recycled back to the public.
Mr. Neal and his tax-writing colleagues in the Senate have proposed tax hikes big enough to fund a large expansion of social spending sustainably. That takes some courage. It will take much more for Democrats to resist watering down these proposals, to locate more revenue and to streamline their spending plans to match the money they are willing to raise.