President Joe Biden’s second big legislative push will be harder than his first for multiple reasons, most conspicuously this one: It will include tax increases.
To be sure, Biden seeks increases of the most popular kind. He intends to target corporations and rich people without, aides maintain, touching Americans earning under $400,000 a year.
But tax hikes that start out popular don’t often end up that way, as Republican strategists are eager to prove again once debate over Biden’s “Build Back Better” infrastructure plan begins in earnest.
“Nobody believes taxes are only going to be raised on the wealthy,” explained Glen Bolger, a leading Republican pollster. “The negative tends to outweigh the positive. If we do our job, it becomes the dominant thing.”
Biden's first 100 days
On his $1.9 trillion Covid relief package, Biden made sweeping achievement look deceptively easy. Fellow Democrats rallied behind their new President’s popular first initiative to address a crisis that ravaged the economy and every aspect of daily life. It sent $1,400 per person checks into the bank accounts of most Americans.
And, crucially, it did this with borrowed money that stuck no one in particular with the bill. That helped prevent a critical mass of opposition from developing.
Build Back Better, which envisions roughly $3 trillion in new spending and hundreds of billions more in tax credits, shares some of those qualities. Its marquee feature – upgrading America’s stock of roads, bridges, airports, schools, broadband and energy infrastructure – enjoys broad support from voters, politicians in both parties, and business leaders.
But the plan also contains fat political targets. Republicans deride as “welfare” some of the tax credits it directs to help families climb the economic ladder. They skewer alternative energy investments and regulations to combat climate change as costly and radical.
As Senate GOP Leader Mitch McConnell summarized it: “A so-called infrastructure proposal that may actually be a Trojan horse for massive tax hikes and other job-killing left-wing policies.” Similar attacks on “job-killing” tax hikes by Presidents Bill Clinton and Barack Obama exacted a political toll even though economic events did not vindicate them.
The relentless march of income equality since has enhanced the appeal of Biden’s ideas, which include a higher corporate rate, a higher rate on personal income for top earners, and higher rates on capital gains and inherited assets. His call to reward “work, not wealth” reflects polls showing middle-class voters believe the rich and Big Business avoid taxation at their expense.
That belief undercut public support for former President Donald Trump’s 2017 tax cuts, which disproportionately benefitted high earners. But Americans’ widespread distrust of government creates treacherous cross-currents for Biden and his party just the same.
“They think once (lawmakers) start raising taxes, ‘I’m going to get stuck with the bill,’” said Democratic pollster Mark Mellman. “Historically, they’ve just heard ‘tax increase.’ They don’t hear the qualifier: who’s paying it.”
Consider the fate of two ballot measures in last November’s elections. In Illinois, voters considered shifting from a flat tax to a progressive income levy that Democratic Gov. J.B. Pritzker said would only hit the top 3% of households; in California, they considered higher taxes on large commercial property owners to finance schools and local government.
Both are blue states Biden carried easily. In both, voters rejected the tax hikes.
Biden’s plan attempts a logical connection between new spending and revenue to pay for it. Raising the corporate rate to 28% from 21% would finance physical infrastructure investments. Higher levies on wealthy individuals would finance “human capital” benefits including tuition-free community college and universal pre-kindergarten.
To start, Biden plans to break his initiative into two separate bills and seek support from the Republicans who spurned him on covid-relief. But contradictory political imperatives make the process very fluid.
Biden argues that long-term “structural” spending increases require new revenue, but that some one-time investments in infrastructure do not. West Virginia Sen. Joe Manchin, a pivotal Democratic vote, has voiced a different view.
To avoid further increasing budget deficits, Manchin wants the “enormous” infrastructure tab entirely paid for with tax increases. Leading Republicans have positioned themselves to oppose either choice, leaving unrealistic cuts in other spending the only option.
That’s why White House officials and congressional Democratic leaders alike expect negotiations with Republicans on a bipartisan compromise to fail. If that happens, Build Back Better would end up taking the same path as Covid relief: A single giant bill advanced under special budget rules that would require rock-solid Democratic unity but no Republican votes.
In that scenario, the final details would be determined by the needs of House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer as they corral votes from their members.
“There are a lot of pieces moving around here,” said Sen. Ron Wyden of Oregon, who chairs the Senate Finance Committee. He will help determine how much of the White House plan Democrats can ultimately find the tax revenue to pay for.
“Half of it, none of it, all of it – these are questions Senate Democrats are working through now,” Wyden told CNN. “I’ll be ready to raise whatever the caucus decides.”
Wyden seems ample justification for repairing what he calls a two-tiered tax system – “mandatory” for typical taxpayers, “voluntary” for those with high-priced lawyers and accountants. But it won’t be easy.
“Look,” the fifth-term senator acknowledged, “this is a heavy lift.”