Republicans who have already drawn a hard line against corporate tax hikes are poised to dig in even deeper to fight higher taxes on wealthy families. Centrist Democrats, particularly those from high-cost areas, may be hesitant to support new levies on households as the economy recovers from the pandemic. And that’s in spite of polling showing that Americans’ support for infrastructure investments actually increases when they learn it could be paid for by taxing the rich.
Asked about polls indicating support for hiking taxes, Rep. Kevin Brady (Texas), the top Republican on the tax-writing Ways and Means Committee, expressed confidence that voters would see the move as detrimental to the economy.
“The American public, when it is fully explained — they get it,” Brady told reporters on Friday. “Americans understand you can’t tax, spend and borrow your way to prosperity.”
The White House’s deliberations are setting the stage for the next major legislative fight on Capitol Hill, where proposed tax hikes on individuals are likely to pour fuel on the already fierce debate over whether to impose new levies on big corporations.
And in this round, even some of Biden’s allies might balk at focusing on the wealthy. While Democrats are eager to fight income inequality, many of them are more comfortable boosting people at the bottom of the income ladder than taking from people at the top. Biden says he is trying to ensure that his tax increases only hit the well-to-do, promising he won’t raise taxes on those earning less than $400,000.
Some Democratic lawmakers from high-cost places like New York City and San Francisco, however, are likely to object that their constituents who earn $400,000 don’t count as rich. And even those who are clearly rich — including many who work on Wall Street, in Silicon Valley and Hollywood — are among the party’s biggest backers.
Many lawmakers are simultaneously pushing to cut their taxes by dumping a hated cap on state and local tax deductions, dubbed SALT, that hits the rich the hardest. And the administration has sent mixed signals on whether that $400,000 line applies to total household income or individual earnings — a major difference for some high-earning families.
“It is harder to do this against individuals, without a doubt, compared to corporations,” a former senior Democratic aide said.
“They’re going to get pushback in Congress, and they’ll get pushback from blue-state Democrats just like they’re getting pushback on SALT,” the aide continued. “Because at the end of the day, $400,000 in blue areas for families living in Los Angeles; Cook County, Ill.; or Oakland, Calif., is just not the same as it is in, say, Des Moines, Scranton or Dayton. So that’s the challenge right here.”
The administration is still working out the details of the plans, and a number of proposals remain on the table, according to people familiar with the discussions and in touch with the White House. These include raising the top marginal tax rate back to 39.6 percent, where it was before Republicans’ 2017 tax cuts; taxing capital gains as ordinary income above a certain threshold (the top rate is almost 24 percent now); and eliminating the so-called stepped-up basis at death, a provision sometimes known as the “Angel of Death” loophole because it can allow the wealthy to pass on assets to heirs tax-free.
Biden, who ran on an unusually detailed tax platform during his presidential campaign, has also previously proposed curtailing itemized deductions for the rich, increasing their Social Security taxes and stiffening the estate tax.
The battle in Congress will mirror long-simmering divides in the public over how much the wealthy should pay in taxes, whether it’s a good idea to greatly expand the size of the government, and how much Washington’s trillion-dollar deficits matter.
Those debates have only grown louder after a year in which the worst economic crisis since the Great Depression fell heavily on middle- and lower-income earners, while wealthier Americans have actually come out ahead. The uneven impact, which some economists have termed a “K-shaped” recovery, has fueled arguments around fairness in the tax code and other societal structures.
“This was a crisis that was borne by the poor and by the middle and below, and the top did so well, you should help pay for this,” said Austan Goolsbee, a top economic adviser during the Obama administration who informally advised Biden’s campaign, describing the thinking among supporters of new tax hikes. “I don’t think that’s crazy.”
Against the backdrop of the coronavirus recession and recovery, and perhaps because of it, the Biden administration will benefit from having an electorate that appears to be on their side when it comes to raising taxes.
One recent Quinnipiac poll showed that 44 percent of voters support Biden’s $2 trillion infrastructure plan — but when told it would be funded by raising taxes on corporations, that number rose 9 percentage points, to 53 percent.
And more than half of voters support infrastructure investments funded by tax hikes for corporations and the wealthy, compared to 27 percent of those who back the spending without new levies, according to a Morning Consult poll from late March. When each tax hike was polled separately, voters favored increases on those making more than $400,000 more than raises for corporations.
Support for new tax hikes includes majorities in both parties. Three in four Americans back taxes on the rich, on corporations or both to pay for infrastructure plans — and that includes 51 percent of Republicans, a poll out Thursday from Navigator Research showed.
Still, it remains politically difficult for some lawmakers to back individual tax hikes, and Republicans are already arguing that raising levies will destroy jobs and hurt the economy as it begins to recover. They warn, too, that despite Biden’s pledge not to impose new taxes on anyone making less than $400,000 a year, any tax hikes will have negative effects on the broader economy, and middle-class consumers will feel an impact.
“Steep tax increases reduce incentives to work, save, invest and be productive, especially when you tax those who disproportionately invest their income in the stock market as well as new products for the economy,” said Brian Riedl, a former economic aide to Republican lawmakers who is now with the right-leaning Manhattan Institute. “While it may feel good to drown the rich in taxes, the economic effects are real and negative.”
Even with his long list of tax increases — collectively worth some $1.8 trillion — Biden could still end up short of cash, depending on the price tag of his next spending package.
The White House could, however, structure the proposal the way it did with its first infrastructure plan, with revenue collection spread out over a longer period of time than the spending. And while moderate Democrats have emphasized a need to pay for the plans, it’s likely some deficit-financing could win support.
Administration officials are “concerned about demonstrating that they’re paying for some of it,” one Democratic staffer on Capitol Hill said. “Not that they’re paying for all of it.”
The president has made clear with his first plan that he’s open to any suggestions on the best way to pay for it, as long as no new levies are imposed on families making less than $400,000 a year. And regardless of what exactly Biden proposes to finance the second plan, any tax hikes will be the subject of intense debate for months to come and may well change during negotiations on Capitol Hill.
“Tax bills are really complicated,” one Democrat close to the White House said. “When you do all of this at once, it’s almost impossible.”