J. Scott Applewhite/AP Photo
Signs supporting President Joe Biden’s domestic agenda are seen on the National Mall near the Capitol in Washington, October 4, 2021.
The jockeying over how much money the budget resolution will eventually spend and invest for President Biden’s Build Back Better program has gotten most of the attention. It’s obvious that the final number will be well below Biden’s proposed $3.5 trillion.
But equally important is the tax side of the equation, both to pay for the needed public investments and to make the wealthy pay a fairer share, as a needed policy in its own right. Two key players are the House Ways and Means chair, Richie Neal of Massachusetts, one of the most corporate Democrats in the House; and his Senate counterpart, Finance Committee Chair Ron Wyden of Oregon, a liberal on some issues who also delivers for multinational corporations and banks.
The story of Biden’s proposed tax reforms sadly parallels the story of his proposed investments. A boldly progressive plan keeps getting watered down as it runs the gauntlet of the tax-writing committees.
Biden’s original tax proposal would raise about $3.3 trillion over the ten-year budget window, just short of fully paying for the $3.5 trillion in new investments. Not all of this officially appears in the CBO’s budget score, since some $700 billion is projected to come from increased IRS enforcement of the tax evasion of the rich.
The best thing about Biden’s plan is that it raises taxes only on households with incomes over $400,000. It does this by both raising rates and closing loopholes favored by the rich, such as reversing the failure to tax accrued capital gains at death (“stepped-up basis”), getting rid of the loophole that allows hedge fund and private equity income to be taxed at the lower capital gains rate (“carried interest”), and also raising rates.
The top rate on personal income would go back to 39.6 percent. Capital gains would be taxed at the same rate as ordinary income. The corporate income tax rate would increase from 21 percent to 28 percent. And the minimum tax on corporate foreign income would rise from close to nothing (given all the possible evasions) to 21 percent.
Equally important is the tax side of the equation, both to pay for the needed public investments and to make the wealthy pay a fairer share.
Progressives did not get everything they wanted. For instance, there could be an even higher tax rate on very high incomes. Shareholders could be taxed on stock buybacks. Very wealthy people could pay taxes on capital gains annually, as they occurred, rather than deferring them until sale.
But as presidential tax reform proposals go, Biden’s was the best we’ve seen since FDR.
And so, over to the tax-writing committees. The best you can say about the House Ways and Means Committee version is that it could have been worse—and probably will get worse by the time the Senate Finance Committee and then Joe Manchin get done with it.
The Ways and Means Committee raises about $2.2 trillion in new revenue, far less than Biden’s plan. It has a lower capital gains tax rate than Biden’s plan and does not include stepped-up basis—those two provisions give up an estimated $325 billion; and the proposed rate on foreign corporate income is 16.5 percent, or less than the 21 percent in the Biden plan.
Meanwhile, over at the Senate Finance Committee, as Reuven Avi-Yonah has reported in the Prospect, the bill drafted by Chairman Wyden weakens the Biden administration’s proposed effort to curtail multinational tax evasion. But in fairness to Wyden, unlike Ways and Means Chair Richie Neal, who basically wrote the bill himself and gaveled it through, Wyden at least circulated a draft for discussion, which allowed for some pushback by committee members Elizabeth Warren and Sheldon Whitehouse.
Wyden’s bill is also better than the administration’s in some respects. It includes his proposal for taxing capital gains on an annual basis, whether or not the asset has been sold. This provision, however, is limited to people with a net worth of at least a billion dollars.
Wyden is a curious blend of liberal and pro-corporate, which partly reflects his closeness to the big tech companies in his home state. He added a measure to the bill pulled together by Chuck Schumer, the U.S. Innovation and Competition Act, aimed at containing China’s influence, but Wyden’s provision was at odds with the bill’s larger purpose. There has been immense pressure on Biden from U.S. corporations to weaken the tariffs on Chinese exports that were added by Trump and mostly retained by Biden. Wyden’s amendment, with Republican Sen. Mike Crapo, suspends some of the tariffs and retroactively refunds the money to corporations that paid them.
What is Wyden up to? On the tax treatment of multinationals, he apparently was trying to define a position more moderate and palatable to American corporations than that of the White House proposal. He enlisted as co-sponsors of his draft one Finance Committee member to his right, Mark Warner, and one to his left, Sherrod Brown, as a signal that this was a viable consensus plan. But it’s an odd negotiating strategy to weaken your opening position before the serious bargaining even starts. It’s clear that there will be fierce lobbying to further water down even Wyden’s plan.
The risk is that as the revenue side of Build Back Better moves forward, the eventual proposal will include the weaker elements of the Neal and Wyden measures rather than the stronger ones.
What’s driving the debate about Build Back Better is more the spending side than the revenue side. If the eventual figure is in the $2 trillion range, Congress will be able to come up with enough revenue. But equally important is providing that corporations and the rich pay their fair share.
