By Richard Rubin 

The coronavirus pandemic shook the U.S. economy. It hasn't shaken Democrats' fervor for trillions of dollars in tax increases, and significant income redistribution is still likely as soon as 2021 if Joe Biden wins the White House and Democrats control Congress.

Democratic lawmakers and policy aides worry little that planned tax increases on corporations and high-income households would hinder the economic recovery. If anything, they argue that economic disparities evident during the pandemic make these tax increases more necessary.

"It's all the more important to protect the retirement and security of working [people] and make sure the wealthy pay their fair share," said Oregon's Ron Wyden, who would be Finance Committee chairman if Democrats retake the Senate. "We'll be ready to go in January of 2021."

Mr. Biden's tax proposals are modest compared with those of his former rivals for the Democratic presidential nomination. Unlike Bernie Sanders and Elizabeth Warren, he hasn't endorsed imposing annual wealth taxes.

Still, his proposals would undo major pieces of the 2017 tax law and raise taxes beyond what President Obama and 2016 nominee Hillary Clinton sought, generating $4 trillion over a decade. Republicans oppose those tax increases and will campaign against them, warning that they would slow growth and discourage investment.

"Joe will come in with a more progressive economic policy than we have seen from a Democrat in a long time," said Rep. Don Beyer of Virginia, the top Democrat on the Joint Economic Committee. "This is the chance to build an economy that's much more equitable."

For corporations, Mr. Biden would raise the tax rate to 28% from 21% and impose additional taxes on foreign profits. High-income individuals would pay steeper tax rates on wages, business income and capital gains and face new caps on deductions.

Pressed recently about whether he would delay tax increases while the economy is weak, Mr. Biden defended his proposals. In an interview on CNBC, he emphasized that households making below $400,000 wouldn't pay more. About 74% of his tax increases fall on the top 1% of households, according to the Tax Policy Center, a Washington group run by a former Obama administration official. Some households earning less than $400,000 would pay more because corporate tax increases affect stock owners and workers at all income levels.

The timing of tax legislation and its effective dates will depend on the state of the economy next year, a Biden adviser said.

The budgetary estimates don't include Mr. Biden's support for repealing the cap on the state and local tax deduction, a move that would cut taxes for high-income Americans.

Mr. Biden's tax policies were designed before the pandemic struck the economy and sent unemployment soaring. Congress's bipartisan response includes spending increases and tax cuts for businesses and individuals that are adding trillions of dollars to budget deficits. There is broad agreement that policy makers shouldn't worry about widening deficits during a crisis.

Democrats say they learned a crucial lesson from the previous recession, which ended in 2009 while Mr. Biden was vice president. They say lawmakers moved too quickly to rein in budget deficits, unnecessarily slowing spending and the recovery.

"This is not the time to be focused on red ink by a long shot," said Jared Bernstein, who served as economic adviser to Mr. Biden when he was vice president and remains an informal adviser.

Republicans say tax increases would be harmful and that reopening the economy is the best way to control the federal debt.

"Raising taxes on the heels of this economic crisis is like punching a hole in your boat at the end of a storm," said Rep. Kevin Brady of Texas, the top Republican on the House Ways and Means Committee.

But many Democrats say their primary goal isn't to reduce deficits. Instead, they want people with high incomes to pay a greater share of taxes, which would generate money for new spending programs. And they say the combination of tax increases and spending programs -- such as aid for college students, expanded health care and assistance for families hit by the recession -- would encourage consumer demand and boost the long-term pace of economic growth.

"Raising taxes on the wealthy and big corporations to help support public investments in things like child care or education promotes economic growth," said Bharat Ramamurti, who helped design Ms. Warren's policies and is now managing director of the corporate power program at the progressive Roosevelt Institute. "It's popular with voters across the political spectrum, too."

What Democrats could actually turn into law is a trickier question. For any chance at implementing their agenda, they must win the White House and achieve a net gain of three Senate seats. That would let them use fast-track procedures Republicans employed in 2017 to pass their tax cut with a simple majority in the Senate.

In that scenario, moderate Senate Democrats such as Joe Manchin of West Virginia and Kyrsten Sinema of Arizona would have considerable sway in setting boundaries for economic policy. That includes the size and composition of tax increases and the programs they would finance.

The other big unknown is the state of the economy in January, and choices will be viewed through that lens. If the economy is weak, Mr. Wyden said, Democrats would spend more effort repairing immediate damage before turning to tax policies developed during years in the minority.

"Is any given tax increase -- and what it's paying for -- is that going to be good or bad or neutral for the recovery?" said Zach Moller, deputy director of the economic program at Third Way, a centrist Democratic think tank. "If we have a quicker recovery, then there are a lot of folks that have been fortunate and have more ability to pay taxes."

Write to Richard Rubin at richard.rubin@wsj.com

 

(END) Dow Jones Newswires

May 31, 2020 05:44 ET (09:44 GMT)

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