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)
Copyright (c) 2020 Dow Jones & Company, Inc.