What cowards the Democrats have become on taxes

What cowards the Democrats have become on taxes

By Catherine Rampell

Columnist|

Today at 5:31 p.m. EDT

What cowards the Democrats have become on taxes.

As they negotiated their marquee safety-net-and-climate proposal over the past few months, Democrats maintained that the whole package would be paid for through new taxes on the rich and corporations. But one by one, many of the most obvious revenue-raisers, including those targeting higher-income Americans, got ruled out.

Meanwhile, some questionable math got ruled in.

Proposals to roll back the Trump tax cuts, which every single Democratic lawmaker opposed in 2017? Never mind.

President Biden’s onetime proposal to raise taxes on income accrued from wealth and tax it like ordinary income? Gone.

Efforts to close a loophole that allows heirs to escape a lot of taxes on their inheritances? Dead.

Story continues below advertisement

The plan to eliminate the “carried interest” tax break, enjoyed by hedge fund and private equity firm managers? Not quite.

Corporate tax rate increases? Nope. Some new international corporate tax provisions will raise revenue, but the White House estimate for the exact amount seems optimistic, given earlier congressional estimates.

You're following Catherine Rampell‘s opinionsFollowing

Versions of some proposals remain but have been watered down.

For example, the White House framework released Thursday includes measures to help the Internal Revenue Service catch tax cheats. Greater IRS enforcement is an excellent investment; it would help the government collect more of the taxes already owed. But a key tool that would help the IRS pinpoint who’s cheating is now apparently off the table.

Story continues below advertisement

And in any case, the White House long ago pledged that the IRS would not use any additional enforcement firepower to audit households making less than $400,000. Apparently people making $399,999 who’ve been cheating Uncle Sam have Biden’s blessing to continue doing so.

This is among the reasons the White House’s forecast for how much money its latest IRS enforcement plan will raise seems Pollyannaish. (For context, the administration’s current estimate is roughly three times the size of the net revenue previously estimated by the Congressional Budget Office.)

Sens. Joe Manchin III (W.Va.) and Kyrsten Sinema (Ariz.) have been blamed for killing some of the big-ticket revenue raisers. And they have opposed many of the hikes — often in confusing and inconsistent ways. But they are hardly alone among Democratic politicians in their resistance to raising taxes, including taxes on the rich. Some of the examples cited above were actually jettisoned over the summer by House Democratic leadership.

Story continues below advertisement

Biden himself also foolishly constrained what kinds of measures could be used to raise revenue, because he promised that no one making under $400,000 (so, more than 95 percent of Americans) would pay a penny more.

That rules out, among other things, “good” taxes such as carbon taxes. Same with other potential broad-based sources of revenue, such as worker tax contributions to social insurance programs, which many developed countries rely on to help fund their paid-leave systems. Perhaps not coincidentally, paid leave got dropped from Democrats’ bill.

So why have Democrats gotten cold feet?

The problem is partly that the Democratic voter base has shifted toward the college-educated, professional class, therefore becoming higher-earning. It’s uncomfortable for Democrats to endorse taxes on their own constituents, particularly when those constituents don’t realize that they, too, are technically rich. (After all, those billionaires are just so much richer!)

Story continues below advertisement

Even Rep. Alexandria Ocasio-Cortez (D-N.Y.), she of the famous “tax the rich” ballgown, said that when she talked about the “rich,” she didn’t mean people like “doctors.” However deserving physicians may be of high compensation, it’s hard to argue that they are not, objectively, among the top earners in this country. (Doctors are more likely than any other occupation to be in the top 1 percent.)

The other problem is that, during the 2020 presidential primary, some Democratic contenders advertised a Scandinavian-style welfare state without endorsing a Scandinavian-style tax base — that is, a system where pretty much everyone pays higher taxes, including the middle class. In fact, Democratic politicians explicitly rejected this model. Their rhetoric suggested that a major expansion of the safety net could be financed almost exclusively by soaking Elon Musk types.

Is it any wonder, then, that the few tax increases Democrats will tolerate are the very narrow, Elon-Musk-soaking variety? The White House’s framework may not roll back the Trump income tax cuts that benefited 80 percent of households — but it does levy special income “surtaxes” on just the wealthiest 0.02 percent.

Story continues below advertisement

The United States has among the lowest tax burdens of rich countries, but for years the GOP has been convincing Americans that they are overtaxed (even as the GOP simultaneously increased spending). Now, Democrats have given into the same false narrative. Dems could make the case that raising taxes is a worthwhile investment, so that Americans can permanently have the safety-net programs other countries’ citizenries enjoy.

Instead, Democrats have decided they also want to be known as the high-spend, low-tax party.