Democrats' plans to hike taxes to pay for their Build Back Better agenda are being derailed by the opposition of one moderate senator....
Democrats' plans to hike taxes to pay for their Build Back Better agenda are being derailed by the opposition of one moderate senator. On Wednesday afternoon, the Wall Street Journal reported that Sen. Kyrsten Sinema (D–Ariz.) was opposed to plans to pay for the massive $3.5 trillion bill by raising taxes on high-income earners, businesses, and capital gains.
House Democrats had proposed raising the top income tax bracket from 37 percent to 39.5 percent. They would also raise corporate taxes from 21 percent to 25 percent. The top capital gains tax rate would go up to 28.8 percent, up from the current 23.8 percent.
President Joe Biden has repeatedly said these tax increases would make the super rich and large corporations pay their "fair share." Critics have argued that they'll actually hit the so-called "working rich" who already pay incredibly high marginal tax rates, the hardest.
The combined effect of all the new spending Democrats have proposed—plus the taxes and debt needed to pay for it—is projected to be a major drag on the economy as well.
This is all apparently now too much for Sinema and could end up leading to a smaller spending bill overall. The Journal reports that the income and corporate tax increases she is opposing would raise $840 billion. Without that revenue, the overall price tag of the Build Back Better bill will likely be closer to $2 trillion.
The shrinking size of Democrats' (still massive) spending bill has set off yet more political wrangling about what exactly to cut. Some more centrist liberal groups have proposed cutting the $300 billion in new spending on housing, among other things, from the legislation. The White House is reportedly considering forgoing a $150 billion clean energy program in an effort to appease Sen. Joe Manchin (D–W.Va.).
There's an endless number of budget gimmicks that lawmakers could include in the bill to reduce its costs on paper while still practically preserving much of the programs and new spending that they want. That could include setting the start date for programs years in advance or establishing expiration dates for them that will be politically difficult to stick to. This all helps lower the Congressional Budget Office's score of how much the bill will cost over a 10-year period.
Engaging in that budgetary trickery would be the most politically convenient thing for Democrats, but there are plenty of reasons to oppose it.
Writing over at Full Stack Economics, economist Alan Cole argues that frontloading the costs of the bill by setting up a bunch of temporary programs that go into effect immediately would end up pouring money on an economy that's already suffering from inflationary pressures.
Reason's Peter Suderman has also criticized these gimmicks as "simultaneously shameless and timid," writing yesterday that they represent "a refusal to acknowledge the necessity of tradeoffs, political or economic. And that, in some sense, is what legislating is—a matter of sifting through options and establishing what's important given the resources and political constraints."
The fact that Democrats' tax plans are in danger is obviously good news. But be wary of any supposed shrinking in the overall cost of the Build Back Better agenda as a result.
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