JHE TAX President Joe Biden’s plans were once full of great promise. He and congressional Democrats would reverse Donald Trump’s tax cuts, make the rich pay more, and fully fund all sorts of desperately needed climate and social policy programs with the profits. The middle class would grow and the richest 1% would come out. As the messy drafting of Mr. Biden’s main spending bill – the Build Back Better Act – draws to a close after months of haggling and dealing, it’s clear that when it comes to taxation, the bottom line is is not high at all.
The president was unable to entice his narrow majorities in Congress to overturn Mr. Trump’s tax law and raise marginal rates on top capital gains, corporate profits or individual incomes. And so his plan to boost revenues is a hodgepodge of unorthodox measures, including a new minimum corporate income tax, an excise tax on share buybacks and a new surtax on those whose income exceed $10 million. The wisdom of these measures is debatable. What can’t is a last-minute addition to the bill that would spend hundreds of billions of dollars subsidizing the wealthiest residents of New York and California.
The national and local tax (SALT) allows Americans to reduce their federal tax if they pay a lot of state and local income and property taxes. Prior to 2017, this provision was unlimited, allowing plutocrats in high-tax states to deduct all property tax on their mansions and state income tax on their millions, at the expense of federal taxpayers around the world. entire. Mr. Trump’s tax law capped the tax exemption at $10,000. Rather than welcoming this as a step toward their goal of more redistribution, Democrats in high-tax states have complained that they have been targeted in a punitive manner. Just before Build Back Better passed the House of Representatives on November 19, they raised the cap to $80,000 per year.
The result is a tax fiasco. Over the next five years, the benefit will cost $275 billion. Exactly none of this will go to the bottom 60% earners. Instead, 70% of the winnings will go to the top 5%. For a party that came to power condemning Mr. Trump’s tax reform as regressive, the stain of hypocrisy will be hard to wash away.
If the policy is bad, the policy is worse. The central promise of Mr. Biden’s program was to create a more muscular state that will be able to tackle long-term threats such as climate change, pandemics and social dysfunction. But what is supposedly better rebuilt will count for nothing if it does not exist. In order to pay for that $275 billion giveaway, Democrats scrapped some of Mr. Biden’s promises, including free community college tuition, and scheduled others to disappear in a few years. They bet that a future Congress will be ashamed to come up with the money to save them from the axe. This may turn out to be wishful thinking.
He is also calloused. Expanded Child Benefits have significantly reduced poverty among the neediest Americans, but the program is set to expire after just one more year. If the Democrats withheld the hundreds of billions of SALT deduction, they could almost entirely fund a permanent family allowance scheme. They prefer to give each member of the top 1% an average tax cut of $15,000, or five times the amount the benefit pays for each child.
The best hope for improving the bill comes from the Senate, where all Democrats must vote for it to pass. Mr. Biden is so desperate to see the bill signed into law that he will not criticize it. Some, like Bernie Sanders, have proposed a compromise limiting the greatest SALT deduction to families earning less than $400,000 a year, which shows you how regressive the current bill is.
There is no way to change the SALT deduction to make it desirable. It should be scrapped entirely. But because it won’t happen, the debate is whether it can be turned into something less bad. Given Build Back Better’s steady decline, optimism would be unwise. ■