Democrats see political winner in tax fight
As President Biden races ahead with a mammoth plan to bolster the nation’s infrastructure, Democrats are gambling they’ll get a political boost from an accompanying proposal: the tax hikes designed to defray the massive costs.
Biden on Wednesday outlined a slate of tax reforms aimed at raising $2.5 trillion — much of it from large corporations — to underwrite the new infrastructure spending. The proposal was quickly roasted by Republicans, who have long portrayed Democrats as the party of higher taxes and are now warning that Biden’s plan would hurt small businesses and kill American jobs.
Yet national polls have consistently revealed that tax hikes on corporations and other wealthy taxpayers enjoy strong support among a broad array of voters, including independents. And some Democrats are practically drooling at the prospect of bringing that debate to the national stage to highlight the GOP’s resistance to a popular concept.
“If they fight the infrastructure bill over asking corporations to pay more in taxes, that’s a total loser,” Rep. John Yarmuth (D-Ky.), chairman of the Budget Committee, said this week in a phone interview.
“It’s just sort of a nonsense argument, and I think that’s an indication of how vulnerable the Republicans are on this issue,” he added. “The issue sets up perfectly for those, like us, who are promoting significant investment in infrastructure and saying to major corporations, ‘Since your businesses depend on infrastructure, you can do more to pay for it.’ “
The idea is hardly new. Democrats have sought for decades to close tax-avoidance loopholes enjoyed by corporations and other wealthy taxpayers, largely to no avail. And Republicans in 2017 were able to expand those benefits as part of former President Trump’s tax overhaul, which included a reduction in the corporate rate from 35 to 21 percent.
But after a year of turmoil caused by the coronavirus crisis — when stocks soared but millions of low-income workers lost their jobs — Democrats think the uneven economic impact of the pandemic has shifted public opinion enough in their favor to make the controversial tax hikes a political asset.
Indeed, a new Morning Consult/Politico survey found that 54 percent of voters support sweeping infrastructure improvements financed by tax hikes, including 73 percent of Democrats and 52 percent of independents.
“When the biggest corporations evade taxes, or pay a net rate on the average of something like 7 or 8 percent, smaller businesses and individuals have to make up the difference,” Rep. Dan Kildee (D-Mich.), a senior member of the tax-writing Ways and Means Committee, told The Hill. “So I think that, as much as it is about pay-fors, it’s also about tax fairness.”
As ammunition, Democrats are pointing to a recent report from the Institute on Taxation and Economic Policy, a progressive think tank, which found that 55 of the nation’s largest corporations — including Nike, FedEx and Salesforce — paid no federal taxes in 2020 despite enormous pre-tax profits. In some cases, the companies received a substantial federal rebate.
The report was reminiscent of last year’s revelation that Trump, a self-proclaimed billionaire, had paid only $750 in federal income tax in both 2016 and 2017. Both reports have infuriated Democrats who are vowing to create a fairer system — and all but daring Republicans to defend tax loopholes that favor the wealthy.
“Freeways aren’t free. And corporate freeloaders — like the 55 large profitable corporations who paid no federal income tax in 2020 — should pay for the infrastructure and other services upon which they depend,” Rep. Lloyd Doggett (D-Texas), another senior member of the Ways and Means panel, said in an email.
Unveiled Wednesday, Biden’s tax plan features a series of reforms designed to compel large corporations and businesses to contribute a larger share of earnings to the federal government. It does so largely by hiking the corporate tax rate from 21 to 28 percent; prohibiting companies from shifting profits to low-tax havens overseas; and creating a new 15-percent minimum tax on large companies that report profits to investors, but no liabilities to the IRS.
Treasury Secretary Janet Yellen briefed House Democrats on the proposal on Tuesday. And Speaker Nancy Pelosi (D-Calif.) said Thursday that Democrats are hoping to move the entire package — infrastructure and tax provisions alike — through Congress and to Biden’s desk by August.
The president is open to policy suggestions from lawmakers in both parties, Pelosi said. “But it can’t be too small,” she added, “because what we’re talking about now needs to be transformative and it has to be big.”
Democratic leaders are seeking a delicate balance. While liberals in the party are supportive of massive new infrastructure spending — even pressing Biden to go bigger than his $2 trillion proposal — the party’s moderates are wary of both the size of the package and the effects on deficit spending.
“Does it really have to be a $2 trillion package at this moment? I don’t think that we should concede that,” said an aide to a centrist Democrat in the House. “At the very least, we should try to pay for as much of this as possible.”
They can afford few defections.
Pelosi has just a razor-thin majority in the House, made even thinner by the recent death of Rep. Alcee Hastings (D-Fla.). And the split is an even 50-50 in the Senate, where Sen. Joe Manchin, a moderate West Virginia Democrat, is already flexing his outsized influence in opposing Biden’s plan to raise the corporate rate to 28 percent.
Those internal frictions have not been overlooked by Republicans, who are fighting to make the tax package as uncomfortable as possible for centrist Democrats in tough battleground districts.
With that in mind, the Republicans this week are highlighting another report, sponsored by the National Association of Manufacturers, predicting that an increase in the corporate rate to 28 percent — combined with the elimination of several other corporate benefits — would cost the country 1 million jobs in just two years. And the Republicans’ campaign arm has pounced, launching a broad-based email campaign linking vulnerable Democrats across the country to the threat of heightened unemployment sparked by Biden’s proposal.
“No president has ever raised business taxes to rebuild an economy,” Rep. Kevin Brady (Texas), senior Republican on the Ways and Means Committee, told CNBC this week. “At the end of the day, we’re going to see slower hiring, [and] we’re going to see less investment in the U.S.”
Democrats remain undaunted. Infrastructure was among just three named policy priorities they’d championed on the campaign trail in 2018, when they won control of the House. And after COVID-19 relief, it remains the top domestic priority of Biden, who’s already using the bully pulpit in an effort to sell his plan to the public at large.
If the early debate is any indication, the Democrats’ pitch is going to lean heavily on the concept of “fairness.”
“You’ve got Amazon — whose entire business is built on having adequate infrastructure — and they paid 1.2 percent last year and zero [percent] the two years before that. And they made $30 billion,” said Yarmuth.
“That’s not fair in anybody’s book.”
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