GOP seeks new line of attack on Biden economic plans
Republicans are shifting their line of attack on President Biden’s economic plans as the administration sets its sights on an infrastructure package and accompanying tax hikes.
After warning that Biden’s $1.9 trillion rescue plan would overheat the economy and lead to rampant inflation, many GOP lawmakers are now arguing that the recovery is too fragile to withstand any tax increases.
Republicans are almost universally opposed to increasing taxes, and they made a nearly $2 trillion tax cut the centerpiece of their economic agenda during the Trump administration. GOP lawmakers are making no exception to that rule as Biden attempts to ride the momentum of a successful stimulus push to another major legislative win.
“No president has ever raised business taxes to recover from an economic crisis. This couldn’t come at a worse time,” said Rep. Kevin Brady (Texas), the top Republican on the House Ways and Means Committee, in a Friday interview on Fox Business.
Having failed to dent the popularity of Biden’s COVID-19 relief bill that was signed into law earlier this month, Republicans are hoping to raise compelling enough concerns about the state of the economy to turn moderates against the president’s next spending measure.
Making the case against Biden’s tax hikes, however, has required new GOP messaging on the state of the economy.
As Democrats pushed Biden’s rescue plan, Republicans insisted that spending nearly $2 trillion ahead of the post-pandemic rebound could spur rampant inflation and send borrowing costs spiking. While GOP lawmakers voiced some support for a targeted relief measure, they argued that Biden’s proposal was far too big for a country within months of herd immunity.
“There are a lot of warning signs that have not been worrisome in the past but now are certainly blinking yellow,” said Sen. Pat Toomey (R-Pa.) during a Senate Banking Committee hearing on Feb. 23. At the time, yields on Treasury bonds were spiking in anticipation of Biden’s relief bill boosting economic activity.
“At some point, we’ve got too much liquidity going into the system. The economy is recovering very, very well.”
The surprisingly strong gain of 379,000 jobs in February — twice the consensus estimate of economists — also gave Republicans more fuel for the campaign against Biden’s relief measure. Democrats, including top White House officials, downplayed the gain as a meager chunk out of the 9.5 million jobs claimed by the pandemic still left to replace.
Biden and congressional Democrats are considerably more bullish about the economy with the ink dry on his relief plan, which prompted economists to boost their projections for how quickly the U.S. will bounce back from the coronavirus-induced recession.
Beth Ann Bovino, chief U.S. economist at S&P Global Ratings, said her firm expects U.S. gross domestic product to grow 6.5 percent in 2021, the fastest pace in 35 years.
“Where we are today, the economy looks to be getting a nice bounce, particularly tied to the stimulus,” she said.
Republicans, however, have argued that the economy is now too fragile to handle tax increases, just a month after insisting it was expanding too quickly to handle Biden’s stimulus bill without overheating.
GOP lawmakers peppered Treasury Secretary Janet Yellen with concerns about the potential impact of Biden’s likely tax hikes on the pace of the recovery during back-to-back appearances before congressional committees last week. Biden is expected to propose raising the corporate income tax rate back to 28 percent and increasing individual income taxes on high-earning households.
“Why, as this country begins to reopen and recover economically, would the Biden administration be proposing tax policy which would in the end hurt the American family and millions of struggling small businesses?” asked Rep. Ann Wagner (R-Mo.) of Yellen during a House Financial Services Committee hearing last week.
Yellen countered that the impact of corporate tax hikes on consumer prices is unclear despite extensive economic research and said it’s essential for the U.S. “to raise revenues in a fair way to support the spending that this economy needs to be competitive and productive.”
To be sure, Republicans have been critical of tax hikes for long before the pandemic and have argued that Biden’s proposals would be bad for even a strong economy. Researchers at the Tax Foundation, a right-leaning think tank, said their analysis found that Biden’s proposed corporate tax hike would reduce long-run economic output by 0.8 percent.
Will McBride, the Tax Foundation’s vice president of federal tax and economic policy, argued that raising revenue through user fees on infrastructure and working to spur more private infrastructure investment would be more cost effective than Biden’s likely plan.
“We find it to be a net negative for the economy, depending on the particular type of tax,” McBride said of Biden’s approach.
Whether Republicans can drum up enough opposition to Biden’s plan could play a significant role in the 2022 midterm elections.
Democrats are hoping to expand their slim House and Senate majorities and avoid the usual midterm losses new presidents face by snuffing out the pandemic and delivering another major boost to the economy. Raising taxes on the wealthy is also politically popular, posing another challenge for Republicans to overcome.
Economists are generally confident that the rebounding economy can handle the scale of tax cuts Biden has proposed, even without a significant infrastructure-driven growth spurt.
“Raising taxes on corporations and the well-to-do next year is not going to dent the economy’s growth rate in any meaningful way,” said Mark Zandi, chief economist at Moody’s Analytics.
“It’s not going to be discernible because of all the other sources of growth in the economy over the next 12 to 24 months, so I’m not at all worried about it.”