Lobbyists, moderate Democrats rely on debunked arguments against tax hikes

Now that the Biden administration has decided to pursue tax hikes on corporations and the wealthy separately from a bipartisan $1.2 trillion infrastructure bill, lobbying groups have launched a full-court press to derail the tax increases. As Democratic leaders in Congress are hoping to pass the tax reforms through the budget reconciliation process that would require no Republican votes, lobbyists — including many ex-staffers from congressional Democrats’ offices — are focusing their efforts on turning moderate Democrats against Biden’s plan.

Sens. Joe Manchin (W.Va.), Bob Menendez (N.J.), Krysten Sinema (Ariz.), Mark Warner (Va.) and Jon Tester (Mont.) all expressed misgivings about the tax hikes in Biden’s bill, and will likely be the top targets for lobbyists. Many of the arguments against the tax increases being made to and in turn by these Democrats are rooted in the same outdated economic and political fallacies that were used to justify Trump’s 2017 tax cuts.

The justification for the 2017 tax cuts was that lower taxes on companies would create more jobs and enable growth. But according to a study from the Economic Policy Institute, companies paying minimal corporate taxes were actually more likely to cut their workforce. The report also showed no data to support the idea that lower tax rates encourage investments or broader economic growth. Even before the pandemic, President Trump’s 2017 tax cuts had failed to boost long-term corporate investment, spark hiring, boost wages or pay for the deficit it caused, though it did result in record stock buybacks.

In discussing his opposition to Biden’s tax increases, Manchin cited another common GOP refrain: raising taxes on corporations will make America less competitive. Yet this assertion is also unfounded. There is good reason to think that the infrastructure investments in Biden’s plan would offset the increase in taxes by encouraging investment in the U.S. and helping corporations grow. Faster and cheaper transportation options, a more educated and skilled pipeline of workers and greater access to broadband technology are all good things for businesses. Pairing a somewhat higher corporate tax rate with infrastructure spending would be a boon for — not a drag on — U.S. competitiveness.

Specious reasoning also underlies Democrats’ reluctance toward Biden’s proposal to raise the capital gains tax rate as part of his American Families Plan. Some investors claim that higher taxes will make them stop investing, but rich people are going to invest their wealth no matter the tax rate. They can either invest their money, make additional money, and pay taxes on whatever they make, or they can keep all their money in cash, make no additional money, and pay no taxes. No matter the tax rate, the first option is clearly superior. And in an economy where the top 0.1 percent, a group of people earning more than $3.8 million a year, netted nearly half of all capital gains income in the U.S. in 2019, a reassessment of how our tax code contributes to inequality is sorely needed.

On the politics alone, Democratic opposition to Biden’s tax increases is a massive mistake. Taxing the rich is a winning issue — recent polling indicates the majority of voters support Biden’s proposal to increase taxes on the wealthy and corporations to pay for investments in infrastructure. Meanwhile, Investor’s Business Daily, found that Biden’s capital gains tax hike is popular with both the general public and many investors.

It’s no secret Democratic opposition to Biden’s plan is at least in part a result of the influence of the party’s mega-donors, which is a bad look for a party that is trying to sell itself as the party of working people. Democrats choosing to serve these monied interests over those of the majority of Americans is exactly the corrupt elitist culture that Sen. Bernie Sanders (I-Vt.) and the more progressive wing of the Democratic Party have rightfully railed against for years. The divide between centrist Democrats and more progressive Democrats faded into the background when Biden won the 2020 election, but it’s still there, and by choosing to capitulate to Republicans instead of standing by Biden’s sensible proposals, they are driving the wedge deeper.

By caving to lobbyists and opposing Biden’s proposed tax increases, centrist Democrats in the Senate risk missing a crucial opportunity to maximize the upsides of taxing the rich. The policy and political benefits are clear — Democrats just have to get out of their own way.

Erica Payne is founder and president of the Patriotic Millionaires.