Congress should pass full Biden tax package

The full House and Senate are about to take up President Biden’s $3.5 trillion infrastructure reconciliation bill. If passed, it will represent the biggest investment in the economic security of America’s middle class in a half-century. Just as important but less examined is Biden’s $3.5 trillion tax plan, which would help reverse America’s income imbalance and ensure the spending initiative does not add to the deficit. But some Congressional Democrats have expressed concerns about the size of the tax plan — due largely to fears about the electoral consequences of voting for them.

But significantly reducing the size of the tax plan, which some Democrats support, would lead to one of two bad outcomes: either some of the most important benefits in the reconciliation bill will have to be cut to match the smaller tax increase or the reconciliation bill will just add to the debt.

Fortunately, there are powerful policy and political arguments which should persuade every American, including every Congressional Democrat, to support a tax hike as close to $3.5 trillion in size as possible.

First, Biden’s tax hike would restore fairness to our economy by reversing our nation’s growing wealth imbalance: 40 years ago, the richest 1 percent owned 24 percent of America’s household wealth — they now hold 32 percent. During that same period, the household wealth owned by the bottom half has dropped from 5 percent to 2 percent. That huge disparity has continued to grow dramatically over the last four years thanks to Trump’s $1.9 trillion tax giveaway to the rich, the impact of the pandemic, and a soaring stock market.

Such a wealth gap corrodes our national fabric by hurting economic growth and encouraging polarization and societal discontent. Biden’s plan, which only affects taxpayers making more than $400,000 annually, would raise the top income tax rate from 37 percent back to its 2017 level of 39.6 percent and eliminate capital gains tax breaks for households earning more than $1 million. He would make it harder for major corporations to hide their American-based profits overseas and would give the IRS the tools to crack down on the wealthiest tax cheats.

Second, failure to pay for the plan will add billions in additional public debt which will eventually trigger dramatic spending reductions on programs impacting those who can least afford the cutbacks. Why? As the debt continues to build, Congress will eventually be compelled to pass one or more major deficit-reduction packages to make its size more manageable. I have seen this dynamic in action as the House Budget Committee Democratic staff director for 20 years. The last deficit reduction initiative in 2011, for example, imposed almost $1 trillion in cuts to discretionary spending, which threatened programs like WIC, Head Start, Pell grants, and veterans’ health care.

Third, increased government borrowing eventually leads to higher debt service, interest rates and inflation. High inflation hurts seniors and others who live on fixed incomes. It also hurts the middle class who must pay higher prices for food, gas, and clothing. By contrast, the wealthy protect themselves during inflationary periods by buying stock and real estate whose values frequently rise during inflation. Higher interest rates also hurt the middle class, many of whom pay credit card debt and struggle to pay higher mortgage costs. Higher debt service squeezes all other parts of the budget.

Aside from these policy arguments, there are at least two good political reasons to support a tax package close to $3.5 trillion. First, with both the 2022 and 2024 elections likely to be close, an inflation spike could be fatal to Democrats’ chances of holding the Congress and the presidency. Second, requiring the rich and big corporations to pay their fair share conveys a popular, populist message appealing to many voters.

According to a recent poll conducted by Hart Research, more than two-thirds of Americans (69 percent) support tax increases on the rich and big corporations.

The good news is most leading Democrats support Biden’s tax reform plan. But the outcome is still in doubt. The American people need to send a strong message to wavering Democrats that such a step is both good policy and smart politics.

Thomas S. Kahn was the Democratic Staff Director of the House Budget Committee from 1997-2016. He currently teaches about Congress and the federal budget at American University where he is a distinguished fellow with the Center for Congressional and Presidential Studies.