Opinion

The Real Tax Man

The Tax Man cometh in America — and his name is Richard Neal. The House Ways and Means chairman isn’t the name in the headlines each day over the Democratic tax and spending agenda. But Neal (D-Mass.) and other tax writers are the people who matter. They hold the key (and pen) to what taxes come out of Congress.

That presents both good and bad news for the tax-wary.

First, the good news.

There are Democrats who view tax increases as a policy goal unto itself. Sen. Elizabeth Warren (D-Mass.) touts a wealth tax and corporate book tax. Even President Joe Biden, a so-called moderate, leans into tax populism, proposing $3.5 trillion in offsets to pay for his American Jobs Plan and American Families Plan. That’d be the largest non-war tax hike in U.S. history.

But Neal isn’t one of those Democrats. The running joke in Washington, D.C. is that whenever Biden releases a policy, Neal applauds the proposal but says nothing on the taxes to pay for it. He’s a Democrat who views tax increases as a means to an end.

What Neal is highlighting from his committee is using the tax code to spur anti-poverty policies, like the Child Tax Credit, and infrastructure financing, like Build America Bonds. He doesn’t support the 2017 Republican corporate tax cuts, but is concerned about corporate tax measures that could leave US multinationals at a competitive disadvantage.

Warren may have a larger online following and Biden has the bully pulpit, but Neal holds the committee gavel. That House gavel brings constitutional power.

Several Ways and Means Democrats share a similar tax mentality. It’s the nature of tax policymaking where many people care little about tax minutiae, but few people care a lot. Those few people happen to hold political clout. Despite powerful grassroots donor networks and the increasing stigma of accepting business PAC money in American politics, the average Ways and Means Democrat last election cycle received 50 percent of their total campaign donations from business PACs. That number was highest for some of the senior members, including Neal, who was the top House recipient of business PAC money from either party.

For Neal, there’s a system of equations involved in the problem he’s solving in helping pass a reconciliation bill that bypasses Republican votes in Congress with razor-thin Democratic majorities: minimize new taxes and maximize new spending.

That final tax figure will depend on multiple factors.

For one, Democrats need to decide how much they want to spend on a reconciliation bill. Biden’s AJP and AFP contain about $4.5 trillion in spending. Plenty of Democrats want to tackle both plans (and more) rather than separate them, given the risk of waiting until at least April 2022 to do reconciliation once again. But some moderates will leverage their votes to pare back the more progressive measures. There may also be bipartisan avenues on traditional infrastructure, as well as research and development and China competitiveness, that could reduce the spending in reconciliation. Less spending means fewer taxes.

Beyond the topline spending, there are other avenues for raising revenues without directly raising taxes, like increasing Internal Revenue Service funding and drug pricing reforms. Democrats could also expand the budget window for taxes beyond the spending budget window (e.g. 15 years of taxes vs. 10 years of spending) so the taxes they do propose appear to raise more money.

Finally, while inflation and inflation concerns have increased, long-term borrowing costs remain low. Some Democrats, like Neal, argue that this spending should be seen as “economic investments.” That’s code for not having to pay for it all.

But here’s the bad news.

The bipartisan infrastructure talks today that have sworn off new tax hikes are just the calm before the storm. One way or another, Democratic leadership is moving forward on reconciliation. Sen. Joe Manchin (D-W.Va.) was against reconciliation for the American Rescue Plan until he wasn’t. It’d be unwise to bet against Democratic leadership achieving party cohesiveness again.

Taking all the possibilities of minimizing taxes into account, Democrats probably will need to raise at least $1 trillion or 2 trillion of new taxes over a decade.

Neal’s quietness on taxes shouldn’t be taken as a sign he won’t raise them. It’s partially a strategic choice to keep dissent at a minimum. At 72 years old and with House Democrats underdogs to keep their majority after the 2022 midterms, this reconciliation package is a legacy marker for Neal and other high-ranking House Democrats. He’s not going to sacrifice his biggest spending priorities for the sake of minimizing taxes.

So taxes are coming. There’ll be Democratic infighting about the contours of them. The tax lobbyists will come out in full force. At the center of it all will be the quiet man with the powerful tax pen.

 

Ben Koltun is the director of research at Beacon Policy Advisors LLC, an independent policy research firm based in Washington, D.C.

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