Tuesday, April 6, 2021

Two, Three, Many Reconciliations

Janet Yellen, photo by Brendan Smialowski/AFP via Insider but I think it belongs to Getty.

Speaking of taxes, there is heartwarming tax news coming from everywhere all of a sudden, starting I guess from the Senate Parliamentarian, Elizabeth McDonough, who has ruled not just that the Senate is permitted to consider a second reconciliation bill this year (because the first one replaced the fiscal 2021 budget bill that the Trumpies and McConnell failed to work out last year) but actually three bills, meaning three more bills that can be passed with just 51 votes (48 Democrats, Sanders and King, and Vice President Harris and zero Republicans). 

I'm seeing very little coverage of why this is, from the usual suspects, where reporters either don't know or don't think it's interesting, at The Times, CBS, or even Vox, so I thought I should devote a few words to that, via Center for Budget and Policy Priorities:

Under Senate interpretations of the Congressional Budget Act, the Senate can consider the three basic subjects of reconciliation — spending, revenues, and the debt limit — in a single bill or multiple bills, but a budget resolution can generate no more than one bill addressing each of those subjects. In practice, however, a tax bill is likely to affect not only revenues but also outlays to some extent (for example, via refundable tax credits). Thus as a practical matter a single budget resolution can probably generate only two reconciliation bills: a tax-and-spending bill or a spending-only bill and, if desired, a separate debt limit bill.

What I'm wondering is if that last stricture is really true or if it's possible to write a tax-only bill too—for instance, in the CBPP example, why wouldn't they decide that "tax expenditures" are either spending or tax ("negative" tax like the EITC) rather than both? The taxes envisaged for the infrastructure bill aren't specifically tied to spending, I don't think, but for reforming the system as a whole, with the various provisions for reversing the 2017 Trump cuts in top marginal rates, in corporate taxes, and inheritance taxes. Other than that they're supposed to raise the whole $2.3 trillion. 

Since the tax-only bill would do exactly the opposite of increasing the deficit, it would be exempt from all the fussing about the Byrd rule on proposals that increase the deficit, so they could do that first; then, the revenue raised. move on to the infrastructure proper, and the education infrastructure, which is also spending, and to the Byrd rule fussing on those. This would enable them to do separate kinds of negotiations with the problem senators. meaning Manchin in particular, for each set of issues. I hope this will help clarify what's happening when it happens.

The second big piece of news is about Biden's proposal for a minimum corporate tax on foreign earnings, which I guess was 10.5% under the Trump law, and would be raised to 21%, to stop US multinationals from hiding their income in Ireland and places like that and paying nothing or next to nothing at all. (“We have 51 or 52 corporations from the Fortune 500 who haven’t paid a single penny a day for three years?” Biden said. “Come on.”) 

This kind of proposal always gets criticized from the right with the complaint that it makes the US less competitive, because other countries don't have to bear the same burden, but the Biden administration has an idea for that (CBPP again):

To encourage other countries to enact similar minimum taxes, the plan would deny certain deductions to non-U.S. multinationals with U.S. operations if they are headquartered in countries that don’t impose minimum taxes. Other countries should adopt minimum tax measures as well in order to ensure that companies’ decisions on where to locate and where to “book” their profits are not based on differences in countries’ corporate tax systems.

The United States can do a lot, on its own and in coordination with other countries, to discourage the corporate tax “race to the bottom,”[20] which refers to countries cutting their corporate taxes to encourage multinationals to locate within their borders. As Deputy Assistant Treasury Secretary Clausing put it, “the present moment is an ideal time to reform our international tax rules, since there is a strong international consensus around addressing these problems, and our action can encourage action abroad.”[21]

So yesterday Treasury Secretary Janet Yellen issued an appeal for this—

“Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids,” Yellen said in a virtual speech to the Chicago Council on Global Affairs. “It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods.”

—at a crucial moment, AP says, just before spring meetings of the World Bank and IMF, to join the pressure for such a system, which OECD has in fact been discussing without US participation for the past couple of years, another case of how "we're back" from the Trumpy isolation. Note how she seems to be specifically talking about raising money to pay for infrastructure in that quote. While everybody in our press is fretting over the details of whether to raise the basic corporate tax from 21% to 25% (Manchin's preference) or 28% (the rest of the known universe), 

And then meanwhile in New York State, where the state senate and assembly leaders seem to be giving Governor Cuomo a very tough time and the budget is five days late, we are suddenly contemplating the Holy Grail of a millionaire tax that Cuomo has been fleeing from for the last 11 years:

Those earning between $5 million and $25 million would be taxed on 10.3% of their income. That increases to 10.9% for those earning more than $25 million. And individuals raking in over $1 million and couples bringing in over $2 million would see tax rates climb from 8.82% to 9.65%.

These tax rates hit especially hard for New York City's highest earners. The city already has a top income-tax rate of 3.88%. If the budget proposal is approved, they would be shelling out between 13.5% and 14.8% in both state and city taxes, per The Times. That exceeds highest top marginal income tax rate in the country: 13.3% for top earners in California.

Good heavens. Which leads me back to yet another issue from the Biden tax plan, the question of whether we should reverse Trump's cap on the SALT tax deduction of amounts paid in State And Local Taxes from your federal tax return, which is as old as the US income tax itself, dating back to 1913; Trump limited the deduction to a ceiling of $10,000. There's been a certain amount of "populist" support for Trump's move, under the reasonable point that people paying more than $10,000 in state and local taxes don't really need to be subsidized by the IRS, although some of the populists in question seem to be old George Will:

An uncapped SALT deduction would almost entirely benefit very wealthy taxpayers in high-tax states and cities, and subsidize the growth of state and local governments by somewhat reducing resistance to their taxes.

That, you see, is the rub. Trump's move sounds to some people like an attack on rich people, but it's actually an attack on high-tax (and generally Blue) states, tempting their millionaires to move out of town to Texas or Arizona (who knows how much the move prompted Trump himself to abandon his native New York for Florida?). This is why getting rid of the cap is supported by a host of politicians from New York, New Jersey, and California, from relatively right (Long Island's Tom Suozzi and New Jersey's Mikie Sherrill, not to mention Chuck Schumer) to relatively left (Tom Malinowski/NJ, Rosa DeLauro/CT,  and Jackie Speier/CA, as well as Nancy Pelosi). 

They're saying, "Let us tax the millionaires too!" It's not just that suburbans paying over $10K in property taxes in New Jersey aren't, in point of fact, necessarily wealthy at all, it's even more that Blue states want to have high and highly progressive taxes, to provide the best public services, which is maybe part of why the states are doing as well as they are, so that these states were already sending considerably more money to the federal government in taxes than they get back in federal benefits, effectively big-time subsidizing low-tax states like Arkansas and Oklahoma, a disparity that Trump's SALT cap just makes all that much worse.

This week's breakthrough in New York State on the long-sought millionaire tax shows that we really mean it. And when the cap is repealed, as the intense backing from Schumer and Pelosi suggests it will be, just remember this (I love you, but I'm talking to you, Rep. Ocasio-Cortez): it's not that we don't want to tax the rich, it's that we want to get a chance to spend some of that money at home, if you don't mind.

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