Tuesday, September 7, 2021

Playing Position



Shana Tova and happy Labor Day! I'm upstate enjoying some R&R including some woods (lovely, dark, but fortunately not that deep), and trying not to worry about the Wall Street Journal story, of which I've only seen Steve's report, suggesting that the Democrats are going to give up on tax justice as they work through the reconciliation instructions to spend that $3.5 trillion, which I'm guessing (see above) wouldn't make them feel too sad over at WSJ. 

Nobody else seems to have been picking up on it—I mean, within our own bloggy circle, or out there in the magazines we read—and it's consistently remarkable how little discussion there is anywhere of the tax side of the Biden program, which I myself, as you know, am obsessed with. That is, I get why Democrats might be leery of talking about it, knowing how Republicans would be inclined to manipulate the discussion, as they normally do, making it sound like everybody's taxes are set to go up, as opposed to a relatively small portion of the top 2% (an individual earning $387,116, where the 98th percentile starts, won't see a rise in income tax, nor will a couple in the 99th percentile at $531,020; and you have to be earning $1,000,000 to get hit by the rise in the capital gains tax to a marginal rate of 39.6%). But Republicans aren't on the whole talking about it either, not the politics of it, neither concern trolling ("our Democrat friends will regret this gigantic assault on the middle class") nor handicapping its chances in Congress in the way WSJ just broached.

But a bit of the latter did come out at the relatively conservative The Hill on Saturday, with a discussion of "Five Tax Issues to Watch" as the House Ways and Means crafts its text on the subject for the reconciliation bill this week. That included stuff on the tax expenditures—the child tax credit from last spring's Covid relief bill is supposed to be made permanent, and the cap imposed under Trump on the federal income tax deduction for state and local taxes (SALT) should be raised to make it less of a punishment on the middle class and on high-tax state governments—as well as the proposals for increasing taxes on corporations, from 21% to 28%, and the very wealthy, with the new marginal rates and the capital gains provisions (which are in a way the most important to me as a direct attack on wealth as opposed to income).

An interesting detail in the coverage in The Hill is the way it reports sources of dissension in the party:

Some moderates have indicated that they want a smaller [corporate tax] rate increase than what Biden has proposed. Notably, Sen. Joe Manchin (D-W.Va.), a key moderate, has said he would prefer a corporate tax rate of 25 percent....

Some Democratic lawmakers would prefer a smaller increase in the capital gains rate. For example, Manchin has said he’d prefer an increase to 28 percent.

Manchin isn't the only member questioning any proposals (in particular everybody seems to agree on the need to apply capital gains tax to the "stepped up" value of gifts and estates, but some want much higher exemptions than the proposed million dollars), but he's the only one who gets named. The other thing is that his objections in particular don't look like anything he hasn't been saying for months—they aren't news—and they honestly don't even look that bad, assuming that he's not putting his foot down on those numbers but establishing a negotiating position. 

Now we're hearing a voice from the left on Manchin (who laid down his own gauntlet in the Wall Street Journal on Friday) and the Biden tax proposals in particular, David Dayen at TAP, who is wondering, as I have wondered, why Manchin professes to be so concerned about the bill's inflationary impact when it's clearly designed not to have any inflationary impact: not only through the tax provisions that will make borrowing unnecessary, but also, Dayen says, because the spending provisions are also anti-inflationary:

More than half of the reconciliation bill attempts to take the biggest drivers of the increase in cost of living in American life over the past 40 years—health care, education, and housing—and bring those costs down for working families. These costs in particular have been the greatest hurdle to upward mobility and a sustainable middle-class lifestyle. The bill is singularly oriented toward reducing those costs.

Dayen suspects Manchin just isn't being honest about that, or about his objections to the climate change provisions in the package:

Manchin’s real problem is that he wants to make the bill more inflationary, in the name of preventing inflation.

That’s because the bill pairs spending initiatives with tax reform, aimed at rolling back some of the Trump tax cuts and increasing taxes on corporations and the wealthy. We don’t know how many tax increases will be in there—Manchin and his ideological allies inside and outside Congress are resisting those to the degree that the party is considering some level of deficit spending—but it’s a pillar of the legislation. Other savings come from Medicare negotiation with prescription drug companies, which has led to pharma companies enlisting building trades union allies in their opposition.

The thing about these tax reforms and drug price reductions is that they are extremely popular. Adding tax increases makes the various infrastructure bills under consideration more popular, in fact. Manchin and his Republican colleagues made sure that the bipartisan infrastructure bill had no tax changes of any kind. He’s been murmuring about trimming tax reform for months. But now he doesn’t want to make a frontal assault on behalf of the rich people and corporate executives who fund political campaigns. So he talks about deficits and inflation, which have no real application to this legislation, to hide the ball on his real goal.

Which sounds right to me, certainly, as far as it goes—that has to be what's behind the bullshit about inflation. But I don't think it's time to start worrying that he's going to tank the bill, or even the tax reform part of it, partly because of something Josh Marshall was pointing out last week:

So what’s Joe Manchin up to? I don’t know exactly. It certainly sounds like he is threatening to upend the Democrats entire legislative agenda and probably doom Biden’s presidency in a bid to dramatically scale back the budget reconciliation bill. How much lower than $3.5 trillion that means I have no idea. But it sounds like he means by a lot? Down to $2 trillion, $1.5 trillion? This is a positioning statement, like basically everything Manchin does, and subject to haggling and negotiation, like every position he stakes out. But certainly progressives will refuse to vote for his prized bipartisan mini-bill if this is what he plans to do. And they’ll be right to do so. There was a cross party deal: both factions support both bills. So no reconciliation bill, no bipartisan mini-bill. No nuthin.

If we understand Manchin as staking out a position, as a practitioner of a Trumpian art of the deal, I think we can see that he doesn't in fact want to tank the reconciliation bill at all. He certainly wants to influence it, by these maneuvers, to the benefit of his donors, to gain concessions from the progressives on the tax reform, but that's not the only battle he's engaged in. He's also thinking about his West Virginian voters, who will benefit hugely from the child tax credit, the healthcare savings, even  the green jobs proposals (the coal industry in the state now supports about 4,400 jobs in West Virginia, Dayen reports, or quite a bit less than 1% of the state's total workforce). That's why he's lying to them about inflation, as he works to reduce the bill's taxation of the very rich, because he really does want them to stick with him. But for that purpose he does want to vote for the final bill.

So I'm still optimistic about the reconciliation. Maybe the corporate tax will end up set at a compromise of 26 or 26.5%, maybe the capital gains marginal rate won't be quite so high, but we're going to get a very big bill all the same, whatever WSJ says, and it won't merely be cutting child poverty in half, but also giving Democrats something really positive to campaign on in 2022 (when Manchin's up for reelection).

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