The Tax Hikes Tucked Into Biden’s Covid Relief Plan

The Tax Hikes Tucked Into Biden’s Covid Relief Plan

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Plus, Biden's blitz to sell his stimulus
Thursday, March 11, 2021
 

Biden Plans a Blitz to Sell His Stimulus

President Joe Biden signed a sweeping economic package into law Thursday, a day earlier than originally planned and just a few hours before addressing the nation to promote the massive relief effort.

The signing of Biden’s first legislative victory came exactly one year after the World Health Organization declared the Covid-19 outbreak a pandemic. The bill, passed without any Republican support in Congress, adds another $1.9 trillion to the federal response to the coronavirus crisis, pushing total spending to roughly $5.5 trillion over the last 12 months.

White House Chief of Staff Ron Klain said the signing was done ahead of schedule in order “to move as fast as possible,” and the new law would be celebrated at the White House with congressional leaders on Friday.

Relief payments of up to $1,400 per person could start flowing within a few days, Press Secretary Jen Psaki said, with direct deposits arriving as soon as this weekend and continuing for the “next several weeks.”

Selling the package: The White House is confident that the bill will continue to be popular. “You don’t actually need to go sell this bill,” White House adviser Anita Dunn told The Washington Post. “It’s one of the few bills that has become more popular as it moved through Congress, not less. We don’t need to convince people that Americans need help; we need to tell them how they can get that help.”

Still, Biden plans to spend the next few weeks promoting the relief package to the American people. As part of that effort, the White House unveiled a new website to celebrate the legislation and to help people learn about the benefits it provides.

The president will hit the road next week, traveling to Pennsylvania on Tuesday and then to Georgia on Friday, where he will be joined by Vice President Kamala Harris. The vice president will travel on her own earlier in the week, stopping in California, Colorado and Nevada as part of the public relations campaign. The White House also plans to have administration officials, mayors and governors appear on local TV all over the country to talk up the relief plan, Reuters reported.

The promotional effort is driven in part by memories of the Great Recession in 2009, when President Obama spent little time selling his roughly $800 billion stimulus program to the American people. Biden officials see that lack of public relations as a mistake, one that helped Republicans take back the House the following year.

“We didn’t do enough to explain to the American people what the benefits were” back in 2009, Psaki said Wednesday.

A different era? Presidential historian Thomas Alan Schwartz told Reuters that the bill’s popularity could help Democrats avoid the fate of losing seats in Congress in the mid-terms following a presidential victory. “I think it could lead to a very positive aura to the presidency and to this sense that it’s ‘morning again in America,’” he said.

Republicans signaled their negative communications strategy on the legislation this week, downplaying its effectiveness while portraying as a leftist threat. “Democrats inherited a turning tide,” Senate Minority Leader Mitch McConnell (R-KY) said Tuesday. “The vaccine trends and economic trends were in place before this bill was ever voted on, before this president was sworn in. But they’re determined to push to the front of the parade with this effort to push America to the left.”

The Tax Hikes Tucked Into Biden’s Covid Relief Plan

Democrats inserted three tax hikes on the wealthy and large corporations into their $1.9 trillion Covid rescue plan. Together, the three increases are projected to raise $60 billion, Politico’s Brian Faler writes:

“One takes away deductions for publicly traded companies that pay top employees more than $1 million. Another provision cracks down on how multinational corporations do their taxes. A third targets how owners of unincorporated businesses account for their losses. …

“The tax increases Democrats picked to help keep their plan’s cost in check had the political benefit of being arcane. Unlike things like raising the corporate tax rate or upping the top marginal tax rate on the rich, the ones they chose won’t produce many headlines.”

Tax breaks for individuals: Of course, as we noted earlier this week, the Biden plan includes a host of tax benefits as well — including direct payments of up to $1,400 per person and an expansion of the Child Tax Credit and Earned Income Tax Credit. Congress’s Joint Committee on Taxation estimates that the plan will cut taxes by about $467 billion in 2021 and about $590 billion over 10 years.

In all, the Biden relief plan will reduce federal taxes in 2021 by more than $3,300 and raise after-tax incomes by 4.1%, according to an updated analysis released Thursday by the Urban-Brookings Tax Policy Center. That’s about double the average first-year tax cut under the 2017 Trump tax law.

The income-boosting effects of the Biden cuts are heavily tilted toward lower-earning households. Households making $91,000 or less will get nearly 70% of the tax benefits, the Tax Policy Center said, and after-tax income for the bottom 20% of earners — households making $25,000 a year or less — will rise by more than 21% on average. By contrast, low- and middle-income households received about 17% of the 2017 law’s tax benefits, and low-income households got a 0.4% tax cut on average.

Rejecting Reaganomics: Combined, Biden’ tax cuts for individuals and tax hikes for businesses highlight Biden and Democrats’ focus on fighting inequality — and signal a sharp break from both Trump’s economic approach and that of Ronald Reagan. “Biden is basically pulling a George Costanza on Reagan with this bill: Do the opposite of Reaganomics,” NBC News’s Sahil Kapur tweeted Wednessday night. “Instead of easing burdens for upper earners and counting on that to deliver broad benefits, he’s sending cash to low-income people and counting on them to boost the economy.”

The challenge ahead: The tax cuts in Biden’s plan are either one-off provisions, like the latest round of direct payments, or set to expire at the end of the year, unlike the individual income tax cuts in the 2017 GOP law, which were set to expire after 2025. Democrats have made clear that they want to make permanent key elements, like the expanded child credit. And Biden is already planning a multi-trillion-dollar infrastructure bill.

“[T]he real test for Democrats — who promised stiff tax increases on the rich during last year’s campaign — will come later, when they face demands to pay for something big like Biden’s plans for a major infrastructure package,” Faler writes.

Those demands have already started. Some centrists are expressing growing unease about adding trillions more to the federal debt, and say they want to make sure that additional spending is paid for one way or another.

“At some point we’ve got to start paying for things,” Sen. Angus King (I-ME), who caucuses with the Democrats, said this week. “It’s got to be paid for. It’s just a question of who pays. Are we going to pay or our kids going to pay?”

Sen. John Tester (D-MT) also said that he wants at least some of any new spending to be paid for, with the costs covered by a potential mix of spending cuts and tax increases. “You’re going to remind me of this [later] when none of it’s paid for,” he joked with Politico’s Sarah Ferris and Burgess Everett, “but I do think some of it needs to be paid for.”

House Budget Chair John Yarmuth (D-KY) told Ferris and Everett that while he assumed an infrastructure package would include some means of paying for new spending, the sheer size of the eventual bill – estimates start at $2 trillion and move up to twice that – would make it impossible to pay for it all. “I think that’s unrealistic, given what everyone assumes the size of this is going to be,” Yarmuth said.

At the same time, any tax increases that could be proposed to help pay for those future plans could meet with intense resistance.

Still, it’s clear where Biden and Democrats are likely to turn for more revenue, based on the changes in the relief plan. “Clearly it’s a signal that Democrats will look to high-income people and large corporations for revenue for the investment package to come,” Seth Hanlon, a senior fellow at the liberal Center for American Progress, told Politico.

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