Biden Plans First Major Tax Hike Since 1993

By Yuval Rosenberg

Biden Names Sperling as Covid Relief
Czar

President Joe Biden on Monday tapped economist Gene Sperling,
who served as head of the National Economic Council in both the
Clinton and Obama administrations, to oversee implementation of the
newly signed $1.9 trillion Covid rescue plan.

Sperling’s job will be to ensure that the money gets distributed
quickly and in a way that maximizes its impact and minimizes waste.
“Gene will be on the phone with mayors, governors, red states, blue
states — a source of constant communication, a source of guidance
and support, and above all, a source of accountability for all of
us to get the job done," Biden said in announcing the appointment
from the White House.

The Sperling appointment comes as the administration launches a
multi-stop “Help Is Here” tour, with Biden, Vice President Kamala
Harris and their spouses attending events across
seven states this week to tout various elements of
the new Covid rescue package — and with the administration
reportedly mapping out a longer-term sales pitch as well.

Biden said that the country will reach “two giant goals” over
the next 10 days: 100 million Covid vaccine shots in arms and 100
million relief payments delivered. “Shots in arms and money in
pockets. That’s important,” Biden said. “The American Rescue Plan
is already doing what it was designed to do: make a difference in
people’s everyday lives.”

Why it matters: Biden is betting that, now that his
American Rescue Plan has been signed into law and its $1,400 direct
payments have started landing in people’s bank accounts, he can
convince the public that government can be a force for good in
their lives. To do that, his new law has to work — and, to maximize
its political benefit to Democrats, it has to be seen as
working.

"It's one thing to pass a historic piece of legislation like the
American Rescue Plan, and it's quite another to implement it. And
the devil is in the details. It requires fastidious oversight to
make sure the relief arrives quickly, equitably and efficiently
with no waste or fraud,” Biden said.

He later added: “We have to prove to the American people that
their government can deliver for them and do it without waste or
fraud.”

Biden used his speech Monday to slam the Trump administration’s
implementation of the March 2020 Cares Act, saying that its attacks
on accountability had resulted in the Paycheck Protection Program
for small businesses becoming a “a free-for-all for well-connected
companies” that left behind businesses that needed help the most.
“We will not let that happen this time, Biden said.

Sperling’s role, similar to cone that Biden himself had in
overseeing the Obama administration’s $800 billion stimulus plan in
2009, could be crucial in determining both how well the massive
Covid spending plan works and public perception of the law. “With a
flood of nearly $2 trillion in government spending, problems and
mistakes are always a possibility,” The Washington Post’s Tyler
Pager
says, “and Republicans will be on the lookout for
examples of misspent funds.”

Implications for OMB: Sperling had been
under consideration to lead the White House Office
of Management and Budget after Neera Tanden withdrew her nomination
for that post. But the idea of Sperling as budget chief “received
major pushback from the Hill, according to multiple sources
involved or aware of the discussions,” Politico’s Laura
Barrón-López and Ben White
write.

“Sperling found himself at odds with progressives in recent
years for his role in negotiations on various deficit reduction
efforts,” Barrón-López and White add. “But he has moved further
left in recent years, advocating for massively expanded spending to
fight Covid and assist an economy that remains around 11 million
jobs short of the number that would have existed without the
pandemic. When former Obama Treasury Secretary Larry Summers

penned an op-ed questioning whether the latest
stimulus was too large, Sperling was
quick to respond that he believed it was not.”

Sperling’s appointment as American Rescue Plan czar leaves
Shalanda Young, a longtime congressional budget aide and Biden’s
current nominee for deputy budget director, as the most likely pick
to head OMB. The White House has already said that, once confirmed
as deputy director, Young would likely be made acting director of
the budget office.

Biden Plans First Major Tax Hike Since 1993: Report

The Biden administration is turning to its next major
initiative, a long-term economic program that will involve both
substantial new spending and significant increases in taxes for the
first time in a generation, Bloomberg’s Nancy Cook and Laura
Davison
reported Monday.

“Unlike the $1.9 trillion Covid-19 stimulus act, the next
initiative, which is expected to be even bigger, won’t rely just on
government debt as a funding source,” Cook and Davison wrote.
“While it’s been increasingly clear that tax hikes will be a
component ... key advisers are now making preparations for a
package of measures that could include an increase in both the
corporate tax rate and the individual rate for high earners.”

The proposal will reportedly include public investments
infrastructure, green energy and education, as well as efforts to
strengthen the social safety net. At the same time, the Biden
administration will seek to reform the tax system to address
long-term challenges including declining federal revenues relative
to the size of the economy and growing inequality.

Biden’s proposed plan is expected to include:

* Repealing some parts of the 2017 Tax Cuts and Jobs
Act;

* Raising the corporate tax rate to 28%, up from its
current 21%;

* Increasing the personal income tax rate for those
earning more than $400,000 per year;

* Increasing the capital gains tax for high-income
investors;

* Expanding the estate tax.

White House economic adviser Heather Boushey said Monday that
Biden doesn’t intend to raise taxes on those earning less than
$400,000, a pledge that Biden himself made during that 2020
campaign. For those making more than that amount, many of whom have
done well during the Covid crisis, “there’s a lot of room there to
think about what kinds of revenue we can raise,” she told Bloomberg
TV.

Covering some costs, but not all: Estimates for the cost
of Biden’s still-developing spending bill start at $2 trillion and
move up quickly, with some analysts saying $4 trillion seems like a
likely final number. The tax increases, however, aren’t expected to
be as large. An analysis by the Tax Policy Center of Biden’s
proposed tax increases from his campaign platform said they could
raise a bit more than $2 trillion, but one former Biden adviser
told Bloomberg that Democratic lawmakers might settle on about $500
billion in tax hikes.

The Biden team is expected to argue that some types of spending
must be paid for but others do not, especially in an era of
persistently low interest rates. Changes to the safety net, such as
a permanent increase in the child tax credit, may be attached to
specific revenue increases, while investments that offer returns
over a long time horizon, such as infrastructure and energy
projects, may be financed by deficit spending.

Yellen wants deficit reduction, but not quite yet:
Treasury Secretary Janet Yellen said this weekend that whatever
form revenue increases may take, she wants to reduce the federal
budget deficit, though the timeframe is a little hazy. “Over time,
I expect that we will be putting forth proposals to get deficits
under control,” she said on ABC’s “This Week with George
Stephanopoulos.” Yellen added that the administration hasn’t
decided whether to push for a wealth tax, such as the one proposed
by Sen. Elizabeth Warren (D-MA).

Yellen said that she isn’t overly concerned with the cost of
running large deficits right now. “When I think about the burden of
debt, I think about it mainly in terms of the interest payments
that the government needs to pay,” she said. “And in spite of the
fact that the debt has increased substantially, interest payments
relative to the size of the economy have remained quite low. No
higher than they were back in 2007.”

As part of the effort to raise revenues to help pay for at least
part of Biden’s agenda, Yellen is working with other countries to
establish a global minimum tax on multinational corporations, The
Washington Post’s Jeff Stein
reported Monday. The pursuit of a minimum tax is
driven in part by concerns that companies will shift profits away
from the U.S. if corporate tax rates are increased. But there will
no doubt be powerful resistance to the effort, which is being
managed through the Organization for Economic Cooperation and
Development, and business interests including the U.S. Chamber of
Commerce are already lobbying against it.

A bipartisan effort? Biden and some Democratic lawmakers
want to make the next major economic package a bipartisan project,
but Republicans aren’t showing much interest in more spending or
tax hikes. Rep. Kevin Brady of California, the top Republican on
the House Ways & Means Committee, said that any effort to “to tax
investment of capital gains at marginal income rates” would be a
“terrible economic mistake.” Senate Minority Leader Mitch McConnell
(R-KY) said that following a “robust discussion about the
appropriateness of a big tax increase,” he expects Democrats to use
reconciliation to pass the next big bill, eliminating the need to
gain any GOP support.

Chris Krueger of Cowen Research said in a note Monday that
he expects the next big spending bill to play out much like that
last one: “Fiscal policy shifting into a new gear with the $1.9T
relief bill now in the rearview mirror BUT we suspect a very
similar road, ie we will have 3-4 weeks of bipartisan optics and
then Democrats will likely drop the reconciliation hammer once
Republicans object to tax increases or policies too ‘green’ on the
infrastructure side. Basically the sequel to the relief
process.”

Goldman Sachs Projects 8% Growth This Year

Analysts at Goldman Sachs are predicting that the American
Rescue Plan will help spur eye-popping economic growth this
year.

“We have raised our GDP forecast to reflect the latest
fiscal policy news and now expect 8% growth in 2021 (Q4/Q4) and an
unemployment rate of 4% at end-2021 — the lowest among consensus
forecasts — that falls to 3.5% in 2022 and 3.2% in 2023,” Goldman
economists said in a note Sunday, according to
Axios.

While Goldman’s outlook may be the most bullish on Wall
Street, many analysts agree that the U.S. will see growth unlike
any in many years. “The US economy is going to once again become
the global locomotive,” Gregory Daco, chief US economist at Oxford
Economics,
said. Daco, who expects the U.S. economy to grow
at a rate of 7% this year, added that the extraordinary expansion
“will help pull the rest of the world out of this Covid
crisis.”

IRS Failed to Collect $2.4 Billion in Taxes From Millionaires:
Watchdog

The Internal Revenue Service has failed to collect more than
$38.5 billion from taxpayers earning more than $200,000 a year —
and more than $2.4 billion from taxpayers with incomes over $1.5
million, according to a new
report from a Treasury Department watchdog
highlighted by Bloomberg News.

Bloomberg’s Laura Davison reports:

“Auditors were only able to recoup about 39% of the more than
$4 billion in unpaid taxes owed by a group of rich taxpayers with
an average annual income of nearly $1.6 million, the report found.
The findings suggest that the IRS should place more emphasis on a
taxpayer’s income when determining whether to pursue an audit case,
the Treasury Inspector General for Tax Administration said in the
report released Monday. …
“The findings are the latest in a series of government
accountability reports that recommend the IRS do more to pursue
high-income taxpayers after audit rates dipped to historic lows in
recent years. The dearth of examinations has prompted Democrats in
Congress to pursue legislation that would mandate higher audit
levels of businesses and wealthy individuals.”

The watchdog report made seven recommendations that it said
could help the IRS improve collection from wealthy taxpayers. It
suggested, for example, that the agency could use income
information to better identify taxpayers who can pay their
delinquent taxes.

The report found that many high earners owe little relative to
their incomes, but said that the IRS does not prioritize income
when deciding which cases to pursue, instead placing more
significance on factors such as the dollar amount of the balance
owed. “It is the IRS’s belief that it is effectively addressing
noncompliance by high-income individuals by focusing on the size of
the amounts owed,” the report said. “As subsequently shown, this
assumption is faulty.”

IRS management agreed with just two of the seven
recommendations but said it plans to evaluate its models and
consider additional income factors to improve its ability to
predict recovery of delinquent taxes.

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