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Biden Preparing a $3 Trillion Spending Plan: Reports
President Joe Biden’s economic advisers are preparing a sweeping $3 trillion spending plan that would focus on jobs, infrastructure and climate change but also include a range of other policy priorities, according to reports Monday in The New York Times and The Washington Post.
The advisers reportedly are set to propose splitting the plan across two bills instead of pursuing one giant package, though the details — including the final cost — are still in flux and it is unclear whether Biden will sign off on that strategy.
The Times’s Jim Tankersley reports:
"The first legislative piece under discussion, which some Biden officials consider more appealing to Republicans, business leaders and many moderate Senate Democrats, would combine investments in manufacturing and advanced industries with what would be the most aggressive spending yet by the United States to reduce carbon emissions and combat climate change.
"It would spend heavily on infrastructure improvements, clean energy deployment and the development of other ‘high-growth industries of the future’ like 5G telecommunications. It includes money for rural broadband, advanced training for millions of workers and 1 million affordable and energy-efficient housing units. Documents suggest it will include nearly $1 trillion in spending alone on the construction of roads, bridges, rail lines, ports, electric vehicle charging stations and improvements to the electric grid and other parts of the power sector. …
"The second plan under discussion is focused on what many progressives call the nation’s human infrastructure — students, workers and people left on the sidelines of the job market — according to documents and people familiar with the discussions. It would spend heavily on education and on programs meant to increase the participation of women in the labor force, by helping them balance work and caregiving. It includes free community college, universal pre-K education, a national paid leave program and efforts to reduce child care costs."
Questions about offsetting costs and legislative strategy: The expected $3 trillion in proposed spending does not include the cost of extending newly enacted temporary tax cuts aimed at fighting poverty and reducing inequality, meaning that the ultimate price tag could still grow by hundreds of billions of dollars.
As is always the case when it comes to infrastructure, how to pay for the proposed spending is sure to be a point of contention.
Biden administration officials reportedly have considered offsetting at least some of the infrastructure spending through tax hikes on corporations, but any such proposal is likely to be dismissed by Republicans. "I don’t think there’s going to be any enthusiasm on our side for a tax increase," Senate Minority Leader Mitch McConnell (R-KY) said last week.
Biden and congressional Democrats may have to decide whether to try to forge a compromise with Republicans, and potentially scale back the corporate tax increases, or again look to use the budget reconciliation process that enabled them to pass the $1.9 trillion American Rescue Plan without any GOP support.
"Administration officials are considering offering to extend some 2017 tax breaks that are set to expire, like the ability to immediately deduct new investments, as part of their plans in order to win over business support," Tankersley writes.
Administration officials reportedly are also considering options for offsetting the cost of making new tax cuts permanent through steps that would reduce other federal spending, such as allowing Medicare to negotiate drug prices, or by raising the top individual income tax rate from 37% back to 39.6% — and, perhaps, by lowering the threshold for that top rate for individuals from north of $500,000 to $400,000.
The Congressional Budget Office estimated last year that a Democratic bill to lower prescription drug costs could save the government about $450 over 10 years.
Why it matters: The Biden White House is again going big, but as the Post’s Jeff Stein and Tyler Pager write, there remains a divide among Democrats on what the administration should do next:
"Democrats’ left-flank is clamoring for the party to use its rare hold on power in Washington to approve long-held policy goals, from an expansion of health care to action on climate change. Democrats’ centrist wing, however, has expressed repeated unease about the party-line vote over pandemic relief, and has pushed for a return to bipartisan policymaking. That could complicate passage, particularly through the Senate, of any major Biden infrastructure package."
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What the Top 1% Are Hiding From the IRS
Tax evasion among the wealthiest Americans is more substantial than previously estimated, according to a new paper published by the National Bureau of Economic Research.
The analysis by a team of academic and federal researchers finds that the top 1% of taxpayers fail to report about 21% of their income to the IRS. This misreporting is largely by design, the product of sophisticated strategies by wealthy households to avoid paying taxes. For the richest 0.1%, the numbers are even more significant, with unreported incomes nearly twice as large as previous IRS estimates indicated.
Two key strategies to avoid taxation involve the use of offshore accounts and pass-through businesses, both of which are "quantitatively important" to households at the top of the income ladder, the researchers said. Random audits by the IRS often fail to detect income hidden within those structures, and the problem appears only to be getting worse.
Overall, the report estimates that unpaid income tax for in the top 1% totals at least $175 billion per year.
"There is more revenue than you might have thought at the very top," Daniel Reck of the London School of Economics, one of the paper’s five authors, told The Wall Street Journal.
A taxing proposal: One major problem for the IRS is that the agency has no good way to verify business income. Wage earners receive W-2 forms from their employers, which capture more than 90% of wages paid and greatly reduce the ability to cheat, but there is no such system for businesses. Two years ago, the IRS estimated that more than half of all business income goes unreported, leaving billions in profits, rent and royalties untaxed each year. Those missing taxes form the biggest chunk of the $600 billion the IRS says goes unpaid every year.
A potential solution to the problem is to create something like a W-2 system for businesses. The New York Times editorial board made the case for such an option, building on a proposal from Charles Rossotti, who led the IRS from 1997 to 2002. Rossotti argued that simply assigning more investigators to examine the tax returns of the wealthy is insufficient. Instead, he proposed that banks should send annual income statements for businesses to the IRS, similar to the 1099 forms sent to investors every year.
Interestingly, such a system wouldn’t change the amount anyone owes in taxes. All it would do is create a system that makes it harder to cheat. "It would have the immediate benefit of scaring people into probity," the Times said.
By way of instructive comparison, the Times noted that starting in 1986, taxpayers for the first time were required to provide Social Security numbers for all those being claimed as dependents. As a result, about 7 million children disappeared from the nation’s tax returns in just one year.
The Times also called for a big increase in funding for the IRS, which has faced crippling budget cuts over the last decade. An analysis published last fall by Rossotti and two co-authors, former Treasury Secretary Lawrence Summers and University of Pennsylvania law professor Natasha Sarin, argued that a $100 billion investment in the tax agency over 10 years would enable the IRS to collect $1.4 trillion in unpaid taxes over 10 years.
"The logic of such an investment is overwhelming," the Times said. "The government can crack down on crime, improve the equity of taxation — and raise some needed money in the bargain. There are many proposals to raise taxes on the rich. Let’s start by collecting what they already owe."
Growing interest in taxing the rich: In addition to closing loopholes and beefing up enforcement, President Biden’s economic team has been pushing more aggressively to raise taxes on the wealthy, spurred by data showing that those on the upper rungs of the economic ladder have done very well during the Covid-19 pandemic (see the chart below), Bloomberg’s Nancy Cook reports Monday. The revenues raised by the new taxes will be used to help those in the middle and at the bottom who have been left behind, both during the coronavirus crisis and over a longer period stretching back decades.
Biden has hired several advisers who have written extensively on how to go about taxing the rich, including New York University Law School professor David Kamin, who now serves as deputy director of the National Economic Council. Kamin told Bloomberg that the administration is currently considering a number of options, including a minimum tax for big businesses, raising the capital gains tax rate and removing the "step-up basis" on estates that allows long-term capital gains to go untaxed when passed onto heirs.
Passing these reforms "would be major accomplishments, which would pretty fundamentally shift how our tax system treats the richest Americans and the largest corporations so they can’t escape tax in the ways they now can," Kamin said.
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A Look Ahead at the Defense Budget Under Democrats
CQ Roll Call’s Andrew Clevenger takes an insidery look today at how the two new Democratic chairs of the House and Senate Defense Appropriations subcommittees — Rep. Betty McCollum of Minnesota and Sen. Jon Tester of Montana, respectively — may affect the Pentagon’s $700 billion budget. What you should know: Dov Zakheim, a former Pentagon comptroller in the George W. Bush administration, tells Clevenger that early signs point to the budget staying relatively flat next year because the White House won’t want to start a fight over defense spending as it tries to advance other elements of its agenda. "In those sorts of circumstances, you’re not seeing major plus-ups for aircraft or ships or things of that sort," Zakheim says. "You’ll see plus-ups for artificial intelligence, for cyber and quantum computing. But those aren’t massive, multizillion-dollar programs." |
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