The Hill, a newspaper covering Congress, reports that business lobbyists are pleased that they have watered down President Biden’s proposed tax increases on corporations and wealthy individuals. One source, identified as “a lobbyist with ties to Senate Democrats,” tells The Hill, “The business community has made progress with certain Democrats on legitimate policy concerns with some of these proposals and their implications on the economy and international competitiveness.”
What are those policy concerns that have successfully swayed moderate Democrats? The article does not specify. We have the lobbyist’s assurance that they are “legitimate.” Though this may come as a shock, there is no actual requirement that lobbyists only advance legitimate policy concerns. They are perfectly free to advocate completely self-interested policy concerns as well. Indeed, this unsavory practice has been known to happen from time to time.
What’s more, if the business lobbyists did happen to be pushing bad policy arguments simply because those arguments benefited the people who pay them, they probably wouldn’t admit this to a newspaper. Instead, they would likely claim in public that their policy concerns are beneficent, even if they are, in fact, utterly venal.
I don’t mean to pick on The Hill, a paper that has supplied coverage of the Biden agenda that is in many ways superior to that found in bigger publications. Media catering to Capitol Hill insiders, like The Hill, have at least paid close attention to a significant development that has gained only fleeting notice in broader venues: Moderate Democrats have slashed President Biden’s progressive tax agenda.
Biden campaigned on a proposal to increase taxes on the wealthy by roughly $3.5 trillion over a decade. Nobody in Washington currently believes he will sign a tax hike anywhere close to that magnitude. The current predictions floating around — Politico’s tax newsletter is one publication that has used this estimate — peg the total at around a trillion, give or take.
The most striking thing about the decision by moderate Democrats to scale back Biden’s plan by some three-quarters is that we have no idea what the rationale is.
According to The Hill, the lobbyists have argued that Biden’s plan “would slow the U.S. recovery from the coronavirus recession.” It’s not clear what basis they have for this conclusion. If mainstream economists believe Biden’s tax hikes would imperil the recovery, they aren’t saying so publicly. (As economists like Larry Summers did when they loudly warned that Biden’s rescue plan would overheat the economy.)
When the conservative American Enterprise Institute ran the numbers on Biden’s full tax-increase proposal, it found a negligible effect on economic growth: reducing GDP 0.16 percent over the next decade, increasing GDP by 0.19 percent in the following decade, and reducing it by 0.18 percent over the longer run. All those numbers are so tiny they are rounding errors, tantamount to zero.
One of the most “persuasive” arguments, at least judging from its results, is the lobbying campaign to preserve a notorious loophole called “stepped-up basis,” or, more colloquially, “the angel of death loophole.” Here’s how this loophole works: Normally, if you sell an asset, like a stock, you pay tax on the profit. If you bought $1,000 worth of GM stock, and sold it for $2,000, you’d pay taxes on the $1,000 capital gain. However, if you die and pass the asset on to your heirs, then all the gains that occurred before you die are wiped from the books (hence, “angel of death”). Your heirs will only pay tax on the gain that occurred after they inherited the asset.
This exemption allows half of all capital gains to avoid any taxation, ever. The loophole is considered so ridiculous that conservatives often propose eliminating it as an alternative to increasing the estate tax. (Jeb Bush and Mitt Romney have both advocated eliminating the angel of death loophole.) Biden is proposing to eliminate the loophole, with the exception of a generous $1 million exclusion. (Most capital gains belong to staggeringly wealthy fortunes worth well over $1 million.)
Former Democratic senator Heidi Heitkamp is leading a lobbying campaign on behalf of wealthy benefactors looking to save the angel of death loophole. Heitkamp tells The Hill, with a straight face, that the loophole is vital to protect “an emerging entrepreneurial class within the Hispanic community and within the African American community, [who] won’t be able to take advantage of these tax rules” if it is eliminated.
Biden’s proposal includes protections for family-run businesses. That does not satisfy Heitkamp, who argues (in The Hill’s wording) that “many Americans may think that wealthy and well-connected people will most likely benefit from any exemptions.” And so, in the name of Americans who are cynical about well-connected people benefiting from special exemptions, Heitkamp insists we keep in place a notorious loophole that almost exclusively benefits massively wealthy heirs.
Heitkampf is also so committed to combating cynicism that she has declined to disclose the identities of her group’s donors. We can probably assume that they’re mostly the hard-scrabble Black and Latino small business owners she talks about so movingly.
In place of any well-articulated public rationale, the moderate Democrats have instead put forward a transparently disingenuous pretext that their goal is to sign the infrastructure bill as fast as possible. The ten House Democrats, led by Josh Gottheimer, have insisted their goal in opposing the House budget is to get shovels into the ground as quickly as possible. “No Labels,” the anti-partisan group funded by wealthy financiers, is running ads pretending Gottheimer’s clique is supporting Biden’s agenda, emphasizing the infrastructure bill and making absolutely no mention of the tax dispute. Many reporters have repeated Gottheimer’s account of his motives at face value.
The Hill’s less-blinkered account, on the other hand, frankly notes, “Business interests have Democratic allies in Sens. Joe Manchin (W.Va.) and Kyrsten Sinema (Ariz.) and the group of House moderates led by Rep. Josh Gottheimer (N.J.) — all have expressed concerns about the size of the spending plan and potential tax hikes.”
Since budget rules require any permanent costs be paid for, and Biden doesn’t want to increase taxes on households earning less than $400,000 a year, the size of his domestic policy legacy will be determined by how much new taxes on the rich he can get through Congress. His proposal is perfectly ample to finance a historic legacy. A handful of moderate Democrats are starving that legacy very, very quietly. If they had good reasons for their position, you would probably know what they were.
Update: Axios’ Hans Nichols reports that the Congressional Democratic bill is likely to jettison several Biden proposals. Rates on corporate income and capital gains will rise, but less than Biden proposes. “An increase in estate taxes now looks unlikely… Raising the capital gains rate is facing the most internal opposition, and it could end up staying at its current 23.8%.”