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Taxing the rich? Executives predict Biden’s big plans will fail

“With enterprising and more centrist Democrats in both the House and Senate, they are examining the size and breadth of these infrastructural and family plan tax increases and they are simply staggering,” said Neil Bradley, chief policy officer at the US Chamber of Commerce . “They talk about tax hikes that could hit millions of small businesses across the country and taxes that could kill investment. From a crude political perspective, it would be a really insane decision for these moderates to say that they would be willing to give so much of a damp blanket to an economy that is really on the rise. “

If the executives are right, Biden will either have to break his promise to pay for his massive spending agenda and keep adding to the deficit, or he has to drastically cut his plans. And cutting them up in significant ways would anger the progressive wing of his party, who see this as the president’s only chance to fundamentally turn the economy back to the workers and make them fairer.

Lobbyists and leaders say they spoke to moderate Senate Democrats like Joe Manchin from West Virginia, Kyrsten Sinema from Arizona and John Hickenlooper from Colorado along with members of the House of Representatives like Josh Gottheimer from New Jersey, Tom Suozzi from New York and Stephanie Murphy Florida. Most lawmakers declined to comment or did not respond to requests for comment.

The lobbyists say most of the members they spoke to have expressed their willingness to oppose many of the proposed tax increases in Biden’s plan.

“They are largely prepared to levy a corporate income tax of 25 percent, and the chances that this reconciliation will come about are pretty good,” said the head of one of the most powerful lobby groups in Washington, referring to the parliamentary maneuver, which is a simple majority vote the legislation. “For them, it becomes gloomy when you talk about a carbon or gas tax or a financial transaction tax or higher interest or capital gains taxes. Here the coalition of the willing fails. “

The lobbyist did not want to be identified by name or organization in order not to reveal a strategy. Others spoke on condition of anonymity so as not to anger the legislators they are dealing with.

There are also a number of Northeast and California Democrats, like Gottheiner and Suozzi, who say they will not support tax increases unless the state and local tax deduction (SALT), which was lowered under former President Donald Trump , being restored, making it easier for lobbyists to block many of Biden’s proposed tax increases.

“I support the president’s agenda, but any change in the tax code must be accompanied by a correction of SALT -” no SALT, no deal! “Suozzi said in a statement.

Lobbyists and executives expect Biden to get a smaller infrastructure deal and potentially carry out part of his family agenda, including expanding free public education and childcare support. However, they do not believe that the White House will be able to initiate significant tax increases through the House or the Senate.

“It will be very difficult for them to do anything on the personal side,” said a senior Washington lobbyist who works on tax issues. “It’s not impossible, but even that is a struggle. Moderates around the house make this stuff a lot harder to pass on. I think the personal page is likely to be left alone. And most of it doesn’t stand a chance. “Among other things, Biden has proposed raising the highest marginal tax rate for natural persons from the current 37 percent to 39.6 percent.

The White House and progressive groups oppose all of this, saying that increasing taxes on businesses and the rich is necessary in order to make long-term economic investments. And they find that such tax hikes – including increasing the capital gain rate and bringing private equity taxes back to the regular income rate – are politically popular.

They also say that much of what Biden plans to do will happen over a decade, and that the tax hikes will do nothing to slow economic growth or boost inflation.

“A lot of people think wrongly about it,” said a person close to the administration who also refused to be identified because they are not authorized to speak publicly about Biden’s plans. “Spending is long and most of the taxes we’re talking about would just return some fairness to the code and get those who are able to pay more to pay more. And we’re talking about increasing long-term productivity and solving many structural problems in the economy. “

However, the White House is facing a significant setback in the price of its plans – an additional $ 4 trillion on top of the more than $ 5 trillion that Congress has already allocated to aid Covid. The argument about pumping in more money is particularly complicated as inflation is showing signs of spike, even as the Federal Reserve and many economists predict that price hikes will be temporary and loose as the pandemic subsides and production picks up.

The April job count was surprisingly poor, but it could have been an anomaly. And most economists expect hiring to rise sharply in May, with significant wage increases to follow. However, economic developments remain highly uncertain, leading many executives and lobbyists to argue that a tax hike doesn’t make sense at the moment.

“I’ve been through a lot of tax hike efforts, but now is a difficult time for [Democrats] to take out a lot of them, ”said a former Democratic agent who now works in a senior position on Wall Street. “The economy is clearly returning, but it would be an odd time to put more taxes on people.”

Democrats, who approve of Biden’s proposal and support his tax plans, argue that the economy will pick up again, which makes it an ideal time to raise some tax rates on investment and corporate profits.

“Selling the Better Back Down agenda to moderates on both sides is a real challenge,” said Jason Furman, a Harvard professor who presided over the Economic Advisory Council under President Barack Obama. “But I don’t think a strong economy should really affect the case. If anything, this is an argument that we can move from a short-term focus on recovering from Covid to a much longer-term focus on improving the economy. “

However, lobbyists believe that the combination of fears of inflation and an economy showing signs of a boom but still fragile leaves them plenty of room to kill most of Biden’s proposed tax hikes.

“It really all depends on how far you go,” said a senior financial services lobbyist. “[Biden’s] Consultants will at some point say that by raising corporate interest rates, they can get something that is in the middle of the fairway. Everything else and the Democrats will just be killed for it. “

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