This week on Facing the Future, we looked at various proposals on how to pay for the roughly $2 trillion social spending bill that Democrats hope to pass soon. These proposals include familiar ideas like raising rates on corporations and upper-income households, as well as new ideas like implementing some form of a "billionaires tax." We also looked at the potential for raising revenue through better enforcement of existing laws (the “tax gap”) and the amount the Treasury loses through ill-targeted "tax expenditures."
Our guest was tax policy expert Pete Davis, President of Davis Capital Investment Ideas and a former senior congressional staffer. During his 11 years on Capitol Hill, Pete worked in the House and Senate, for both Republicans and Democrats. He was an economist with the Joint Committee on Taxation, the Senate Budget Committee, and the Senate Appropriations Committee.
President Biden has repeatedly promised that his Build Back Better agenda, embodied in a “reconciliation bill” being drafted by congressional Democrats, will not add to federal budget deficits. Making good on that promise would require raising about $2 trillion in new revenue, a task that is proving to be much easier said than done.
Republicans oppose both the higher spending and higher taxes Democrats have proposed, but by using the special reconciliation process, Democrats can avoid a Senate filibuster and pass the bill if all 50 Senate Democrats vote in favor of it. Therein lies the rub. Democrats are having a hard time agreeing among themselves on how the needed revenue should be raised.
Davis explained that, “The original plan was to adopt many of President Biden’s proposals -- to raise the top marginal rates and do all sorts of other things to raise revenues, most of which have fallen by the wayside.” He noted that Senator Kyrsten Sinema, a Democrat from Arizona, “refused to countenance any increases in the corporate or individual top tax rates, so there goes half a trillion dollars.”
“The good news,” he said, “is that there has been a surprising amount of agreement among 180-odd nations in the world to put a 15 percent global minimum tax on corporate book income. It’s going to take a while to implement and there are lots of issues about accounting, but if all of our trading partners adopt this, that’s a big deal and it will help.”
The bad news, he noted, is that something like the billionaires tax proposed by Senate Finance Committee Chairman Ron Wyden (D-OR), “just cannot be implemented.” Davis cited the difficulty of placing a value on unrealized gains on assets, which would form the basis of the new tax. “If you’re Bill Gates with a Van Gough on the wall,” Davis said, “nobody knows how much it's worth.”
For this and other reasons, Democrats have apparently moved on from the kind of billionaire tax being floated earlier in the week to a new income surtax on multi-millionaires and billionaires.
Davis had some overall advice to guide deliberations on the tax package. He said, “I believe in the principles of taxation. One of those principles is ‘broad base, low rate.’ When you have a narrow base and a high rate, you get all kinds of bad consequences.”
Hear more on Facing the Future. I host the program each week on WKXL, NHTalkRadio.com (N.H.), and it is also available via podcast. Join me and my guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.