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

“With more centrist members of the Democratic side in both the House and Senate, mindful of business, they are examining the scope and scale of these tax increases for infrastructure and family projects and they are finding them simply breathtaking, ”said Neil Bradley. , director of policy at the US Chamber of Commerce. “You talk about tax hikes that could hit millions of small businesses across the country and taxes that could kill investment. From a crude political standpoint, it would be a really great move for these moderates to say that they would be willing to put so much wet blanket on an economy that is really about to take off.

If leaders are right, Biden will either have to break his promise to pay for his massive spending program and inflate the deficit further, or cut his plans significantly. And reducing them significantly would anger the progressive wing of his party, which sees this as the president’s only chance to fundamentally bring the economy back to the workers and make it fairer.

Lobbyists and executives say they have spoken to moderate Senate Democrats like Joe Manchin from West Virginia, Kyrsten Sinema from Arizona and John Hickenlooper from Colorado, as well as House members like Josh Gottheimer from New Jersey , Tom Suozzi from New York and Stephanie Murphy from Florida. Most lawmakers declined to comment or did not respond to requests for comment.

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

“Most of them are ready to go for a 25% corporate tax, and the chances of that going through reconciliation are pretty good,” said the head of one of the most powerful lobbying groups in Washington , referring to the parliamentary maneuver which would require a simple majority vote on the legislation. “Where it gets cloudy for them is when you talk about a carbon tax or a gasoline tax or a financial transactions tax or an increase in deferred interest or capital gains. This is where the coalition of the willing falls. “

The lobbyist did not want to be identified by name or organization to avoid revealing his strategy. Others spoke on condition of anonymity to avoid angering lawmakers they engage with.

There are also a number of Northeastern and California Democrats, like Gottheiner and Suozzi, who say they won’t support any tax hikes unless the National and Local Tax Deduction (SALT), which has reduced under former President Donald Trump, be reinstated. , making it easier for lobbyists to block many of Biden’s proposed tax hikes.

“I support the president’s agenda, but any change to the tax code must be accompanied by a SALT fix – ‘no SALT, no deal! Suozzi said in a statement.

Lobbyists and executives say they expect Biden to make a smaller infrastructure deal and possibly go through some of his family agenda, which includes expanding free public education and assistance for childcare. But they don’t believe the White House will be able to push through significant tax hikes in the House or Senate.

“It will be very difficult for them to do anything on a personal level,” said a senior lobbyist in Washington who works on tax matters. “It’s not impossible, but even it’s a struggle. The moderates in the House make it a lot harder to get this stuff across. I think the personal side is probably left alone. And most of the rest don’t stand a chance. Among other measures, Biden proposed to increase the top marginal personal tax rate to 39.6%, from the current 37%.

The White House and progressive groups reject all of this, saying higher taxes on businesses and the wealthy are necessary to make long-term economic investments. And they note that such tax hikes – including raising the rate of capital gains and returning private equity taxes to the normal rate of income – are politically popular.

They also say that much of what Biden aims to do will take place over a decade and that tax hikes will do nothing to slow economic growth or boost inflation.

“A lot of people think of it the wrong way,” said a person close to the administration, who also didn’t want to be identified because he wasn’t authorized to speak publicly about Biden’s plans. “Spending takes place over a long period of time and most of the taxes we are talking about would only make the code fairer and encourage those who are able to pay more to pay more. And we are talking about increasing productivity in the long run and solving a lot of structural problems in the economy. “

Still, the White House faces a significant pullback on the price of its plans – an additional $ 4 trillion on top of the more than $ 5 trillion Congress has already invested for Covid relief so far. The case for injecting more money is particularly complicated, with inflation showing signs of ticking even as the Federal Reserve and many economists predict price increases will be transient and easy as the pandemic will disappear and production will increase.

The number of jobs in April was surprisingly low, but could have been an anomaly. And most economists expect hiring to pick up sharply in May, with significant wage hikes ahead. But the economic trajectory remains very uncertain, leading many executives and lobbyists to argue that raising taxes does not make sense at the moment.

“I have been through a lot of tax hike efforts, but now is a difficult time for [Democrats] to do a lot, ”said a former Democratic member now working in a senior position on Wall Street. “The economy is clearly coming back, but it would be a strange time to impose more taxes on people.”

Democrats in favor of Biden’s proposal and in favor of his tax plans say the economy is on the verge of shrinking, making it a perfect time to raise some tax rates on investment gains and profits companies.

“There are real challenges in selling the ‘Build Back Better’ agenda to moderates on both sides,” said Jason Furman, a Harvard professor who chaired the Council of Economic Advisers under President Barack Obama. “But I don’t think a strong economy should really affect the business. In fact, it’s an argument that we can move from a short-term focus on recovering Covid to a much longer focus on improving the economy.

But lobbyists believe the combination of inflation fears and an economy that is showing signs of expansion but remains vulnerable will give them plenty of room to kill most of the tax hikes proposed by Biden.

“It all really depends on how far they go,” said a senior financial services industry lobbyist. “[Biden’s] advisers will say at some point that they can get something that sort of sits in the middle of the fairway with a corporate rate hike. Everything else and the Democrats are just going to get killed for it.

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