At some point, Joe Biden’s bills will come due. The US $ 1.9 billion bailout bill passed earlier this month was funded by borrowing, as was last year’s pandemic relief bills that topped $ 3 billion. As a result, the U.S. budget deficit is projected to hit around 15 percent of GDP this year – a gap that has historically been linked to wartime. That’s before he adds Biden’s upcoming “Build Back Better” infrastructure bill, which he’ll be unveiling this week in Pittsburgh. That’s likely to cost more than $ 3 billion in 10 years, which would add to the federal red ink flood.
Biden faces two challenges. The first is deciding how much of that to finance through tax hikes – as Treasury Secretary Janet Yellen hinted at last week – and spending cuts versus adding to the national debt. The second is figuring out how to get through a 50:50 Senate where centrist Democrats are eager to compromise with anti-tax Republicans. That could kill the fundraising elements of the bill.
In addition to his mandate, the economic argument in favor of Biden’s plan to reduce better. The infrastructure of the American state is mediocre and deteriorating. The argument for accelerating America’s transition to green technology and energy efficiency is overwhelming. This also applies to the need for national high-speed broadband. A well-designed bill would increase US productivity and boost trend GDP growth. It’s unclear whether Biden plans to include poverty reduction measures in the same bill, including permanent child tax credit extension, which is also mandatory. In any case, he must explain how this will be paid beyond the self-financing investment elements of the invoice.
A lot of money can be raised through better enforcement of existing tax law. The Internal Revenue Service has shrunk more than a fifth in the past decade, increasingly avoiding auditing of the very rich. A dollar spent on bloating the IRS would make several dollars in return. The U.S. Treasury Department can also fill loopholes related to overseas corporate taxes, many of which were magnified by Donald Trump’s largely unfunded 2017 tax cut.
About a fifth of corporate taxes – $ 70 billion annually – are not collected due to various offshore accounting systems. Even then, America’s corporate tax collection remains meager by Western standards. According to the US Treasury Department, it is around 1 percent of GDP, compared to an OECD average of 3 percent. The case for raising the corporate rate from 21 percent to 28 percent, as Biden would like, is strong. The argument of balancing capital gains with income tax is also powerful. More can be increased by raising the income tax rate for the top earners. Biden could also come under pressure to break his promise to leave those who earn less than $ 400,000 a year untouched. A more progressive inheritance tax is also justified.
None of this would be palatable to Republicans. Mitch McConnell, Republican Senate chairman, has called Biden’s plans a “Trojan horse” to “kill” new taxes. His criticism lacks merit. The bill would be good for Jobs. Biden’s thorniest target will likely be Joe Manchin, the Democratic Senator from West Virginia, who wants to make this a bipartisan effort.
Of course, Biden should seek common ground with the Republicans. If, as expected, they refuse to consider higher taxes, he must bypass the filibuster threshold of 60 votes and guide them through the budget reconciliation process with a majority of votes. It is unclear what the price of Manchin would be to support the bill. As a Senate veteran, no one would be better able to find it than Biden.