By Paul Waldman
Columnist
August 3, 2022 at 2:04 p.m. ED
The Inflation Reduction Act that Democrats are working to pass through Congress is only incidentally about inflation; mostly it’s a bill addressing climate change and prescription drug prices, with a hodgepodge of provisions on a variety of other issues. But it also takes a few steps toward making our tax system a little more fair.
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Naturally, Republicans are outraged at the thought. “Their tax hikes would shatter President Biden’s promise not to impact households earning below $400,000,” said Senate Minority Leader Mitch McConnell (R-Ky.), calling the package “a new tax on American jobs.”
You will be shocked to learn that the GOP’s passion for the economic interests of regular folks is less than sincere, and their description of this bill is not quite accurate. Only a bill aimed at the bank accounts of the wealthy and corporations could produce this kind of angry Republican opposition, and that’s exactly what’s happening here.
The Democratic bill contains three key tax provisions. The first narrows the carried interest loophole, which enables hedge fund managers to pay the (lower) capital gains tax rate on the money they make, rather than (higher) ordinary income tax rate. There is no plausible way for any lawmaker to defend this loophole other than saying, “I enjoy collecting large checks from hedge fund managers at their palatial Hamptons estates,” which no one would say out loud.
So instead, they focus on the other two main proposals, especially the attempt to address the fact that corporations find so many ways to avoid paying taxes even when they are making huge profits.
Some time ago, people began to notice that companies would tell Wall Street they were hugely profitable while somehow managing to convince the IRS they should owe little or nothing in taxes. So the bill creates a “book income tax” requiring corporations making more than $1 billion a year in profits to pay at least 15 percent in taxes on profits they report to investors (the corporate tax rate is 21 percent).
This is where things get a little wonky. Republicans requested an analysis from the Joint Committee on Taxation of this proposal, knowing that the JCT assesses any corporate tax increase with a formula that allocates 25 percent of the increase to labor and 75 percent to capital.
Economists debate whether that’s the proper way to think about it, but it rests on the assumption that if you tax a corporation on its profits, that’s equivalent to taxing both its workers and shareholders. Will making Nike or Archer Daniels Midland pay taxes mean they’ll cut the pay of middle-class employees eventually, or that the dividends they pay their shareholders will be a little smaller?
Maybe, maybe not. But you wouldn’t call that a “middle-class tax increase,” would you?
Republicans would. They’re waving around the JCT analysis as proof — and much of the media is echoing their claim.
Anyone who wants to say corporations are people and should never pay any taxes at all is free to make that argument. But transmuting a corporate tax increase into a direct tax increase on the middle class is profoundly misleading. That’s not to mention that the JCT analysis doesn’t take into account many of the bill’s provisions that will give financial benefits to the middle class.
That brings us to the last major tax provision: a significant boost to funding for the Internal Revenue Service, to allow the agency to rebuild so it can collect the taxes people actually owe.
Republicans have long waged a budgetary war on the IRS, resulting in drastically reduced funding and staffing. Predictably, the agency is struggling to goafter tax cheats, particularly wealthy ones able to hire lawyers and accountants to fight against any effort to make them pay their fair share.
As a ProPublica investigation found, the “campaign to slash the agency’s budget has left it understaffed, hamstrung and operating with archaic equipment. The result: billions less to fund the government.” For all intents and purposes, the GOP’s motto on taxes is “Defund the Police.”
Democrats have wanted for a while to do something about that. They tried to boost IRS funding in the bipartisan infrastructure bill that passed last year, but Republicans refused to go along, so the idea was dropped.
And now, the prospect that the IRS might actually be able to do its job, particularly when it comes to making the wealthy pay what they owe, has conservatives in a tizzy. The Wall Street Journal editorial page, the media’s most zealous advocate for the interests of the put-upon plutocracy, moaned that with this new funding the IRS will go into “Beast Mode,” unleashing a wave of oppression on the American middle class.
This is an important lesson: When conservatives warn that some new proposal will hurt the middle class, take a closer look to see who will really be affected and who they’re really shilling for. It’s almost always the rich and corporations. The angrier they get, the more likely it is that the bill in question is on the right track.
Columnist
August 3, 2022 at 2:04 p.m. ED
The Inflation Reduction Act that Democrats are working to pass through Congress is only incidentally about inflation; mostly it’s a bill addressing climate change and prescription drug prices, with a hodgepodge of provisions on a variety of other issues. But it also takes a few steps toward making our tax system a little more fair.
Sign up for a weekly roundup of thought-provoking ideas and debates
Naturally, Republicans are outraged at the thought. “Their tax hikes would shatter President Biden’s promise not to impact households earning below $400,000,” said Senate Minority Leader Mitch McConnell (R-Ky.), calling the package “a new tax on American jobs.”
You will be shocked to learn that the GOP’s passion for the economic interests of regular folks is less than sincere, and their description of this bill is not quite accurate. Only a bill aimed at the bank accounts of the wealthy and corporations could produce this kind of angry Republican opposition, and that’s exactly what’s happening here.
The Democratic bill contains three key tax provisions. The first narrows the carried interest loophole, which enables hedge fund managers to pay the (lower) capital gains tax rate on the money they make, rather than (higher) ordinary income tax rate. There is no plausible way for any lawmaker to defend this loophole other than saying, “I enjoy collecting large checks from hedge fund managers at their palatial Hamptons estates,” which no one would say out loud.
So instead, they focus on the other two main proposals, especially the attempt to address the fact that corporations find so many ways to avoid paying taxes even when they are making huge profits.
Some time ago, people began to notice that companies would tell Wall Street they were hugely profitable while somehow managing to convince the IRS they should owe little or nothing in taxes. So the bill creates a “book income tax” requiring corporations making more than $1 billion a year in profits to pay at least 15 percent in taxes on profits they report to investors (the corporate tax rate is 21 percent).
This is where things get a little wonky. Republicans requested an analysis from the Joint Committee on Taxation of this proposal, knowing that the JCT assesses any corporate tax increase with a formula that allocates 25 percent of the increase to labor and 75 percent to capital.
Economists debate whether that’s the proper way to think about it, but it rests on the assumption that if you tax a corporation on its profits, that’s equivalent to taxing both its workers and shareholders. Will making Nike or Archer Daniels Midland pay taxes mean they’ll cut the pay of middle-class employees eventually, or that the dividends they pay their shareholders will be a little smaller?
Maybe, maybe not. But you wouldn’t call that a “middle-class tax increase,” would you?
Republicans would. They’re waving around the JCT analysis as proof — and much of the media is echoing their claim.
Anyone who wants to say corporations are people and should never pay any taxes at all is free to make that argument. But transmuting a corporate tax increase into a direct tax increase on the middle class is profoundly misleading. That’s not to mention that the JCT analysis doesn’t take into account many of the bill’s provisions that will give financial benefits to the middle class.
That brings us to the last major tax provision: a significant boost to funding for the Internal Revenue Service, to allow the agency to rebuild so it can collect the taxes people actually owe.
Republicans have long waged a budgetary war on the IRS, resulting in drastically reduced funding and staffing. Predictably, the agency is struggling to goafter tax cheats, particularly wealthy ones able to hire lawyers and accountants to fight against any effort to make them pay their fair share.
As a ProPublica investigation found, the “campaign to slash the agency’s budget has left it understaffed, hamstrung and operating with archaic equipment. The result: billions less to fund the government.” For all intents and purposes, the GOP’s motto on taxes is “Defund the Police.”
Democrats have wanted for a while to do something about that. They tried to boost IRS funding in the bipartisan infrastructure bill that passed last year, but Republicans refused to go along, so the idea was dropped.
And now, the prospect that the IRS might actually be able to do its job, particularly when it comes to making the wealthy pay what they owe, has conservatives in a tizzy. The Wall Street Journal editorial page, the media’s most zealous advocate for the interests of the put-upon plutocracy, moaned that with this new funding the IRS will go into “Beast Mode,” unleashing a wave of oppression on the American middle class.
This is an important lesson: When conservatives warn that some new proposal will hurt the middle class, take a closer look to see who will really be affected and who they’re really shilling for. It’s almost always the rich and corporations. The angrier they get, the more likely it is that the bill in question is on the right track.
