Get ready: Two big upcoming theatrical performancesBiden wants to tax the rich, and House Republicans don’t want to raise the debt ceiling. Here’s what will happen.
Friends, A few days ago, I got a call from a reporter who wanted to know why President Biden has suddenly become a budget hawk: He’s proposing to trim the federal budget deficits by over $2 trillion over the next 10 years! He was an FDR-like spender in the first two years of his presidency, but now he’s turned into a Calvin Coolidge skinflint! What’s up? What’s up is that Biden is neither a big spender nor a skinflint. He’s a cunning political operator. Biden knows that he — along with his three immediate predecessors — have spent gobs of money. In addition, Bush and Trump cut taxes on the rich and on corporations. Not surprisingly, the national debt has soared. An economic problem? Not really. But that’s a different story. The real problem is political. The huge debt is giving Republicans a big, fat target. House Republicans are planning to stage theater-of-the-absurd pyrotechnics —refusing to raise the debt ceiling. Which means that at some point this summer, Biden’s Treasury Department will say America is within days (or hours) of defaulting on its bills. A default would be catastrophic. To counter this, Biden is planning his own pyrotechnics. In the budget released today, he’s proposing a “Billionaire Minimum Tax” that would require wealthy American households worth more than $100 million to pay at least 20 percent of their incomes in taxes (most middle-class Americans pay around 30 percent). Plus, they’d have to pay 20 percent a year on unrealized gains in the value of their liquid assets, such as stocks, which can accumulate value for years but are taxed only when they are sold (and not even then if left to their heirs). Here’s the important thing: These taxes would apply only to the top one-hundredth of 1 percent of American households. Over half of the revenue would come from those worth more than $1 billion. Biden is proposing additional tax hikes on the wealthy: reversing the Trump tax cut by raising the top tax rate to 39.6 percent from 37 percent, increasing the corporate tax to 28 percent from 21 percent (a partial rollback of Trump’s corporate tax cut), raising the tax on stock buybacks from 1 percent to 4 percent, and increasing the Medicare tax rate on income above $400,000 from its current rate of 3.8 percent to 5 percent. All told, Biden’s new tax proposals would amount to a $2.5 trillion tax increase over a decade, on the richest of the rich. Oh, and did I say? Taxing the rich is enormously popular. Biden also wants to let Medicare officials negotiate with pharmaceutical companies for lower drug prices and cap the costs of drugs for seniors. Also hugely popular. But here’s the dirty little secret. Neither of these two theatrical productions — neither the Republicans’ refusal to raise the debt ceiling nor Biden’s big tax hike on the super-rich — will ever happen. They’re both fantasies. A default on the nation’s obligations would bring on an economic calamity for which Republicans don’t want to be responsible. A giant tax increase on the super-rich would be a miracle, given their political clout. These two theatrical productions are being staged for the public — two competing performances, each intended to score political points against the other. Biden’s is rational and the Republicans’ is nuts, but that doesn’t really matter. They will both end in a dramatic flurry of last-minute negotiations, seemingly death-defying moves and counter-moves, and breathtaking cliffhangers. Exciting? Of course. Important? Meh. The denouement: The debt ceiling will be raised. The national debt will be lowered a bit. Social Security and Medicare will be left alone. And Biden and the Democrats will have leeway to do one or two more things before the gravitational pull of the 2024 election sets in — perhaps expand childcare or pre-K or enable more students to attend community college. Yesterday I was in Columbus, Ohio, debating Arthur Laffer about the economy. We appeared before hundreds of students who had never heard of Arthur Laffer (or me, for that matter). If you’ve heard of him but don’t quite recall what he did, let me refresh your recollection: Art was the founder in the 1980s of so-called “supply-side economics,” the bonkers idea that the benefits of lower taxes on the wealthy trickle down to everyone else. Trickle-down economics provided the theatrical scripts for Ronald Reagan’s, George W. Bush’s, and Donald Trump’s tax productions. The tax cuts were real, but the idea they were based on was always a fantasy. Nothing ever trickled down. |