Biden, Republicans spar over impact of Dems’ economic plan
Recent bipartisan action in Congress on matters ranging from producing computer chips to expanding NATO isn’t extending to the latest economic package from Democrats, which is generating a battle of dueling statistics and projections over whether it would help or hurt the economy.
For President Joe Biden, the Senate Democrats’ $739 billion package can help lower inflation, cut the budget deficit, address climate change and lower medical bills — a message that he’s trying to sell to the wider country amid intense Republican criticism.
Biden appeared at a virtual event Thursday to highlight the proposal with leaders from General Motors, Cummins, Kaiser Permanente and the AFL-CIO, among other organizations. He called on Congress to listen to the public, dig into the numbers and vote for the bill.
“Look at the facts,” Biden said. “Pass it. Get it to my desk. Pass it for the American people. Pass it for businesses and workers. Pass it for America.”
But GOP lawmakers have their own sets of numbers. They counter that the 15% minimum corporate tax included in the package would hit U.S. factories and middle-class workers. They say energy costs would increase. The number of approved prescription drugs coming onto market would decline because of price caps, according to a University of Chicago analysis. They say IRS audits would affect more people.
“This bill will slam manufacturing,” Sen. Mike Crapo, R-Idaho, said Wednesday. “The bottom line here is this tax is dangerous for America.”
Republican senators quickly cried foul after Majority Leader Chuck Schumer, D-N.Y., and Sen. Joe Manchin, D-W.Va., struck the deal last week. Late Thursday, the agreement drew the backing Sen. Kyrsten Sinema, D-Ariz., a centrist seen as the pivotal vote in the 50-50 chamber.
What many economists say is that the plan could modestly reduce inflation in the long term and improve the federal government’s financial outlook. But it’s unknown whether a skeptical public will trust the experts or stick to their beliefs and the most emotionally resonant talking points.
The Congressional Budget Office estimates the proposal would reduce budget deficits by $305 billion over the next decade. That includes roughly $200 billion from increasing IRS funding by $80 billion. The tax agency will be able audit people making more than $400,000 and collect taxes that are owed but going unpaid.
But the size of the deficit reduction could be even greater.
The Treasury Department estimates indicate that IRS enforcement could raise a net $400 billion over the next decade, while improving customer service such that the agency could go from answering just 15% of its phone calls to all of them, according to a senior administration official who spoke on condition of anonymity to discuss internal figures.
The private Committee for a Responsible Federal Budget estimates the deficit reduction could be as much as $1.9 trillion over two decades, largely because Medicare would be able to negotiate down the price of prescription drugs.
The Penn Wharton Budget Model estimates that inflation would decline after 2024, though the effect would be statistically negligible.
On Tuesday, congressional leaders were sent a letter signed by 126 economists that concluded: “This proposal addresses some of the country’s biggest challenges at a significant scale. And because it is deficit-reducing, it does so while putting downward pressure on inflation.”
Yet the measure carries some controversy because of how it relies on tax laws.
The roughly $370 billion devoted to climate change includes tax breaks for “clean” electricity and for manufacturing, as well as breaks for buying electric vehicles. It would impose a fee on methane and charge a minimum tax of 15% on companies with more than $1 billion in profits.
“It’s just a catalog of tax hikes and green boondoggles that Democrats have wanted for years, with a false new label slapped on the front,” Senate Republican leader Mitch McConnell of Kentucky said Tueday.
Republicans say the corporate tax would violate Biden’s pledge not to increase taxes on people making less than $400,000. Their evidence is an analysis by Congress’ Joint Tax Committee, which assumes that part of the cost of the tax would be passed on to workers in the form of lower pay.
Columbia University economist Joseph Stiglitz, a Nobel prize winner who worked in the Clinton administration, said the corporate minimum tax is unlikely to place a burden on workers because of its design.
“That’s just what we just say is right wing rhetoric,” Stiglitz said. “The argument that it will be shifted either to customers or wages is very, very weak.”
Still, higher taxes are likely to come at a cost.
Based on estimates by the joint committee, Republicans note that nearly half of that minimum tax would hit manufacturers, a group that political leaders have often pledged to protect.
Kyle Pomerleau, a senior fellow at the center-right American Enterprise Institute, estimated that the minimum tax could undermine the benefits of existing tax incentives for companies to invest in new equipment and buildings.
Manchin has described the minimum tax as closing a “loophole” rather than a tax increase, while Pomerleau said the senator is inaccurate in his description.
The “minimum tax doesn’t close any loopholes -- it leaves all the loopholes open,” Pomerleau said. “It just subjects companies to a parallel tax. It’s an unideal ‘patch’ on the tax code.”
At the Thursday’s roundtable, Biden specifically asked manufacturers whether the bill would hurt or help them.
Jennifer Rumsey, CEO of Cummins, which makes engines and power generation products, told him the bill would be “good for the economy and the environment.”
“We need the right policies,” she said. “And many of those market-based incentives that we think are needed are included in the Inflation Reduction Act.”