Will The Folly Of Biden’s ‘No New Middle-Class Taxes’ Pledge Scuttle A Bipartisan Infrastructure Agreement?

In his acceptance speech at the 1988 Republican convention, George H.W. Bush famously pledged, “read my lips: no new taxes,” only to concede tax hikes in 1990 budget negotiations, and be hammered with the broken pledge in his failed 1992 re-election bid.

In his own election campaign, President Joe Biden promised repeatedly that he would not raise taxes on the “middle class,” who he defined as anyone earning less than $400,000 per year — which is, of course, a far higher threshold than any conventional definition of “middle class” (you can try this out yourself at Pew Research.) In fact, his campaign labelled this pledge “ironclad” and insisted that any provision which would otherwise impact them would include a “hold harmless” clause. His opponents objected that all manner of proposed tax hikes would affect middle-class Americans indirectly; in April, a Wall Street Journal editorial had this to say:

“Mr. [Dan] Clifton [of Stratgas Research Partners] calculates that if the Biden plan becomes law the U.S. would have the highest overall tax burden on corporate income — 62.7% — in the OECD.

“The great political fakery here is that corporate taxes merely fall on CEOs and rich shareholders. But as everyone knows, corporations don’t really pay taxes. They are vehicles for collecting taxes that are ultimately paid by some combination of customers in higher prices, workers in lower wages, and shareholders in lower returns on investment.”

Separately, the federal gas tax is applied at a flat per-gallon rate which has not changed since 1993, and voices across the political spectrum have been calling for increasing the tax and/or tying it to inflation to fund the Highway Trust Fund, including the liberal Institute on Taxation and Economic Policy, the anti-deficit Peter G. Peterson Foundation, and authors at the Brookings Institute and AEI.

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And the proposal of an inflation-indexed gas tax had offered hope of a bipartisan infrastructure spending package, as reported by the Washington Post earlier this month. But Biden’s own pledge has become a roadblock; as reported by the Associated Press,

“The White House made clear Friday that President Joe Biden was opposed to letting the federal gasoline tax rise at the rate of inflation to help pay for an infrastructure package that a bipartisan group of 21 senators is trying to craft. . . .

‘The President has been clear throughout these negotiations: He is adamantly opposed to raising taxes on people making less than $400,000 a year,’ White House spokesman Andrew Bates said. ‘After the extraordinarily hard times that ordinary Americans endured in 2020 — job losses, shrinking incomes, squeezed budgets — he is simply not going to allow Congress to raise taxes on those who suffered the most.’”

This is maddening. Indexing the gas tax to inflation ought to be part of a common-sense bipartisan agreement. Instead, Biden’s foolish promise may prevent any sensible solution.

A “no new taxes” pledge might make sense in a limited set of circumstances, in which government is running smoothly and deficit-free and with a level of government services that is satisfactory, generally-speaking, or at least satisfactory to those making that pledge. But the Biden administration’s promises for increased spending continue to grow; most recently, reports were of a new $6 trillion spending proposal by Senate Democrats, nominally still labelled “infrastructure,” but including lowering the Medicare eligibility age to 60 as well as other unspecified spending plans, intended to be half paid for, by corporate tax hikes and personal income increases above $400,000, and half deficit-financed. According to Sen. Bernie Sanders, this proposal would, in part, “address the crisis facing working families [and] to deal with the needs of children and parents to deal with the affordable housing crisis” — in other words, this spending would consist, to a considerable degree, of social insurance programs.

And, as I find myself repeating over and over again, no sensible country funds it social insurance programs through “tax the rich” systems.

Programs which benefit everyone should be funded by everyone.

This includes Social Security (old age and disability benefits), Medical benefits (Medicare), child benefits (the advance-paid child tax credits), and proposals for heavily-subsidized childcare, medical care for all ages, eldercare expansions, parental leave, and more. And, yes, this includes our highway system, and other key elements of our infrastructure.

To imagine that the United States can massively expand the social welfare benefits it provides, to become more like the social democracies of Europe, funded purely based on tax hikes for “the rich” and “corporations,” or based on endless deficit spending, is madness, with respect to fiscal policy; what’s more, it is damaging to our social fabric to insist that these programs are not shared by all, but “free” to the public.

As always, you’re invited to comment at JaneTheActuary.com!

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