The biggest hurdle on the road for Biden’s economic plan

As Congress considers his economic plan, President Joe Biden faces one overarching challenge: Taking money from people who have influence and giving it to people who don’t is hard.

Beneath the rhetoric about inflation and deficits, business investment and family farms, tax rates and benefit levels lies the volatile question of economic redistribution. Government attempts to do that trigger intense resistance from those asked to pay and amorphous skepticism even from some who would come out ahead.

And whether polling shows the specifics popular or not, redistribution sparks existential dread among lawmakers who fear that voting for it risks their careers.

“It’s very hard to talk about when you get in the room,” said Hank Gutman, who once advised Congress as chief of staff for the Joint Committee on Taxation. “Empirical evidence, sound economic theory – none of that matters.”

Roadblock Republican opposition has become a given. The party has a strong electoral motivation to thwart a Democratic President, an ideological aversion to tax and spending increases, and a financial incentive to protect business benefactors. Though much of the GOP’s White working-class constituency would benefit from economic redistribution, Republican lawmakers rely on cultural appeals to their fear of displacement by non-Whites who would also benefit.

Even the ostensible champions of tax fairness and expanded economic opportunity sometimes shrink from those goals. Moderate Democrats fear pro-welfare and anti-business labels. Liberals, too, worry about crossing the swelling ranks of affluent, socially tolerant, college-educated Democrats. In 2020, the Brookings Institution found, counties that voted for Biden accounted for 71% of America’s gross domestic product – in other words, the checking account for economic redistribution.

Recent Democratic presidents have responded gingerly.

Through the health care system, the Affordable Care Act effected large-scale redistribution from the wealthy to the poor, from the healthy to the sick, from the young to the old, from men to women. But the Obama White House shunned the use of the “loaded word,” as chief of staff William Daley once put it.

Biden takes the same approach. The White House website shows that his public remarks have not included the word “redistribution,” which he has long disdained.

Where he grew up, “We don’t call that ‘redistribution,’ ” Biden told then-Alaska Gov. Sarah Palin in their 2008 vice presidential debate. “We call that fairness. …”

As President, he has constructed his economic plan to minimize vulnerability among lawmakers and maximize appeal to voters. It includes broadly available spending programs while limiting tax hikes to corporations and to individuals earning more than $400,000 a year. Some economic models have projected boosts in hiring and growth; others show only negligible drags.

Yet key Democrats display reticence as decision time draws near.

To avoid the specter of welfare, Sen. Joe Manchin of West Virginia wants work requirements for beneficiaries of expanded tax credits, even though he represents one of the poorest states.

The House Energy and Commerce Committee stalled Biden’s proposal to let Medicare negotiate lower drug prices from the pharmaceutical industry. That would reduce drug company profits in order to expand health benefits for beneficiaries.

The Ways and Means Committee pared back Biden’s proposals to raise the top corporate tax rate to 28% from 21% and the top capital gains rate to 39.6% from 20%. It dropped his call to eliminate the loophole permitting wealthy heirs to wipe out capital gains taxes on large assets. Lobbyists warned the plan would alarm family farmers, even though its provisions shielded them.

“It’s unconscionable,” Gutman, who now advises a tax law firm representing major corporations, said of the “step-up basis” loophole. “Everybody knows it, and they won’t do anything about it. … What stops (action) is their wealthy constituents who can get to them on a particular issue.”

Yet after watching decades of tax battles, Gutman sees Democratic nervousness as the lesser part of the 2021 story. The bigger part: just how much redistribution Democrats remain on track to turn into law.

He began at the Treasury Department in the mid-1970s as conservative tax-cutting goals gained steam. Rising budget deficits shifted political momentum toward limited tax hikes by the early 1990s, when he ran the Joint Taxation Committee.

Biden’s plan emerged from a fundamentally different economic and political backdrop. The steady march of wealth and income inequality has hardened majority opinion that corporations and the wealthy don’t pay enough, and many more Americans need help to get ahead.

Even as Democrats shrink from some elements of Biden’s plan and bicker over others, Ways and Means last week approved an array of tax hikes on corporations and wealthy Americans exceeding $2 trillion over 10 years. The money would finance education, health and safety-net benefits for the middle class, the working class and the poor.

“It’s the biggest opportunity we’ve had to do something in 30 years,” Gutman concluded. “I think it’s going to get done.”