by Domenico Maceri * –
“I don’t think raising taxes is the answer.” The reaction of Kevin McCarthy, a California parliamentarian and speaker of the House, to President Joe Biden’s budget proposal was dry. Any tax increase requires the usual Republican response that sees any tax increase as a mortal sin. Biden’s proposal is not exclusive on raising taxes, but that part of the proposal has the lowest chance of passing. Many other aspects will likely meet the same end as McCarthy has no intention of facilitating the president’s agenda. After all, everyone knows that the president’s budget proposal consists of a declaration of his values without forgetting the prospects for the 2024 presidential election.
The proposal consists of a 182-page document and, according to the White House, would reduce the deficit by 3 trillion dollars over the next 10 years. Biden’s priorities are already known and include a redistribution of government resources to benefit the less well-off classes such as childcare assistance, the right to asylum for all children, and two years of free university. Biden would also protect Social Security and Medicare would be strengthened by tax increases on billionaires who would be charged a minimum tax of 25 percent to prevent them from paying much less by exploiting the tax laws in their favor. This part aims to establish a certain equality by preventing the ultra-rich from avoiding paying taxes through the use of the concessions contained in the complex tax code. It should be remembered, for example, that 25 of the wealthiest Americans, including Elon Musk, Warren Buffett and Jeff Bezos paid a tax rate of 3.4 percent between 2014 and 2018. Musk paid no federal taxes in 2018, as did the former President Donald Trump in 2020.
The rate for those with incomes above $400,000 a year would return to 39.6 percent in Biden’s proposal, as well as for capital gains, but these only for those with incomes above one million dollars. The corporate tax rate would also return to 28 percent. These increases would effectively undo the tax cuts made during Donald Trump’s administration that have largely benefited the ultra-wealthy. The defense would not suffer cuts as happened in previous years.
Republicans in the House are divided on the events of January 6 compared to their colleagues in the Senate, but when it comes to tax increases, they are united in unanimous opposition. In republican practice, taxes should never be increased. The problem, however, is that without tax increases, balancing the budget or gradually reducing the federal debt becomes very difficult. So screaming that debt and deficits are unsustainable is of little use since none of the Republicans would be in favor of cutting defense, Social Security or Medicare to make ends meet.
However, a group of Republicans, the Republican Study Committee which includes 173 GOP MPs, has offered a detailed plan to tackle the budget and balance it in 10 years. Not to touch the sacred cows of defense, Social Security and Medicare, would require significant cuts of 70% to other social expenses and those to keep the government going. Huge cuts would be needed including the firing of most FBI agents, cuts in food assistance to the poor, cuts in Medicaid, cuts in national park service and reductions in veterans’ pensions. Slight cuts to Social Security of 4 percent and less slight cuts of 24 percent to Medicare would also be needed. Furthermore, the qualifying age for retirement would gradually increase from 65 to 70 years.
The Congressional Budget Office, a non-partisan body, has prepared a list of 100 changes that could reduce the deficit. It would be necessary to increase the government’s coffers with a tax on consumption, as is the case in many European countries, but also tax increases on income accompanied by reductions in expenses. Biden’s proposal is therefore on the right track, even if he does not intend to reduce defense spending, which would increase by 3.2 percent.
Biden’s plan won’t be realistic but it could be a starting point. The president deserves the credit for having put pen to paper. McCarthy promised to do the same and suggested some cards to play. Number one, he would like to extract concessions on raising the debt ceiling which expires in a few months. During the Trump administration, debt relief has occurred three times without major problems in a bipartisan manner. Failure to get this approval could cause massive damage to the US economy and obviously impact the world economy. Biden has indicated that the ceiling must be raised and does not intend to negotiate. He hasn’t refused to discuss the Republican proposals, but he also expects McCarthy and Mitch McConnell, Senator from Kentucky and leader of the Republicans in the Senate, to put pen to paper too. Not an easy task especially for McCarthy, one of the weakest speakers of recent times, with a caucus that required 15 votes and large concessions from Republican MPs to be elected speaker. A group of far-right Republican lawmakers has already threatened not to approve the federal debt hike unless it includes $130 billion in cuts.
Biden often repeats during the election campaign that he does not want to listen to the “values” of his political opponents. “Show me your balance sheet”, continues Biden, and then “I will tell you what your values are”. He already has. The Republican response is awaited.
* Domenico Maceri, PhD, is professor emeritus at Allan Hancock College, Santa Maria, California. Some of his articles have won awards from the National Association of Hispanic Publications.
