It’s All About Spending, Stupid. The Dems Blew Their Moment by Obsessing Over Taxes
After months of internal disputes and missteps, President Biden is now close to agreeing to a spending plan to address climate change and childcare. While the current number is less than 2 trillion dollars, the fact that Senator Kyrsten Sinema from Arizona and Joe Manchin, West Virginia, have opposed the original plans for higher taxes to fund the spending has made it more difficult.
There may be significant increases in income taxes, capital gains taxes, and corporate taxes. That’s a far cry from the relentless drumbeat over the past year of making “the wealth pay their fair share” that has animated much of the Democratic caucus.
While the current situation is fluid, there should be one thing that has been consistent throughout: Democrats shouldn’t have thrown everything at a huge tax-and-spend bill. The spending should have been their primary focus from the start, and not taxing.
Why? It is because the Build Back better bill’s spending section, as well as $1 trillion in infrastructure legislation passed by Senate already have a wide following. What’s the point? Because no one goes to the polls and votes for higher taxes, even for higher taxes on billionaires (OK, maybe some people do vote for that but that may be the exception….). Voting is for the things that people receive, or what they hope to get, and not what may be taken away from them, or others.
Although polls show that healthy majority favor wealth taxes for the very wealthy, voters who actually vote on taxes directly in state elections tend to disapprove of them. That shouldn’t be surprising. It’s one thing to favor an abstract tax increase on someone else, especially on the very rich who have benefitted immeasurably more than wage earners in a world awash in capital and strong stock markets. But when confronted with the potential for actual increases in taxes, voters suspect that they are not being told the truth and that all the promises in the world that “their taxes” won’t go up will prove false.
If Democrats are successful in passing a multitrillion-dollar spending bill, then they will find themselves with the unfortunate position of having created one of largest domestic spending plans ever. Most voters would have negative opinions. It’s a classic case of good policy being overshadowed by bad messaging. Mixing significant tax increases with large spending was the main culprit.
Sure, Republicans and media have stoked internal divisions within the Democratic party between progressives and moderates. Many opinion pieces have attacked Sinema, Manchin and their efforts to divide the caucus. Stories of internal “feuding” have proliferated. The sense of disarray in the party combined with waning support for President Biden after the debacle of the Afghan withdrawal, rising inflation and concerns about stalled progress against COVID-19 certainly haven’t helped.
Despite that, the bill’s structure made it susceptible to being accused of the same old Democrat tax/spend. Republicans could unite because initial plans had included tax increases for a variety of reasons. Republicans would have been unlikely to support childcare for mothers in suburban areas, although resisting tax rises (regardless on who and why) is almost always popular. As Will Rogers once quipped, “The difference between death and taxes is death doesn’t get worse every time Congress meets.”
They would not have been as locked into their own story of Both expanding the safety net and “making the wealthy pay their fair share” (as Biden kept intoning), the Democrats could have said that the dual plans of infrastructure, universal broadband, child tax credits and childcare and universal pre-K education were investments in the future dynamism of the U.S. that would pay for themselves in increased prosperity and productivity many times over. It could have made it possible for opponents to make arguments against everything, against the U.S. and against its future, something few Republicans would be able to stomach.
Yes. A bill with little revenue and lots spent will lead to government debt. Yes, government spending cannot exceed revenue. Japan’s experience over the last twenty years has demonstrated that a country with an economically strong and stable economy can borrow much more without raising interest rates or triggering inflation. As evidenced by the billions spent in the Pandemic, Americans support higher deficits when they feel that spending is beneficial to all income levels and not just the wealthy.
However, Democrats could keep the tax increase that is most popular with both Democrats and Republicans: taxes not on the wealthy but only the very rich: billionaires.
Democrats have been considering implementing a wealth-tax to tax the fortunes 700 billionaires who collectively own trillions. It remains to be determined what form it will take and whether it is possible to enforce, though there has been broad support for asking Elon Musk, Jeff Bezos, and the Walton families to increase their investments gains.
In terms of politics, the Democrats can claim a win in the billionaire’s tax as well as a victory in better infrastructure and robust safety nets. And those are “winners” because having learned from the pandemic that direct aid to families and workers is something government can actually do, the Democrats could have taken their very slim majority in Congress and ploughed ahead with building on that simple and powerful plan.
Instead, they became mired in an old script of taxation, driven partly by a legitimate desire to be fiscally prudent and more than partly by a moralism that those with more aren’t paying enough and that inequality is a societal ill. That was a losing strategy. The billionaire wealth tax won’t do anything to reduce inequality, but it could generate some modest revenue to offset needed spending.
And even if the wealth tax doesn’t make the final cut, it doesn’t matter. The spending is what matters. It is everything that matters, and what most voters really care about. Having nearly snatched defeat from the jaws of victory, perhaps they will learn a lesson going forward: a government that gives is not just more popular than one that takes; it’s also one that does more for the collective good. These trillions of dollars will go to long-standing, unmet needs. They will also address urgent issues that were revealed by the pandemic. It will make America great again. It’s a pity that getting there was so messy that the Democrats have managed to make themselves less popular even while passing popular measures.