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Opinion: Democrats’ tax plan puts their fragile majority at risk

Democrats in the House Problem Solvers Caucus, made up of 29 members from the GOP and 29 from the Democratic Party, have forced their leadership to commit to bringing the infrastructure bill to the House floor by September 27. This explains the Democratic leadership’s panicked sprint to pass the reconciliation bill, come hell or high water, by that date in the House in order to appease their fiery progressive wing who demand a package deal.
Further complicating matters, West Virginia moderate Sen. Joe Manchin prudently called for a “strategic pause” on the reconciliation bill. House Speaker Nancy Pelosi rebuffed Manchin’s demand and made clear she’s unwilling to pare back the massive $3.5 trillion plan. So much of this new spending will occur on a recurring basis — universal Pre-K, free community college, expanded Medicare services — unlike most Covid-19 relief spending that is non-recurring. Remember that the proposed reconciliation spending is in addition to the nearly $6 trillion previously spent for Covid-19 relief, most of which was essential to assist working families and businesses devastated by the pandemic through no fault of their own.
House Democrats last Monday revealed legislation to raise taxes by more than $2 trillion that would pay for some, but not all, of their new spending under reconciliation. While taxing the rich may have a populist appeal in the abstract, it remains to be seen how popular taxing small businesses will be on Main Street. I’m betting Main Street won’t like what’s in this tax stew.
Pretending that raising taxes on American corporations and small businesses will not harm workers and the broader economy is wishful thinking. House Democrats are proposing to raise the corporate tax rate from the current 21% to 26.5% for companies with a taxable income of more than $5 million, which is still lower than the 35% that was in effect before the 2017 GOP tax cuts that I voted for.

If this corporate tax rate increase were the only change on the table, Democrats might be able to sell it — but it’s not. This legislation has several provisions, like limits on deductions and a surtax on small businesses making over $5 million, that could be the making of a tax revolt against the Democrats.

For President Joe Biden to suggest that none of this will harm people making under $400,000 a year is pure fantasy. The president has pledged that individuals earning less than $400,000 won’t face any higher taxes.
Down here on planet earth, it is known that costs imposed on businesses are passed onto consumers in the form of higher prices and to workers in lost or lower wages. Not to nitpick but, while most non-smokers feel no pain by popular tax increases on cigarettes and other tobacco products as the House Democrats have proposed, many smokers will notice as a number of them earn considerably less than $400,000 a year.

The longer this massive tax and spending proposal sits out in the open the more it will smell like a rotten mackerel in the moonlight.

Let’s be clear about one thing: Neither the $3.5 trillion in spending nor the over $2 trillion in higher taxes are likely to become law. These inflated numbers will come down as centrist and pragmatic Congressional Democrats get hammered by business owners at home about profligate spending and a gargantuan tax increase. While it’s fashionable for progressives to attack Manchin for wanting to tap the brakes, he is sure to be joined by many more members gobsmacked by sticker shock. They, too, will be urging restraint. It is always worth reminding Congressional Democrats they need the West Virginia Democrat far more than he needs them.

Nervous House Democrats now face the prospect of going on record voting on the bloated reconciliation package at $3.5 trillion in spending combined with a more than $2 trillion tax hike with the knowledge that the bill will never pass the Senate. House Republicans know their pain as the draconian Obamacare repeal and replace bill in 2017 never had a chance of passing the Republican Senate back then. Perhaps a more apt comparison is the controversial 1993 BTU tax that aimed to tax fossil fuel companies’ sources of heat and that House Democrats were forced to vote for, while knowing full well the Democratic controlled Senate wouldn’t pass it. Many House Democrats were later BTU’d in the 1994 midterm election wipeout, just as Republicans were in 2018. History has an uncanny way of repeating itself when congressional hubris strikes at the most inopportune times.

Will House Democratic leaders force their centrist members in 2021 to walk a BTU-like plank in order to satisfy the progressives? We’ll find out soon enough.

What is so remarkable about all of this is that Biden and centrist Democrats did not campaign in 2020 on turning America into a cradle-to-grave entitlement state, similar to Scandinavian countries. Yes, Sen. Bernie Sanders told us this was his agenda — but he lost. In 2022, swing voters might express their displeasure at the polls against those members who seem to have forgotten this important detail.


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