Legislation

On taxes and Dems’ climate bill, GOP rhetoric runs into reality

As Senate Democrats eye a vote this week on their ambitious reconciliation package, called the Inflation Reduction Act, Republicans have settled on a specific line of attack. GOP senators argued yesterday, for example, “Democrats want to raise taxes on almost every American.”

The editorial page of The Wall Street Journal echoed the talking point. “This gives the lie to Democratic claims that no one earning under $400,000 will pay more taxes under the bill, a promise Mr. Biden also made in his campaign,” the editors wrote in a piece published on Sunday. “The reality is that the Schumer-Manchin bill is a tax increase on nearly every American.” Fox News, not surprisingly, is on board with the claim, too.

That’s not even close to being true, and it’s worth understanding how and why Republicans are getting this so very wrong. As The New York Times reported:

Since the deal was announced, Republicans have attacked it as classic tax and spending — the same terms they have used to deride much of Mr. Biden’s agenda. Last weekend, Republican senators released a companion analysis from the Joint Committee that they said was proof the entire bill would raise taxes on the middle class, though it did not actually show middle-class Americans would pay more taxes under the plan.

Steven M. Rosenthal, a senior fellow at the Tax Policy Center, told The Washington Post’s Catherine Rampell, in reference to the Democratic legislation, “If you’re not a tax cheat, hedge fund manager or a corporation making over $1 billion, you’re not affected.”

So, what led Republicans to insist that the Inflation Reduction Act would raise taxes “on almost every American,” when reality shows otherwise?

As it turns out, GOP lawmakers requested that the Joint Committee on Taxation examine the Democratic legislation — the result of which is online here (pdf). As Jon Chait explained, the JCT didn’t find that the bill would raise middle-class taxes, but it did offer Republicans a point that was easily exploited.

The complication that enters the picture is that the JCT, like other economic modelers, tries to project how the burden of a tax increase is borne. The agency used to assume that corporate tax increases are borne entirely by shareholders in the firms that pay the tax. In 2013, the agency changed its modeling assumptions and now assumes that corporate tax increases are not borne entirely by shareholders. Instead, firms respond to tax increases in part by reducing wages for their employees and reducing investment, which ultimately leads to slightly lower wages…. But even assuming JCT’s projections are completely correct, it is not a description of a tax increase on the middle class. It is a forecast, rather, that a tax increase on large corporations will eventually lead to slightly lower incomes by the middle class. JCT’s table breaks down this burden by income category. But it is not showing that the people in these income categories will pay more tax.

In other words, because the Democrats’ reconciliation package would require many large corporations to pay more, the Joint Committee on Taxation — looking only at part of the bill — made an educated guess about those corporations possibly, at some point in the future, lowering incomes.

This, according to Republicans and their allies, constitutes a “tax increase” — despite the meaning of the words “tax” and “increase.”

Senate Majority Leader Chuck Schumer added on the chamber floor yesterday, “[O]ver the past few days, we’ve heard Republicans go back to their timeworn attacks that they use against virtually any Democratic policy. They’re sounding alarms that this bill will raise taxes on American families, but it does not! Here is the plain truth: the bill will not raise any taxes — any taxes — on families making under $400,000 a year…. When you increase taxes on the wealthiest and corporations who pay nothing, they say you’re raising taxes on everybody. Bull!”


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