Democrats Propose Tax Increases for $3.5 Trillion Spending Package

Plus: A look at the markup process for this year's National Defense Authorization Act.

By and
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Your Uphill team is happy to be back after a small Labor Day-induced break. Now, to the news. 

Infrastructure Month Is Back

Democrats have figured out how they intend to pay for their massive infrastructure reconciliation package: lots and lots of new taxes. 

The plan, put together by House Ways and Means Committee Chairman Richard Neal, calls for increasing the tax rates of high-income individuals, income from capital gains, and corporations. Here’s a quick breakdown: 

  • The top individual tax rate would be raised from 37 percent to 39.6 percent.

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  1. Avatar photo
    Ben Connelly

    “ Along with the serious amendments pertaining to national security being debated and voted on, plenty of Republicans tried to turn the bill into yet another culture war battle. Several Republicans used the markup to grandstand about critical race theory in the military. Reps. Jim Banks of Indiana, Mark Green of Tennessee, and Vicky Hartzler of Missouri introduced amendments that centered around CRT.”

    During the NDAA debates. Cmon guys.

    This is the very definition of “making the news,” while refusing to govern.

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    Stephanie

    I'm no expert on how government funding works.

    But isn't it necessary to raise the debt limit in order to pay for government expenditures the Republican-dominated Senate approved during the last Trump year?

    Weren't the Republicans the ones who spent the money? And now the debt limit has to be raised so the bills can be paid, but they are refusing to do that. Do I have that all wrong?

    I'd welcome an explanation from someone more knowledgeable.

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      Ben Connelly

      You don’t have that wrong. They’re grandstanding. I’d love to actually do something about the debt but this debt ceiling fight isn’t that.

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      Logical

      Stephanie, the debt limit is an anachronism. You don't decide not to pay the credit card AFTER you bought and used it up. It is a scam perpetuated by the GOP; McConnell is shamelessly obfuscating his responsibility to "govern".

      DEMs always followed through. Time to fight is BEFORE you buy, not after.

      Obama didn't want anything to with that nonsense and called McConnell's bluff. But Biden may not want this fight (his cup runneth over) and Dems will cover it in reconciliation.

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  3. Avatar photo
    Visibly

    From abroad:
    You are using an enourmous amount on military (defence of America). Do continue that, but shift the focus from imagined enemies abroad, to the real risk of the future at home and abroad = climate change.
    Use your forces to prevent climate devastations at home. And use them strategically to avoid climate disasters in areas that could harm US interest.
    It means building walls (along rivers and sea fronts), making tunnels (to move river water from wet to dry areas), to move people from low to higher sites, and to find solutions for climate changes.
    America is so good when they need to be. Now is the time.

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      PaulH

      Adapting to climate change (through infrastructure projects etc.) is a good plan, but the US military really isn't equipped to do that sort of thing, nor should it be. Yes, there is the Army Corp of engineers, but that is a very, very small part of the budget.

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        Visibly

        But the US army could change meeting the most severe risk for USA today?

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          PaulH

          I suppose, but maybe we should convert the Department of Education. The US Army actually has important things to do.

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            Visibly

            So what do you think is US Army’s most important job to do? Today and tomorrow? Be in war, or to prevent future wars?

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  4. Avatar photo
    Pat @ Tavi Hall

    No answer to my pressing question: what's up with that big green bicycle on Richard Neal's lapel?

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      Ryan Brown vertical-nib Author

      1000 words on this great mystery coming next week

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  5. Avatar photo
    Frank Lee

    Here comes the Laffer Curve. Raise the top income tax rate to 39.5% in a place like CA where the state top income tax rate is 13.3%… do the math. 52.8% of income for families making $1M in income. That means they for each dollar earned above that they get $.472.

    The economic malcontents will of course say that this is fair. But keep in mind that income over $500K a year is also going to be right near 50% for the next dollar earned.

    So you make $500k and take home $250k. Now again, some of the economic malcontents will again say this is fair. But for a family of working professionals in high cost liberal lands, this will result in career changes. For example, more professional women will say “no mas” and decide to stay at home to care for the children. But more importantly, people like me will say “no mas” to growing my businesses because the personal returns will not compensate for my capital risks and time. This next tax increase will cause massive retirement and career changes that will end up reducing the tax revenue returns. Meanwhile the more progressive countries competing with the US in the global markets will continue to lower taxes to help encourage MORE economic activity.

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    1. AS Upstate

      Small details, but that's not exactly how progressive taxation works. It's a marginal rate, so the 39.5% will start the 450,000th dollar of income for a married couple filing jointly. So even before deductions that $1 million family would be taking home considerably more than 47 cents/dollar. Then there's loads upon loads of other deductions and credits, from the mortgage deduction, charitable contributions, various retirement savings vehicles, and so on.

      I think the bigger risk is that high tax rates will incentivize more shenanigans to avoid paying taxes - but my gut (often wrong, admittedly) tells me that 39.5% isn't enough to cause people to start playing too many games.

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      David Chen

      Im skeptical that this will cause a sea change on its own. What I think is more likely is that it wont raise anywhere near the promised revenue, and then they will start talking about wealth taxes or significantly higher rates. At that point, I see them jumping the country entirely.

      Californians are already at 50%. Whats 53% at that point?

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    George.Skinner

    The Democrats still seem to be peddling the idea that they can make somebody else pay for all the spending. Just look at the raw numbers: $3.5 trillion is $10,000 for each and every American. Try to make that paid by the top 10%, and you're looking at making each of them pay an extra $100,000 to cover this. That's a number that starts with an individual earning of $125,000 per year. Why not just look at the top 1%? That takes the threshold to $350,000 per year, but then you need an extra $1 million in tax revenue from each of them. And they're better equipped to avoid paying those taxes. It's a similar issue with corporate taxes. Even worse, if they don't raise the money through taxing people who're alive today, they'll borrow it and leave subsequent generations on the hook.

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      Logical

      They are trying 3.5 T$ over 10 years. Readjust your numbers accordingly.

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        George.Skinner

        I know they’re over 10 years. That’s still an extra $10,000 per year for that person who’s just in the top 10% with $125,000 annual income.

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        1. Daniel Rabiner

          strange, when I did the calculations I got 1k per year for 10 years per American. Sure if you start trying to say only 1% of people will pay for all the increase in taxes then you come to 10k per person but I recall the average tax reduction from 2017 for that cohort was well in excess of that by multiples: https://www.cbpp.org/research/federal-tax/2017-tax-law-tilted-toward-wealthy-and-corporations

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            George.Skinner

            Do the math. The rate increase is being applied to the top bracket, which starts at $205,000. That’s actually only paid by the top 5% of income earners. In contrast, 61% of Americans paid no federal income tax in 2021. That’s not to say they’re not paying taxes - just not federal income tax. This all assumes that this spending is being paid for with taxes, which it isn’t. Instead, it’s paid for with borrowed money.

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          Logical

          Something's gotta give. Need to go from ~25% of GDP taxed to 27 - 27.5% range of GDP or cut elsewhere, or a combo.

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            George.Skinner

            Not counting the fraction of spending that isn’t being paid for with taxes at all. The 2019 federal deficit was 4.6% GDP pre-COVID. The other part that doesn’t get addressed here at all is whether all of this spending is actually worth what it’s costing. Given that we’re talking about a government that costs 25-30% of GDP (depending on if you’re paying for it, or your grandkids), those programs had better result in an economic multiplier of about 3-4x or else they don’t pay for themselves and they’re unaffordable.

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            Frank Lee

            I am just guessing we could cut your government employee retirement benefits to start.

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    Pat Riot

    Karl Marx talked about raising the top income tax rate from from 37 percent to 39.6 in Das Kapital, if I recall.

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    1. Avatar photo
      Logical

      While still a way to go, we're getting back to the socialist days of Reagan.

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        Frank Lee

        Please change you posting name to “Intellectual Dishonesty”

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        1. Avatar photo
          Logical

          Can you substantiate your insult with marginal tax rates of the Reagan era?

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            PaulH

            @Logical: By the time Reagan was one cutting taxes, the top marginal rate was 28%.

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            Frank Lee

            Reagan had to repair the Carter mess.

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