The Tax Season That Won’t End
The “ides of April” are upon us and that means millions of Americans are scrambling to finish their annual filings to the Internal Revenue Service (IRS) and state revenue agencies. Tax Day 2022 hits on Monday, April 18.
While accountants across the country will flee for much-deserved vacations once all of the 1040 forms are put to bed, in Washington, D.C. tax season will just be getting underway. In fact, debate over revenue proposals could be a key focus for Congress in the coming weeks. And it certainly will be a much-discussed issue as the 2022 election season gets underway.
The Return of Build Back Better Tax Proposals
As Politico reported last week, this spring Senate Democrats plan to make “one last push” to move forward President Joe Biden’s Build Back Better (BBB) plan—or at least a slimmed down version of it.
As a reminder, after vowing last December to vote against the more expansive version of the BBB that House lawmakers had approved, Sen. Joe Manchin (D-W.Va.) has said he would be open to supporting a smaller bill that “focused on raising taxes on the rich and big corporations” and included prescription drug reform and climate spending. Specifically, Sen. Manchin wants to partially roll back the 2017 tax cuts enacted by Congress by raising rates on upper-income Americans and corporations—and have half of the generated revenues go to deficit reduction. (Sen. Manchin links deficit spending to rising inflation.)
As a reminder, the 2017 Tax Cuts and Jobs Act signed into law by then-President Donald Trump:
- Changed the corporate tax rate from a tiered tax rate system ranging from 15 percent to 39 percent to a flat 21 percent rate;
- Kept the previous seven individual income tax brackets but lowered the rates. The top rate fell from 39.6 percent to 37 percent and the second highest bracket fell from 33 percent to 32 percent. Sen. Manchin has not specified which of the brackets he would change; and
- Created a 20 percent deduction for owners of pass-through businesses, which include sole proprietorships, partnerships, and limited liability corporations.
Will Sen. Manchin be open to other Democratic proposals? Perhaps. As Bloomberg reported at the time, Sen. Manchin said he would need to see “work requirements for benefits such as expanded child tax credits as well as means-testing so that those making more than $200,000 annually aren’t eligible.” The senator also “wants an income cutoff for tax credits for the purchase of electric vehicles.”
If Democrats don’t agree to those parameters, those more progressive ideas are unlikely to make it into the slimmed down BBB.
One item that Sen. Manchin is almost certain to oppose: the “billionaires’ tax” on unrealized capital gains that President Biden proposed as part of his fiscal year 2023 budget outline. Sen. Manchin has said, “The wealthiest Americans shouldn’t be taxed on things they don’t have. There are other ways for people to pay their fair share, and I think everyone should pay.”
There is at least one glitch in Democrats’ plans to revive the BBB and its tax proposals. While Sen. Manchin seems ready to return to the negotiating table, another moderate Democrat, Sen. Kyrsten Sinema (D-Ariz.) is not. According to AXIOS, “In closed-door conversations,” the senator “has told donors a path to [BBB] revival is unlikely.” Despite her role as a key swing vote—particularly on fiscal issues—reportedly no one in Senate leadership or from Sen. Manchin’s office has reached out to Sen. Sinema to discuss a slimmed down bill. In a 50-50 Senate, Democrats can’t afford to lose a single vote in their quest to enact some form of the BBB.
But the Democrats can take some small solace in the fact that they aren’t the only party struggling over tax policy.
Republicans Erupt Over A Proposal To Tax … Everyone
Late last winter, Sen. Rick Scott (R-Fla.), who chairs the Republican Senatorial Campaign Committee (the organization that promotes Republicans running for the U.S. Senate) released a sweeping tax plan that even many members of his own party do not like.
As the Institute on Taxation and Economic Policy (ITEP) has explained, Sen. Scott would like to require that all Americans pay at least some federal personal income tax. (Right now, about half of American households do not.) ITEP has estimated this idea would increase taxes by more than $1,000 on average for the poorest 40 percent of Americans and would impact the following states the most: Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina, West Virginia, and, remarkably, Florida.
In Georgia, Republicans are hoping to pick off a Senate seat from Democrats this November. When general election time comes around, Democrats will almost certainly try to tie the eventual GOP candidate to Sen. Scott’s plans and to paint the entire Republican party as out of step with working people.
In fact, the White House already is trying to do that.
White House press secretary Jen Psaki tweeted that Sen. Scott and “Senate Republicans just released an economic plan that doesn’t include a single proposal to lower prices for the middle class.” Psaki also pointed out the senator “wants to raise taxes” on Americans, “including on seniors and working families.”
White House officials are not the only ones who have criticized Sen. Scott’s plan, however. Senate Majority Leader Mitch McConnell (R-Ky.) has rejected it. And Grover Norquist, who heads up the anti-tax group Americans for Tax reform and is usually a strong Republican ally, recently wrote a column that dubbed Sen. Scott’s plan “a gift to Democrats.”
Norquist wrote, “Scott’s call for higher taxes on half of Americans … could cost the GOP its winning brand as the anti-tax hike party.” He went on to defend Americans who do not pay income taxes, saying Sen. Scott “suggests that those Americans who do not pay federal income taxes in a given year are somehow without ‘skin in the game’. Nonsense. All Americans pay the damaging cost of the individual and corporate income tax and federal excise taxes and tariffs imposed by Washington.”
Norquist predicted Republicans would lose their chances at taking back the Senate and the House if GOP candidates do not immediately repudiate Sen. Scott’s plan.
What do public opinion surveys say? Which party is more in line with how Americans feel about their tax bills?
Americans Don’t Want To Pay More Income Tax
While polls usually show Americans are open to raising taxes on “the wealthy,” according to a survey released by WalletHub in March, Americans want to keep more of their own money. In fact, two thirds of Americans (66 percent) believe they pay too much on their income in taxes.
Americans also are willing to take pretty drastic measures in order to hand over less of their money to the tax man. Half of people surveyed said they would move to another state if it meant they could pay less of their income to government. Thirty-seven percent would move to another country.
But that’s not even the most extreme action Americans are willing to take. More than one-third of respondents, 38 percent, said they would be willing to get “IRS” tattooed on their body if it meant they would no longer have to pay taxes. Twenty percent would be willing to take a vow of celibacy in exchange for a tax-free life. About the same number would take a vow of silence for six months, and nine percent would clean prison toilets for three years if it meant they never had to worry about April 15th again.
One reason Americans want to pay less? We don’t think government officials do very well with what we hand over to them. Eighty-one percent of Americans told pollsters the government does not spend its revenue wisely. One-third of Americans think tax revenues would be better spent by American charities. When asked why so many Americans think the federal government does a bad job being good stewards of their tax dollars, Washburn University Professor of Law Lori A. McMillan said that feeling comes down to one thing: politics.
“The allocation of spending is an inherently political act, done by an administration,” McMillan said. “That means some people will agree with spending priorities, and some won’t.”
Buckle your 1040 tax forms, people, because even though Tax Day is coming soon, the end of the debate around federal revenue is not.