Reviews | Republicans are freaking out over Democrats’ tax proposals. Guess why.


The Inflation Reduction Act that the Democrats are trying to push through Congress is only incidentally about inflation; it is primarily a bill dealing with climate change and prescription drug prices, with a hodgepodge of provisions on a variety of other issues. But it also takes a few steps to make our tax system a little fairer.

Naturally, Republicans are outraged by this thought. “Their tax hikes would break President Biden’s promise not to affect households earning less than $400,000,” said Senate Minority Leader Mitch McConnell (R-Ky.), calling the package ” new tax on American jobs”.

You will be shocked to learn that the GOP’s passion for the economic interests of ordinary people is far from sincere and that their description of this bill is not entirely accurate. Only a bill targeting the bank accounts of the wealthy and corporations could produce that kind of angry Republican opposition, and that’s exactly what’s happening here.

The Democratic bill contains three key tax provisions. The first narrows the carried interest loophole, allowing hedge fund managers to pay the (lower) rate of capital gains tax on the money they earn, rather than the (higher) rate ) ordinary income tax. There’s no plausible way for a lawmaker to defend this loophole other than to say, “I like to collect big checks from hedge fund managers in their lavish Hamptons estates,” which no one would say out loud. .

Instead, they focus on the other two main proposals, in particular the attempt to address the fact that companies find so many ways to avoid paying taxes even when making huge profits.

A while ago, people started noticing companies telling Wall Street that they were extremely profitable while still managing to convince the IRS that they owed little or nothing in taxes. Thus, the bill creates an “accounting income tax” requiring corporations making more than $1 billion in profits a year to pay at least 15% tax on the profits they report to investors (the corporate tax rate is 21%).

This is where things get a little wonky. Republicans have called for an analysis of this proposal by the Joint Committee on Taxation, knowing that the JCT assesses any increase in corporate taxes with a formula that allocates 25% of the increase to labor and 75% to capital.

Economists argue whether that’s the right way to think about it, but it’s based on the assumption that if you tax a company on its profits, you’re taxing both its workers and its shareholders. Will levying taxes on Nike or Archer Daniels Midland mean they end up cutting middle-class employee pay, or will the dividends they pay out to their shareholders be a bit lower?

Maybe, maybe not. But you wouldn’t call that a “middle-class tax hike,” would you?

Republicans would. They are waving around the JCT analysis as evidence – and much of the media echoes their claim.

Anyone who wants to say that corporations are people and should never pay taxes is free to make that argument. But turning a corporate tax hike into a direct raising taxes on the middle class is deeply misleading. That’s not to say the JCT’s analysis ignores many of the bill’s provisions that will provide financial benefits to the middle class.

That brings us to the last major tax provision: a significant increase in funding for the Internal Revenue Service, to allow the agency to rebuild itself so it can collect the taxes people really owe.

Republicans have long waged a budget war against the IRS, which has resulted in drastically reduced funding and personnel. Predictably, the agency has struggled to track down tax evaders, especially the wealthy able to hire lawyers and accountants to fight any effort to make them pay their fair share.

As a ProPublica investigation found, the “campaign to cut the agency’s budget has left it understaffed, crippled and operating with archaic equipment. The result: billions less to finance the government. For all intents and purposes, the GOP motto on taxes is “Defund the Police.”

Democrats have wanted for a while to do something about it. They tried to increase IRS funding in the bipartisan infrastructure bill that passed last year, but Republicans refused to go along, so the idea was scrapped.

And now the prospect of the IRS being able to do its job, especially when it comes to making the rich pay what they owe, worries conservatives. The editorial page of the Wall Street Journal, the media’s most zealous advocate for the interests of plutocracy, said that with this new funding, the IRS would go into “dumb mode”, unleashing a wave of oppression on the American middle class.

It’s an important lesson: when the Conservatives warn that a new proposal will hurt the middle class, look closer to see who really be affected and who they are really shilling for. It is almost always the wealthy and the corporations. The angrier they are, the more likely the bill in question is on the right track.

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