This week on Facing the Future, we examined President Biden’s pledge not to raise taxes on households with annual income below $400,000. Our guest was Ben Ritz, Director of the Center for Funding America’s Future at the Progressive Policy Institute and author of a new issue brief on the Biden pledge.
We also got Ben’s take on a tax bill that passed the House this week with a strong bipartisan vote of 357 to 70, although its prospects in the Senate remain uncertain. Later in the show, we discussed the potential consequences that the nation’s deteriorating fiscal outlook could have for our economic future. Concord Coalition Policy Director Tori Gorman joined the conversation.
President Biden’s pledge, first made during the 2020 campaign, has complicated tax policy during his administration. Ritz explained that the scope of the pledge has actually expanded even as the need for higher revenues has grown.
“The pledge,” Ritz said “was to not raise taxes on any households making under $400,000 a year. He [Biden] later specified that it’s not just that there’s no net tax increase on households making under $400,000 a year; he changed it to be that not a single household making under $400,000 a year would experience a tax increase. He then clarified that not only does he not want new taxes on these households, but he would also extend all existing expiring tax cuts for households making under $400,000. And then, most recently, when the Democrats passed increased resources for the IRS to crack down on tax cheats, the Biden Administration said they were only going to use these resources to increase audits on households making over $400,000 a year. So it’s morphed into ‘We are not going to in any way, shape or form, take one penny of tax revenue from households making under $400,000 a year.’”
“What the right levels of taxes and spending are depends on folks’ ideologies,” Ritz said. “But given how much of the Federal budget is focused on supporting older Americans, and the fact that our society is getting older in general with the aging of the baby boomers, I think that there’s really no question that we’re going to need more revenue moving forward than we’ve had in the past.”
Ritz is concerned that Biden’s pledge arbitrarily cuts off a significant amount of potential revenue that would be needed simply to support current law spending, let alone the expansions Biden has proposed in past budgets. According to Ritz, the pledge covers 98 percent of households and 80 percent of income. “There’s just not enough revenue that you can get practically from just the wealthy to make the system work,” he said.
He also said the pledge complicates any attempt to raise revenues by closing loopholes or by imposing a consumption tax – two strategies that are often included in tax reform proposals. One example he cited is funding for the highway trust fund which has traditionally been funded through the gas tax. “As gas tax revenue has declined,” he said, “there has been a lot of talk about switching over to a system called the Vehicle Miles Traveled Tax, which would tax people directly based on how much they drive. There was a pilot for this in the infrastructure bill, but there would be no way to actually implement the tax being tested in that pilot under the $400,000 pledge, because there would be folks making under $400,000 who are paying that tax, and there’d be no way, really, to income-test this because you’re supposed to be taxing road usage, not income. That problem scales throughout any sort of user fee or consumption tax.”
As for the long-term outlook, Ritz said there were two main reasons why credit ratings agencies have downgraded the United States.
“The first is from the fiscal perspective. Interest costs have gotten a lot higher. Interest on our debt is really the way in which debt negatively impacts our economy and our society. Higher pressure for borrowing drives up interest rates and interest costs for the government, both because of the higher rates and a higher stock of debt on which that rate is applied. And that’s money that can crowd out other critical public investments.”
“The other issue is our governance challenges. I don’t think we have shown that our government is serious about tackling this issue anytime soon. We don’t exactly present a model government right now. And so you have a big problem that’s getting worse and a government that seems less capable of tackling it than in the past. If you look at those two factors, it is cause for a less than positive outlook.”
Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
