Tax Notes White House reporter Alexander Rifaat discusses the Biden administration’s economic plan called “Bidenomics” and its effect on tax.
David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: parsing priorities.
With just over two and a half years into Joe Biden’s presidency, we’ve seen a number of major tax and spending plans implemented, or at least proposed by the administration.
But do these plans form a cohesive economic agenda or are they just reactions to current circumstances?
Joining me now to talk about this is Tax Notes White House reporter Alexander Rifaat. Alex, welcome back to the podcast.
Alexander Rifaat: Dave, great to be back.
David D. Stewart: OK. So we’re now a little over two and a half years into this administration. Are we able to nail down a unified economic agenda from the current administration? And I’ve heard this term “Bidenomics,” but what is that?
Alexander Rifaat: Yeah. I think looking at the proposals that have both been enacted and also proposed so far by this administration, you see a common theme with all of these policies by President Biden. And essentially they involve using the tax system to promote not just economic growth, but to incentivize certain social outcomes as well.
Biden has pursued conventional democratic policy such as promoting clean energy development, unionized labor, and reducing income inequality. But it’s being pursued by offering tax credits to incentivize private companies to invest in clean energy technologies, to hire union workers and offer apprenticeship programs, as well as invest in areas that have historically been marginalized or rely heavily on declining industries.
Now there’s nothing new about a president or an administration using tax credits to incentivize certain behavior, but what you’re seeing with the tax credits enacted both in the CHIPS
HIPS
And so that’s what you see with the president trying to, in recent weeks in particular: talk about those credits in a way as to show that they’re not just focusing on just one particular aspect of his economic agenda. They really are promoting all of it, all at once.
David D. Stewart: Now the elephant in the room of this administration is it came into place as the U.S. was still gripped by the pandemic. So can we attribute these policies to — basically are they reactions to the pandemic or is this plan more universal?
Alexander Rifaat: Yeah. That’s a good question. In many ways, yes, and for two reasons. First, legislation that was passed during the pandemic, especially the American Rescue Plan in particular — it did provide some insight into the effect of how certain short-term tax incentives can affect economic growth and prosperity. For example, a temporary expansion of the child tax credit was found to significantly reduce child poverty. That has provided Biden the basis for arguing for the permanent expansion of that child tax credit in negotiations with Congress in recent months.
And what you see also with the pandemic, that the IRS was not just a tax collection agency, but also a crucial benefits provider as well. It distributed stimulus checks and tax credits to millions of Americans. But there was also massive fraud related to pandemic programs such as the employee retention credit as well.
The Biden administration has pointed to those factors to suggest that the institution of the IRS itself needs more funding in order to run properly. In the White House’s eyes, if you can modernize the IRS, you can expand and strengthen its capabilities to distribute social benefits as well as clamp down on would-be tax dodgers.
David D. Stewart: Now, how much of a change in direction has this been from previous administrations? And is there a historical analog to the current administration’s approach?
Alexander Rifaat: Yeah. So in some ways Biden is following in the footsteps of his Democratic predecessor, President Barack Obama, in advocating for tax increases on the wealthy to pay for social programs that would benefit middle and lower income households.
However, he is also using some of the rhetoric used by former President Trump in that he’s promoting an America-focused, America-centric economic agenda, and particularly in promoting this rebirth in American industrial strategy, albeit he’s focusing on clean energy development rather than President Trump’s focus on fossil fuels.
So in essence, Biden is combining the tax policy framework of the Obama administration with the rhetoric of America-focused, America-centric economic outlook that President Trump used.
David D. Stewart: What can we expect going into the 2024 campaign? What has Biden promised in terms of tax policy for a second term?
Alexander Rifaat: In addition to the previously mentioned push to permanently expand the child tax credit, Biden has also pushed for this narrative of rewarding work and not wealth in the tax system by instituting a 20 percent minimum income tax on households worth more than $100 million.
He also, in conjunction with that, has continued to pledge not to increase audit rates on individuals making less than $400,000 per year. Those are the main things that he’s looking for, that he’s pushing for, heading into the 2024 election.
David D. Stewart: Now, what are the main criticisms that we’re hearing about President Biden’s policies?
Alexander Rifaat: So I would break this down really into two parts. There’s the political, and then there’s the functional.
On a political level, Republicans have argued that Biden’s tax credits are creating an economy that essentially picks winners and losers, and that tax increases on corporations and wealthy individuals will stifle economic growth.
While construction of manufacturing appears to be soaring in the U.S. since the passage of CHIPS and the Inflation Reduction Act, most Americans remain skeptical on the economy. A poll last month by the Associated Press showed only 34 percent of Americans trust Biden’s handling of the economy.
And allies as well have voiced concerns over the domestic content requirements within the tax credits that Biden has enacted, especially the credit for electric vehicles. So there’s been a lot of scrutiny both domestically and internationally regarding the tax credits that the Biden administration has signed into law.
In addition to Republicans’ criticism of the additional funding for the IRS, Republicans have also come out against the administration’s plans to adopt pillar 1 and pillar 2 of the OECD global tax agreement, arguing that it will effectively result in both higher taxes for U.S. companies as well as a loss of tax revenue in the United States.
And then a final point on the political front, the president also has not been helped politically by the fact that his son, Hunter, is currently being charged with failing to pay his tax bill to the IRS, the very agency, of course, that he’s staking so much of his economic agenda on.
And then, switching over on the functional level, tax policy experts have raised concerns over the ballooning cost of the IRA [Inflation Reduction Act] energy tax credits. The Joint Committee on Taxation recently revised the estimated cost of the energy subsidies from about $260 billion over 10 years to well over $650 billion.
Others have also argued Biden has effectively closed off rigorous due diligence of his tax proposals by excluding the Office of Information and Regulatory Affairs from the review process of proposed tax regulations. And so as the tax credits in the CHIPS and IRA enter its implementation phase, there are questions whether companies will be able to effectively meet all of the stringent domestic content and labor requirements associated with the subsidies.
David D. Stewart: How much of the current economy is being attributed to the President’s agenda versus, say, Federal [Reserve] Chair Jerome Powell’s monetary policy?
Alexander Rifaat: Yeah. So obviously the president is taking credit for the relative strength in the current economy, while Powell has been lauded by economists for striking the right balance between raising interest rates just enough to lower inflation without bursting the labor market and thus sparking mass unemployment.
But in that, taking credit for the economy really comes as a double-edged sword for the Biden administration, especially if things do turn south come election year.
David D. Stewart: So looking ahead at some issues that are coming up, how are we expecting the president’s economic agenda to play into the upcoming negotiations over expiring provisions of the Tax Cuts and Jobs Act?
Alexander Rifaat: The debt ceiling agreement that was reached between the White House and Republicans earlier this summer effectively kicked that can down the road. Basically both parties have agreed [that] by suspending the debt ceiling up into January 2025, it’s effectively making those provisions part of a referendum into next year.
That really will come down to whether or not Republicans are able to control both chambers of Congress and the White House or whether Democrats are able to hold and then possibly take over the House.
David D. Stewart: What key indicators should we be looking for to assess the president’s agenda in the coming months?
Alexander Rifaat: Yeah. There’s really three parts to this. The first is implementation, which we are currently underway right now. And I think going into next year, there’s really going to be some key questions in terms of how much progress has been made in terms of implementing these series of tax credits? How effectively have businesses been able to take advantage of them? How have consumers been able to take advantage of purchasing electric vehicles? What are the level in terms of semiconductor production and manufacturing in the United States as a result of credits in the CHIPS and Science Act? And then looking at that, will Americans see a tangible enough difference in the economic situation to view Bidenomics as a success or at least a success in progress?
And then the second part of that is legislation. So what, if any, legislation will Democrats and Republicans be able to pass in terms of tax policy before the election? There is some support amongst Republicans for an expansion of the child tax credit. However, it remains to be seen whether or not that will come to fruition before next year’s election.
The other aspect is also the OECD tax agreement. As more and more countries adopt both pillar 1 and pillar 2, that will leave the U.S. obviously open to potentially falling under the undertaxed payments rule if it does not adopt it. There are also questions over how negotiations over the OECD tax agreement will unfold between Congress and the White House as more and more countries adopt both pillar 1 and pillar 2. Questions will be asked of what will the effect be on the U.S. and U.S. companies, given that part of the agreement entails a penalty or a surtax for failure to adopting the agreement?
And then finally, it’s the election itself. This goes without saying, but the results of the 2024 election will be pivotal into determining the trajectory of Biden’s economic agenda. If he’s able to win the reelection and Democrats are somehow able to take back control of the House and retain the Senate, then Biden will be able to further cement his legacy not just with the legislation that has been passed, but also pursuing the other goals that he’s already mentioned and outlined.
Now, if as most current polls suggest — and again this is very early; we’re only summer 2023. We’re still many months away. But as you know, most current polls are predicting if there is again a strong showing again by Republicans in the House combined with potentially taking the Senate and recapturing the White House, then that will severely halt if not completely reverse many of the policies Biden has championed.
David D. Stewart: All right. Alex, this has been great and thank you for being here. And I’m sure we’ll be talking a lot more as the 2024 election kicks off and we have other plans to discuss.
Alexander Rifaat: Yep. As I said, they have a long way to go.
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