The Inflation Reduction Act: A Small Victory on Tax Policy. We Need Much More

As BlueMeanie reported Wednesday, Manchin and Schumer have agreed to a tax and investment package that includes $739 billion in new revenue and $433 billion in new investments. Supposedly, it’s fast-tracked for a Senate vote next week. We’ll see. BlueMeanie is appropriately skeptical about Sinema, but I’m not sure is she’s the only potential spoiler. Watch for Menendez, among others, to whine a bit.

I won’t cover the ground BlueMeanie already covered, but I think it’s important to recognize this for what it is. Is it a step in the right direction if it passes? Yes, but only a little, tiny, baby step. And we must recognize the difficulty in pushing this sliver of Biden’s Build Back Better program should be taken as a blaring alarm bell. If this is the best we can do after 18 months of controlling the House, Senate and White House, we’re in a world of hurt.

To be sure, this is a weak bill. The Lever provides a solid critique of the bill’s provisions. Among other things, the provisions allowing Medicare to negotiate drug prices don’t kick in until 2026, and then only very gradually, beginning with only 10 drugs in 2026. The climate provisions only make modest progress toward’s Biden’s goal of a 50% reduction in carbon emissions by 2050:

An analysis from Rhodium Group, which scores climate legislation based on carbon emissions, says the bill will reduce carbon emissions by somewhere from 31 to 44 percent by 2030. (Without the legislation, Rhodium estimates the U.S. would be on track to reduce emissions by 25 to 34 percent in that timeframe.)

In other words, the bill by itself translates to a 6 to 10 percent reduction in carbon emissions. And remember, coming close to meeting Biden’s goal of a 50% reduction by 2030 doesn’t mean we get an B+ for effort. It means we fail to avert the worst effects of climate change and hundreds of millions of people across the globe suffer.

The tax provisions of the bill are similarly weak. To be sure, the tax provisions of the bill are good policy. But they represent only a fraction of the policy changes included in the Build Back Better legislation. Certainly some of the blame for this goes to Kyrsten Sinema, who obstructed every single provision in Build Back Better that would have reversed the Trump tax cuts or closed loopholes currently exploited by the billionaire class. But the failure to enact more comprehensive changes is bigger than Sinema. It is more of a cultural failing, which directly connects to our failure to meaningfully confront climate change. Vanessa Williamson explains this in her recent piece, Radical Taxation:

The shortest road out of the anti-tax swamp is to face tax opposition head on. But to do so, we must grapple more seriously with what might seem like an easy question: what conservatives hate about taxes. The common but incomplete answer is that taxes can be progressive, and thereby reduce wealth concentration. But conservative tax antipathy is not simply a bulwark against a more equal distribution of wealth; it stems from a recognition that taxation, more than other economic policies that have an equal or greater redistributive capacity, rests on the principle that private property can be reassigned to public purposes—simply because public works are worthwhile.

In other words, taxes demonstrate the legitimacy of democratic control of the economy. This is what conservatives cannot accept, and what surviving climate change will require.

Williamson’s piece is superb. Of the scores of tax policy pieces I’ve read over the years, hers is one of the very best. Clicking on the link and reading every word of it would be well worth every second spent. It would be hard to identify THE key takeaway, but one certainly is the shortcoming in messaging and philosophy of Democratic Party leaders:

What is disheartening is that, for forty-some years, Democrats have rarely contested the Republicans’ core claim. The asymmetry here is important. Republicans design tax policies that predominantly aid the rich, but rhetorically, their antipathy is to all taxation. Democrats do not hold the opposite position. They favor taxes that fall primarily on the rich, but they do not defend taxation on principle.

. . .

Rather than making a case for taxes, Democrats have, at best, demanded more progressive taxation. Doing so contests the inequity of Republican tax policy: good and important, but inadequate. There are any number of excellent reasons to make taxation progressive, from the mild (the rich can afford it) to the militant (the rich are only rich because they exploited the poor). My personal favorite is Thomas Paine’s: extreme wealth should be taxed away because it undermines the equality essential to the functioning of republican government. But the case for taxation is not, and should not be, simply that it is progressive. In a democracy, taxes assert the right of the people to prioritize the public welfare ahead of private accumulation. Focusing exclusively on raising taxes on the extremely wealthy studiously avoids the essential proposition that the public interest is worth paying for—and that we are all responsible for paying our share

(emphasis mine)

So, is the Manchin-Schumer compromise a tiny step in the right direction, or a one-off event motivated by the mutual desire to avoid a bloodbath in the upcoming midterms? Hard to say at this point, but at least it provides some hope. For as Williamson explains, protecting our climate and our democracy will require a recognition that those two crises are tied, inextricably, to a decades-long failure in tax policy:

Ending the anti-tax era also requires recognizing that what is anathema to conservatives about taxation is not merely their economic effects but their political implications. Yes, conservatives dislike taxes because they are redistributive. But the redistribution they object to is not only from the rich to the poor. Taxes always, every day and by definition, redistribute wealth from private interests to the public. Taxes assert that private property is under the control of the polity—in a democracy, the people. This is precisely what we need to do if we are to preserve a livable planet. The principle of taxation so hated by conservatives is the principle that the common good comes first, and this is the principle for which we are fighting.

Onward.