Tangle - Democrats release their tax plan.

Episode Date: September 15, 2021

Democrats have released a new tax plan that would raise rates on corporations and the wealthiest Americans in order to offset some of the spending in their $3.5 trillion reconciliation package aimed at expanding the social safety net and addressing climate change. The plan will bring in an estimated $2.1 trillion over 10 years.Our newsletter is written by Isaac Saul, edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle’s social media manager Magdalena Bokowa, who also created our logo.The podcast is edited by Trevor Eichorn, and music for the podcast was produced by Diet 75.For more from Tangle, subscribe to our newsletter or check out our content archives at https://www.readtangle.com/--- Send in a voice message: https://podcasters.spotify.com/pod/show/tanglenews/message Hosted on Acast. See acast.com/privacy for more information.

Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight.

Interior Chinatown is streaming November 19th, only on Disney+. Chinatown is streaming November 19th, only on Disney+. From executive producer Isaac Saul, this is Tangle. Good morning, good afternoon, and good evening, and welcome to the Tangle Podcast, a place where you get views from across the political spectrum, some independent thinking, without all that hysterical nonsense you find everywhere else. I am your host, Isaac Saul. And on today's episode, we are covering the Democratic tax plan that just came out earlier this week, which is meant to address how they're going to pay for some of their big spending plans in the infrastructure and reconciliation bills that are coming down.

We also have a reader question from New York about Larry Elder and some of the stuff going on in California, which brings us to our quick hits. All right, our first quick hit in the news today is that California Governor Gavin Newsom beat back a recall attempt by a pretty decisive margin. As of this recording, 68% of the vote is in in California, and 63.9% of voters have chosen to keep Newsom as their governor, while just 36% wanted to replace him. Number two, the share of Americans living in poverty dropped in 2020 when government benefit programs and stimulus payments were taken into account. That's despite the COVID-19 pandemic. Household incomes still fell by 2.9%. Number three, nearly 3 million Americans used a special six-month period created during the pandemic to sign up for subsidized health insurance.

That's according to a White House report. However, the percentage of Americans without health insurance still rose last year. Number four, a new book alleges that Joint Chiefs Chairman General Mark Milley had back-channel calls with his Chinese counterpart in the days after the January 6th riots to assure him he would prevent President Trump from ordering a military attack. Number five, former Presidents Bush, Clinton, and Obama are banding together behind a new group aimed at supporting Afghan refugee resettlement in America. Okay, so that's it for the quick hits. We're going to jump into today's topic, which is this tax proposal released by Democrats. to today's topic, which is this tax proposal released by Democrats. Democrats dropped their plan on Monday, and the top line major crux of it is that they are trying to raise corporate rates

and raise tax rates on the wealthiest Americans in order to offset some of the spending in their $3.5 trillion reconciliation bill, which is aimed at expanding the social safety net and addressing climate change, among other things. I mean, it basically touches pretty much every part of reconciliation bill, which is aimed at expanding the social safety net and addressing climate change, among other things. I mean, it basically touches pretty much every part of American life. The tax plan, which was released by the Ways and Means Committee, calls for the top tax rate to revert from 37% to 39.6% for individuals who are earning more than $400,000 a year or $450,000 for couples. That's the rate that it was before. There would also be an additional 3% tax on Americans with adjusted income higher than $5 million a year. The corporate tax rate would rise from 21% to 26.5%

on incomes beyond $5 million. President Biden had pushed for a 28% corporate tax rate, and President Biden obviously has promised not to raise taxes on anyone making less than $400,000 a year. These increases are generally in line with his campaign proposals, though they don't match them exactly. On top of the tax increase, which largely reverses the 2017 tax reform pushed by President Donald Trump and Republicans, the plan invests about $79 billion in IRS tax enforcement. It increases taxes on certain tobacco products. It also closes a loophole in the buying and selling of cryptocurrencies that allows investors to claim a deduction when selling at a loss. The proposal would also scale back certain deductions for high-income individuals and

corporations, but it does not address the $10,000 cap on state and local tax deductions. This is also called the SALT cap. A lot of Democrats from New Jersey and New York say that the SALT cap must be changed in order for them to vote for this bill. The proposed tax changes come as Democrats try to unite their caucus in the Senate and the House around the concurrent bills, a $1 trillion infrastructure proposal and another $3.5 trillion spending bill that would touch pretty much every part of American life. Senator Joe Manchin, the Democrat from West Virginia, who's a critical vote the Senate needs, that Democrats need in the Senate, says that he wants this bill to be cut by, you know, $1.5 trillion. He also says he opposes a

tax rate above 25%. So it's clear there are already some fractures here that this tax proposal might cost Democrats. Over a 10-year period, the proposal is estimated to raise about $2.1 trillion more in taxes, according to the Joint Committee on Taxation. I've seen somewhere some estimates put that closer to $2.8 or $2.9 trillion, but the Joint Committee on Taxation seems like a pretty reliable source there. okay so we're going to jump into what the right and left are saying about this bill the right believes that this bill will ultimately hurt the economy and hurt middle-class americans who will eventually sort of weather and shoulder the burden of these tax increases, although some of them sort of concede that this is marginally better than what Biden ran on. The Wall Street Journal editorial

board warned that Nancy Pelosi was marching Democrats to the political gallows. If Americans are successful, Democrats want more of their income, the board wrote. The top individual tax rate will rise to 39.6% from 37% as Mr. Biden promised. But wait, the higher tax rate will kick in at a mere $400,000 for individuals and $450,000 for married couples. That's down from $523,600 for individuals and $628,300 for couples under current law. This is a steep rate increase on two-earner upper-middle-class families, the board said. They may reach these income levels after a long career and only for a couple of years, but Democrats want more than 40% if you include the 1.45% Medicare payroll tax and the 3.8% Obamacare surcharge on investment income. If you make more than $5 million,

there will also be a three percentage point income tax surcharge, the board added. That would take the top tax rate to something like 46.4%. Add California and New York state taxes and government will be taking about 60% of your income. Hilariously, the board said, the committee figures the surtax will raise $127 billion in revenue, as if the rich will be dumb enough not to find tax shelters. The political myth behind all this is that no one making less than $400,000 a year will pay more. But the economic literature is clear that corporations don't pay taxes. They are merely the collection vessels for levies that are passed along to some combination of employees, consumers, and shareholders.

for levies that are passed along to some combination of employees, consumers, and shareholders. Much of the $900 billion will be paid in smaller wage gains for workers who are already paying a Biden tax from a higher inflation. In the Washington Post, Henry Olson said that the bill was slightly better, but would still hurt the economy. The tax plan that Democrats on the House Ways and Means Committee released on Monday did one good thing by removing President Biden's proposal to tax unrealized capital gains upon debt, saving many owners of farms and small businesses, Olson wrote. But the plan would still hurt the U.S. economy by making large corporations and the rich pay among the highest marginal tax rates in the world. Many people would surely find

this acceptable at a superficial level. Taking more money from people and entities that can afford it and giving it to people who need it sounds like an obvious win-win. But Olson said, this ignores the role state and local taxes play in our system. He pointed to some data from the Organization of Economic Cooperation and Development, the OECD, which says that combined state and federal corporate tax rates already put the average U.S. tax burden on businesses in the middle among those OECD nations at 25.75%. The House Democratic tax hike would raise that to more than 30%. The combined rate would give the United States the third highest combined corporate tax rate in the OECD behind only Portugal and Colombia. On the margin, this pushes companies deciding where to locate in the United States or in other countries to take their investment and jobs elsewhere.

The National Review editorial board called it the worst of both worlds that will do real damage to the economy, but not raise the money Democrats need for their proposals. Democrats here are pulling their usual stunt of assuring lower income people that higher taxes won't fall on them, but only on their employers, their landlords, and their grocers, as though their finances were unconnected, the editors wrote. In the past, that has been good politics, but it is bad economics. Conservatives are not alone in observing that businesses and other taxpayers respond to these incentives in ways that politicians do not intend. The so-called FAT Coalition, the Financial Accountability and Corporate Transparency, which supports higher worldwide corporate taxes and complains about tax havens, argues that the Democratic plan may actually worsen tax-driven offshoring. The House Democrats' plan is not quite as rapacious as what the White House would like to see and is in some ways more modest in its ambitions than what Senate Democrats would prefer, the board said. In that sense, it is the better proposal or, and here's what the left is saying.

The left supports the tax increases, though some believe there are missed opportunities inside. The Washington Post editorial board said Democrats still have far to go to fund their plans. Unsurprisingly, the board said, special interests such as the Chamber of Commerce and the American Farm Bureau are lobbying against practically every one of these ideas. Meanwhile, some Democrats would make the price tag even harder to cover. Republicans imposed in 2017 a $10,000 cap on the state and local tax deduction, a regressive benefit for wealthy tax filers. Democrats from states with high state income tax rates insist that they would kill any bill that fails to roll back the cap,

and Representative Richard Neal of the Democrat from Massachusetts signaled Monday that Democrats' legislation will include some kind of state and local tax relief. If anything, the board said, Democrats should be re-examining some obvious pay-fors that Mr. Neal failed to propose. They suggest closing the carried interest loophole, which allows hedge fund managers to avoid income taxes, and perhaps a carbon tax, which could fight climate change and would not impact most taxpayers if a chunk of its revenue were recycled back to the public. In Bloomberg, Alexis Leondis said Democrats made two big mistakes. The first is a failure to close a long-standing loophole in the tax code, which will sabotage a key tax increase Democrats were relying on to deliver enough revenue to finance their program, she said. The loophole involves the special treatment of investment gains when taxpayers die, a boon to wealthy families when they pass these gains along from generation to generation.

Leondis wrote out a hypothetical example. Let's say an investor had bought $200,000 worth of Apple shares that appreciated to $2 million. She wouldn't owe capital gains tax on the $1.8 million of appreciation when she died. on the $1.8 million of appreciation when she died. In turn, her heir would inherit the $2 million of Apple shares and only owe capital gains tax on the difference between the $2 million and any subsequent appreciation of the Apple stock. Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu,

a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+.

If and when she sells. In another misstep, the Democrats suggested a superficial fix for the special treatment enjoyed by hedge fund managers. Under the current tax code, hedge fund and private equity managers are eligible for a much lower tax rate than most other earners. Their compensation is called carried interest and is considered to be a capital gain, qualifying for a top rate of 20%

instead of the current top ordinary income tax rate of 37% paid by most wage earners. In 2017, the tax law enacted by President Donald Trump in a Republican Congress took a swipe at carried interest and said managers had to hold assets they were earning compensation on for at least three years instead of one year to qualify for the 20% rate. In Monday's proposal, Democrats moved the goalpost slightly by extending the holding period to five years. But since the average holding period for assets and private equity funds is more than six years, what Democrats are proposing seems highly

ineffectual. And then in American Prospect, David Dian sort of offered the progressive view here, which is that we're being cursed by this artificial scarcity caused by tying spending and revenue together. He said Democrats who all seem to regard themselves as tax experts can't even agree to simply return to the 2017 status quo before the Trump tax cuts, which could yield as much as $3 trillion. If the issues were being decided separately, you would just move on with designing the optimal spending and borrow for the rest. That's what centrists like Joe Manchin did on the bipartisan infrastructure bill after all. But Manchin, sensing that Democrats would try to de-link spending and revenue, counterattacked by disclaiming the very maneuver he endorsed to get the infrastructure

bill passed. He raised skepticism to Axios that you could count on long-term economic growth to finance human or soft infrastructure proposals. This is preposterous. Academic research routinely shows that public investments of all kinds pay off. Every dollar invested in early childhood education yields $7.30 in societal benefits per one account. The taxes have already been eroded, and now we're seeing the inevitable chipping away of the spending dime, wrote. Manchin told Axios he would only be comfortable with $1 trillion to $1.5 trillion in spending, and that's really an

expression of what taxes he would be willing to support. The artificial scarcity created by linking spending and revenue is killing this bill. All right, so that's it for the left's argument, and here is my take. So let me just start by saying I'm not a tax expert, and as far as I can tell, the academia on how corporate and individual tax changes impact the economy is basically one of the most convoluted debates on the planet. If the experts can't even agree, I'm not going to pretend that I can tell you what this bill's impact will be. There are too many moving parts right now, too much speculation, too many outside factors like COVID-19 still being a serious problem. But there are a few

things I see worth pointing out, both from a nuts and bolts perspective and from a political one. First, I think it's worth zooming out and looking at where our country is. Corporate profits and stock prices are hitting all-time highs. At the same time, inflation-adjusted wages for workers have barely budged in the last 50 years. I'm hardly the first person to point this out, but we have millions of full-time workers who are struggling to pay rent and eat while some of the nation's wealthiest CEOs shoot themselves into space. That's not some Bernie bro talking point anymore, okay? Republican populists and Democratic

progressives are both fond of hammering the quote-unquote elite and promising to remember the forgotten working class. Obviously, they differ on how they want to do this, but my view is that corporate America has had 50 years to prove it will support its workers and provide a strong quality of life. So far, it's kind of done a pretty piss poor job, so I don't have a ton of faith in them. Second, and sort of tied to this, is that the corporate tax rate was 35% when Trump became president. It's 21% now. Bringing it somewhere between those two numbers is not going to spell the apocalypse for a corporate America that primarily used those tax cuts to buy back their own stocks, hand out one-time bonuses, and blow up their profits, rather than long-term investment

and their workers. You don't have to take that from me. The Wall Street Journal examined the impact of those tax cuts on corporate America in January of 2020 before the pandemic and came to a pretty similar conclusion. The bill did not pay for itself and the benefits were modest, brief, or non-existent in nearly all of the intended areas. What Trump's tax bill did do that helped many of those workers was reduce the amount a lot of us paid in taxes. When the intended areas. What Trump's tax bill did do that helped many of those workers was reduce the amount a lot of us paid in taxes. When the bill was passed, for instance, I was making about $60,000 a year in New York City.

My take-home pay went up by about $200 a month. That, at the time, was a huge boon for me and gave me some breathing room on my monthly expenses. I'm sure many Americans experienced something similar, but the bill also provided for those savings to expire in 2025. The good news about this bill is that it shouldn't impact those savings for a huge swath of the country, and implicit acknowledgement that reversing course there would either be disastrous politically or bad for the economy.

I'm not going to suppose why Biden isn't touching that. Politically, what I am surprised by in this bill is that it does so little to address the wealth disparity, which seems like an even easier political calculation. Very few people are going to shed tears for Americans making more than $5 million a year, or even more than $400,000 a year, who have to give up a few more percentage points of their income to Uncle Sam. Even fewer probably would have wept for the wealthiest Americans if their inheritances were docked, as there's very little sympathy in this country for the silver spoon-fed class.

Yet Democrats seem to have left those vast fortunes unscathed, as Jonathan Weissman and Jim Tankersley put it. Their assessment that the bill goes after the rich rather than the fabulously rich strikes me as accurate. So, now we wait. How this bill animates certain elements of the Republican and Democratic base will be interesting to see. So will the inevitable concessions and changes as critical Democratic moderates throw their weight around. Whatever your politics, though, this bill is the latest chapter in addressing the widening American class divide and appears to be one element of the Democratic version of how to approach that fracture. okay so we're going to move on now to the reader question this came in from kyle in new york new york he asked me what do you make of the larry elder egg incident not getting widespread coverage

on the more liberal leaning news outlets it's aous act, and I find it hard to disagree with the if-it-were-a-Democrat assertion. So, I wish I had addressed this question before the recall had occurred, the recall election had ended, but I only caught it today. So, for those who missed it, Elder, who is black, was touring a homeless encampment in California when a woman in a gorilla mask threw an egg at him. Nate Elder confronted the woman. She slapped him in the face. Police also said Elder was shot

at with a pellet gun earlier in the day. And frankly, Kyle, I'm with you. I think if this had been a prominent black Democrat, the story would have been all over the news for days, and it got considerably less coverage from CNN, MSNBC, and other mainstream news outlets than I expected. It did make Tangle's quick hit section. That being said, there's a little bit of work in the refs here. True, the story wasn't covered nonstop for 24 hours, but it wasn't totally ignored either. I mean, CNN did a segment on it. MSNBC did as well. I saw local news outlets covered it. You know, I did a quick Google and I found the story was basically written up in every single major newspaper. So it was out there. As for the gorilla mask, though, it's tough to say what that means. I mean, a lot of far left protesters wear masks. It's totally

possible it was just a coincidence. It's also possible this woman was actually a racist cretin who was wearing a gorilla mask because Elder's black. I really don't know. I don't think the police know as far as I understand. I'm not sure if this has been classified as a hate crime. I don't think it has. But, you know, regardless, the attack was extremely ugly. And there's no doubt in my mind that if someone wearing a Trump shirt rather than a gorilla mask had thrown an egg at a black Democratic candidate for governor while they toured a homeless encampment we would have heard about it non-stop for days all right today's story that matters is a really sad and frustrating one but uh certainly worth pointing out internal documents from facebook reveal that the company knows Instagram is toxic for teen girls. 32% of teen girls said that when they felt bad about their bodies, Instagram made them feel worse.

That's according to a document that circulated inside Facebook in 2020. Facebook has been studying how its photo sharing apps impact millions of its users, and the company's researchers have repeatedly found it is harmful to a sizable percentage of them, most notably teenage girls. We make body image issues worse for one in three teen girls, one of the presentations internally said in 2019. Teens blame Instagram for increases in the rate of anxiety and depression and the reaction was unprompted and consistent across all groups. Alright, and today's numbers section, here are a few pretty interesting ones. The first, also not very uplifting, 1 in 500 is the number of U.S. residents who have now died of COVID-19, according to a new Johns Hopkins estimate and CNN analysis.

67,521 is the medium inflation-adjusted household income in the United States last year. 37.2 million is the number of people living in poverty in the U.S. in 2020. 26,246 is how much money a two-parent, two-child household needs to be making in order to be considered above the poverty line. $20 million is the approximate number of millionaires in the United States. And finally, your have a nice day section. After about six months of simulator flight and physical training, a crew of four civilians is set to launch into space tonight. The Inspiration4 crew is participating in a concept drone from Elon Musk's SpaceX, which wants to send more civilian crew members into space in the coming decades. The launch will be aired live on Wednesday night with liftoff at 8.02 p.m.

The crew will spend three days in orbit flying above the International Space Station. Billionaire Jared Isaacman is the brainchild behind this mission and the commander of the flight. All right, everybody, that is it for today's Tangle. As always, if you want to follow our work or support us, please go to readtangle.com, become a subscriber, and press that five-star rating for our podcast. It helps. We're new. We need it. Give us a hand. Thanks, everybody, and we'll be back tomorrow. Today's podcast was written by me, Isaac Saul, the Tangle News founder, and it was edited and produced by Trevor Eichhorn. The music for the podcast was done by

Diet 75. Our newsletter is edited by Sean Brady, Bailey Saul, and Ari Weitzman. It is also produced by my social media manager and right hand Magdalena Bokoa. Thank you so much for tuning in. And as always, if you want more, go to readtangle.com. Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, Thanks for watching!