High Anxiety: A $3.5 Trillion Budget – and Higher Taxes for the Wealthy – Draw Near

High Anxiety: A $3.5 Trillion Budget – and Higher Taxes for the Wealthy – Draw Near

It’s just about to happen – any day now.

Congress will pass its FY2022 budget, followed by some form of infrastructure bill, aggregating at $4.5 trillion. The Hill will then search for ways to fund it. There’s already a plan.

The middle class will be spared, unless you see rising gasoline prices and consumer inflation as forms of taxation, which, in fact, they are not. Yet the government enacts policies; prices go up; guess who gets socked. I can understand the confusion.

Taxes surely will rise on the wealthiest citizens. We’ve been talking about it for nearly a year. I’m tired of dread, can hardly take the suspense. Let it come down, so we can deal with it.

In the early Reagan era, there was a recession; how it dragged on. I recall a political cartoon portraying the president as Little Orphan Annie, a hot hit on 42nd Street at the time. Whatever you thought of his politics, personality, or pomaded hair, there was no denying the president’s homespun, grandpa-like gravitas. Seeing him garbed in a flouncy dress with saucer-like eyes rather undercut the effect.

Our Little Orphan Ronnie sang from the strip, in imitation of his daily news-hour mantra: “Tomorrow, tomorrow, the recession ends tomorrow; it’s always a day away.”

We waited and waited until the crushing gloom lifted under President Clinton, when the digital revolution took the economy stratospheric. Good times need time to gestate, just like the bad.

Hurry up and wait. Uncle Vasily – the youngest of four brothers, so he was called Babe – fought in Normandy. Late on June 5, the eve of the invasion, he was bobbing on a boat in Southampton harbor. He watched the air armada pass over, thousands of planes. Babe was no dope, he knew what was coming; it would be rough. He sat on that ship, marking time, for two horribly long weeks.

Babe crossed the beach with his artillery battery late in June. He had a tough war, a rendezvous with a land mine at Aachen, but later said that waiting in that harbor was the roughest of all. “Mother of God, let’s get it over with,” he’d endlessly recount saying, and Aunt Anne would warn him, ‘Babe, the kids – watch your language’.

A song by Mel Brooks rings in my ears; it’s called High Anxiety:

I wish I could get this crisis under control
Then I could feel some kind of closure
I feel this could go on and on without end
I guess I’ll just have to ride it out…

When will the tax increase come? A few days ago, House Democrats passed a $3.5 billion budget resolution. It’s only a ‘framework’; writing the real legislation now commences – a tough process, even with a Democratic majority.

Democrats plan to pass the eventual bill under the budget reconciliation process. I looked it up, considered explaining, thought, ‘watch your language, don’t upset the readers’, so I’ll say only this: a simple majority will make the bill law. Congress has tortuous, not to say torturous ways all its own.

The House vote should be safe, but if one Democrat riots in the Senate, the bill is sunk. Two senators, Krysten Sinema (D-Arizona), and Joe Manchin (D-W.Va.) object to the bill’s size; they and party colleagues are playing hardball to reconcile their views.

Speaker Pelosi sailed some chin music to straighten them out: don’t worry, taxes on corporates and rich citizens will cover the costs. So far, the two malcontents are still hugging the plate. Alas, interesting days are ahead.

A memorandum to Democratic senators, issued two days before the Senate cleared its own budget resolution, reads:

“The agreement calls for the $3.5 trillion in long-term investments to be fully offset by a combination of new tax revenues, health care savings, and long-term economic growth. In addition, the agreement would prohibit new taxes on families making less than $400,000 per year, and on small businesses and family farms.”

There it is again: new taxes; my blood pressure spikes. Let’s run them down, because no matter the tussling in Congress today, a budget will pass and taxes will rise on the wealthy. Take it to Vegas, youngsters.

Item 1: The top marginal income tax rate could rise to 39.6% (37% now). Democrats expect no real objection: that rate was current before the 2017 Tax Cuts and Jobs Act, and nobody dies for a couple of points. The rate was to revert to 39.6% in 2026 in any case, so Democrats can argue they’re just stealing a march. I expect inclusion with little fuss.

Item 2: The long-term capital gains tax would climb to 39.6% (20% today). Taxpayers earning more than $1 million per year would pay it. Adding the 3.8% Obamacare surtax takes the top rate to 43.3%. This would sting wealthy citizens who earn a big portion of their income from investments. I expect it to pass muster, but the rate may be shaved a bit. If you’re worried, get on the blower to your representatives today. A trim may save your day.

Item 3: Democrats don’t like inheritance much; hence, they aim to pare down how much the wealthy can leave to heirs. Eliminating the step-up in basis at death, the one happy ray on a generally gray day, is on their agenda. The Treasury Department thinks this could boost the tax-take by $323 billion over ten years.

Killing the step-up sounds politically acceptable, but it might be hard to enforce. Congress tried it once, in the late 1970s, and it proved unworkable. This one may pass, but I wouldn’t panic.

Item 4: Here, you may panic. Tax compliance – read, harsh enforcement – is on the list. Under the plan, IRS eyes would focus on households with annual incomes north of $400,000. Treasury says that “opaque income sources” are creating a monstrous tax shortfall, estimated at $384 billion in 2019.

President Biden has suggested up-funding the IRS by $80 billion over ten years. That’s a big investment. The White House is indeed hitting for the seats: they hope to snag $700 billion in underpaid taxes. I see no political chains to contain this scary monster. No matter what else is penciled into the final budget, I expect this one to be included.

What about next year? Will spending climb and climb, with fresh taxes to fund it? In recent days, we’ve seen how quickly the ground shifts, public support turns to ashes, sure things leave politicos flat. Still, it could turn either way. Taxing the rich might prove tasty – or turn sour – to powerful pallets. We will, I’m afraid, live to see it.

Watch this space. We’ll have plenty to consider.

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