Biden’s Climate-Change Bill Won’t Tax the Middle Class

1 week ago 14

Paul Krugman

Aug. 4, 2022

Credit...Anna Rose Layden for The New York Times

Paul Krugman

Kyrsten Sinema willing, Democrats appear to be on the verge of passing the Inflation Reduction Act — a bill that probably would, indeed, reduce inflation but is mainly a desperately needed effort to limit climate change. Republicans are, of course, attacking the legislation.

But when I look at the substance of those attacks, such as it is, I can’t help feeling more cheerful than I have in months.

For one thing, the debate over the proposal feels like a return to a more innocent time, when Republicans tried to make their case with dishonest claims about economic policy — not insane conspiracy theories and attempts to overthrow democracy.

For another, the G.O.P. critique of the bill is extraordinarily weak. And that’s a good omen for Democrats’ new approach to climate policy — one that relies mainly on carrots rather than sticks, on incentives to do the right thing rather than penalties for doing the wrong thing. We’re already seeing just how hard it is for Republicans to attack this approach, and it will get even harder once the public starts to see the benefits of environmental investments.

So, about that critique. The act calls for $369 billion in climate spending, mainly tax credits for families and businesses that adopt clean-energy technologies, improve energy efficiency, and so on. It would also spend $64 billion on extending subsidies that help keep health insurance affordable.

This new spending would be fully paid for, and then some, mainly by cracking down on tax avoidance and evasion. The biggest revenue source is to be a new minimum tax on large corporations. The legislation would also give a desperately underfunded Internal Revenue Service more resources to crack down on tax cheats. And it would seek to save Medicare money by giving the program the power to negotiate over drug prices.

How can Republicans attack such a bill? They can’t openly defend the interests of tax evaders and avoiders, although their long-term efforts to starve the I.R.S. of resources show that in practice they are pro-tax cheater. What they have done, instead, is claim — citing an estimate from Congress’s nonpartisan Joint Committee on Taxation — that the legislation would raise taxes on the middle class and that this violates one of Joe Biden’s campaign pledges.

It’s a bogus claim, on multiple levels.

First, the act wouldn’t raise personal income taxes on anyone. Full stop. It just wouldn’t.

What the J.C.T. projects instead are “distributional effects,” an attempt to estimate the indirect burden on families resulting from other taxes, which in this case essentially means the possible effect on wages of requiring large corporations to pay a minimal amount of tax.

Estimating these effects is useful, but are they a “tax increase” on workers? Almost any government policy will have an adverse effect on the income of someone, somewhere; is everything the government does a tax increase?

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Furthermore, if we’re going to consider the indirect effect on family incomes of legislation that doesn’t directly affect their taxes, why not consider the whole act, not just part of it? The J.C.T. table that Republicans are citing notes that it excludes the impact of several major pieces of the bill that would help families, in ways ranging from reduced drug costs and larger health insurance subsidies to clean-energy incentives. Add those in and the middle class almost surely ends up ahead.

Another point I haven’t seen emphasized is that the bill would probably reduce air pollution in general, not just greenhouse gas emissions, which would have major health benefits — and monetary benefits, too.

Wait, there’s more. The J.C.T. assumes that a significant part of the revenue to be gained from taxing corporations would eventually come out of wages. That’s an area of intense academic debate, but there are good reasons to believe that when you’re cracking down on tax avoidance the effect on wages is actually minimal.

Finally, despite all the ways the J.C.T. analysis tilts the playing field against the Inflation Reduction Act, the claimed increase in middle-class taxes is tiny. For example, according to the J.C.T., the federal tax rate on families earning between $50,000 and $75,000 a year would rise from 13.0 percent to … 13.1 percent.

So the G.O.P. attack on this proposal is, in a word, pathetic. The only way it might gain traction is if the media bothsides its reporting, failing to inform news consumers that Republican claims about the bill are, in fact, untrue. That is, unfortunately, a real possibility. Any news report to the effect that “Republicans say the bill would raise middle-class taxes” that doesn’t point out that this claim is false betrays the public interest.

Misinformation aside, however, the right-wing attack on Democrats’ new climate policy is, as I said, extraordinarily weak — and that’s a wonderful thing to see. While the Inflation Reduction Act is a big deal in itself, many of us hope that it will be only the down payment on an even bigger effort to save the planet. And if this is the best the planet’s enemies can do, that’s a very good omen.

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