Expect Higher Taxes, Possibly a VAT, to Support Huge $4 Trillion Infrastructure Bill

Mish

To get any legislation passed, Democrats cannot afford to lose a single vote. Senator Joe Manchin holds the lock and the key.

Manchin Open to VAT

Last month Manchin called for 'Enormous' Infrastructure Package Paid for With New Taxes. 

"I'm sure of one thing: It’s going to be enormous," the West Virginia Democrat, who is seen as a swing vote in a chamber divided 50-50, told reporters at the Capitol.

While he didn't predict a price tag, Manchin said Congress should do "everything we possibly can" to pay for it. He said there should be "tax adjustments" to former President Donald Trump’s 2017 tax law to boost revenues, including by raising the corporate rate from the current 21 percent to at least 25 percent.

The tax benefits in the Republican law were "weighted in one direction to the upper end," Manchin said. He also suggested an "infrastructure bank" paid for with revenues, potentially a value-added tax, that would be used for "rebuilding America."

"I'm not afraid to look at other things," he said.

Pulling Biden to the Left

Yesterday, NY Magazine reported Joe Manchin May Be Pulling Biden Left on Infrastructure.

Joe Manchin is an odd Democrat. This is true in a banal sense, in that the West Virginia senator is far more conservative than the median member of his party on a whole host of issues. At present, Manchin is directly blocking the passage of progressive gun safety, voting rights, and minimum wage bills, and indirectly obstructing just about every other item on President Biden’s agenda, by opposing substantial reforms to the legislative filibuster.

But on infrastructure, Manchin is a different kind of strange. Whenever the subject comes up, the man’s mood grows lighter, his eyes grow wider, and a wee bit of socialism creeps into his heart. 

In an interview with the Bipartisan Policy Center in February, Manchin likened the scale of his desired infrastructure package to that of the New Deal or Dwight Eisenhower’s federal highway bill.

What Does Manchin Want?

If Manchin values “paying for” infrastructure more than he does bipartisanship, he could actually force the White House to roll its remaining spending priorities into one giant reconciliation bill, which Republicans would have no influence over. That could both expedite the passage of a bill permanently extending the American Rescue Plan’s child allowance, while also pushing the details of the physical infrastructure package in a more progressive direction.

Reconciliation Rules

It normally takes 60 votes to pass a bill in the Senate to kill a filibuster. 

In special situations, however, Reconciliation Rules allow passage by a simple majority. 

Reconciliation bills can be passed on spending, revenue, and the federal debt limit, and the Senate can pass one bill per year affecting each subject. Congress can thus pass a maximum of three reconciliation bills per year, though in practice it has often passed a single reconciliation bill affecting both spending and revenue.

Policy changes that are extraneous to the budget are limited by the "Byrd Rule", which also prohibits reconciliation bills from increasing the federal deficit after a ten-year period or making changes to Social Security. 

The reconciliation process was created by the Congressional Budget Act of 1974 and was first used in 1980. 

The Lock and the Key

Manchin's vote can prevent passage of a bill or ram it through.

Without Manchin, Democrats come up short in the Senate 51-49. With Manchin on board, the Senate ties 50-50 and Vice President Kamala Harris gets to cast the tie breaker.

Using the EU as an example model, a VAT would be very destructive to the economy. 

Manchin is both the lock and the key. With Manchin on board, the smart money expects higher taxes of some kind.

Mish

Comments (64)
No. 1-19
dbannist
dbannist

I would take a national VAT over the complicated mess that is the US tax code.

The problem with any VAT being proposed now is that it will be ON TOP of the existing complicated tax structure, making it even more complicated.

Greggg
Greggg

I believe if you dig deeper into the infrastructure plans, somewhere in there is a private/public "Partnership" not just designed to bite us in the ass, but to chew off a huge chunk of it.

Mish
Mish

Editor

There is a difference between a national sales tax and a VAT

dbannist
dbannist

Can you explain the difference? I assumed, based on what I know of Europe, that a VAT is a tax that is levied at the source, meaning that each stage of the product a VAT is levied, which is, in essence, similar to a national sales tax.

Or am I missing something?

One-armed Economist
One-armed Economist

I think a VAT has been long overdue for capital expense items. Every other country in the world has it and it's way naïve to say they're all stupider. No, WE are.
Example: Canada has a 7 digit Postal Code (Zip Code). B/e it also has alpha-numerics (letters) a SHORTER 7 digit Postal Code can dial in address roughly similar to out 9 digit full zip code. We should have used alpha-numeric and SAVE SOME WRITTING & INK!!

Carl_R
Carl_R

A VAT, like a sales tax, discourages consumption, rather than discouraging productive behavior, as an income tax does. Also, since the reporting mechanism is simpler, it has a higher yield. Those engaged in illegal activities, and those working for cash, rarely pay any income tax, but they would have to pay a VAT, since it would be priced into everything they buy. To me, a VAT is clearly superior to an income tax.

Unfortunately, there is a small (large) problem. The Constitution requires taxes to be apportioned among the several states, and specifically says "No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken." How do you apportion a VAT according to the Census? Is a VAT a direct tax?

The 16th Amendment is: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." That doesn't help with a VAT.

If a VAT is passed, expect a Constitutional challenge.

Eddie_T
Eddie_T

This was always coming, it just took some time to get here. I’m not surprised.

VAT will cut consumption, cause job losses, and (as usual) the burden will fall disproportionally on the middle class.

And the Republicans can run on lowering taxes.......and win...and then only lower the for the .01%, as usual.

I wonder what makes Joe Manchin tick. I’m a firm believer that most politicians back legislation that directly benefits them, their families, and their political backers. To be that conservative on so many other issues while being a populist on infrastructure makes me think there is more here than meets the eye.

Lance Manly
Lance Manly

Go to West Virginia, they have a bunch of federally funded roads that go from really nowhere to much else. Byrd was very good at bring home the pork.

Mr. Purple
Mr. Purple

If Manchin is a swing vote, then so is every other Democratic senator. A 50-50 Senate is quite problematic.

TexasTim65
TexasTim65

4 Trillion is an insane amount of money right after already spending 1.9 Trillion. Not sure but did Trump even spend 5.9 trillion in 4 years or Obama spend that in 8?

Actual spending for actual infrastructure (road / bridge repairs etc) is sorely needed I can get behind (assuming again we don't have to use union wages everywhere). But spending for roads to nowhere or green energy I don't support. The thing is, under Obama we were supposed to have spent 800 billion on shovel ready projects on infrastructure and yet I don't recall any of it actually being spent on such things (anyone know of any actually done by that 800 billion).

PecuniaNonOlet
PecuniaNonOlet

VAT tax is all gloom and doom here yet it exists almost everywhere else in the world and things chug along fine. Sorry but more taxes are coming whether you like it or not. Voting for republicans only makes things worse then a dem needs to come in and fix the mess republicans make. Rinse and repeat.

ColoradoAccountant
ColoradoAccountant

How do electric cars pay Highway Users Tax like gasoline and diesel vehicles do?

bluestone
bluestone

no! This will ruin my idea of coming over to Dover, Delaware and using the money saved by buying a big bunch of clothes and electronics at 0% instead of 20% UK to pay for the whole holiday!

The worst thing about high VAT ,imo, is that it kills restaurant and bar culture which is just miserable. The French, not a country known for low tax fondness, put exemptions in when they realised how many cafes etc were closing after a greedy tax grab (forgot the year maybe Macron at the beginning).

That aside, you can guarantee additional job losses in the first year of VAT increases and as has been shown many times in Europe, the government invariably uses the revenue (that is purported to be raised) to increase the level of maintained debt. So its a one term spending gain accrued to the democrats but you have VAT to pay for the rest of your lives.

Sechel
Sechel

All for it. The long delayed Gateway tunnel is a must. High speed rail such as a real line connecting ny to boston and maybe d.c would reduce air travel, increased productivity and cut pollution. We just wasted four years on a wall.

Realist
Realist

“Using the EU as an example model, a VAT would be very destructive to the economy.”

Therefore you are suggesting “what” as an alternative?

Don’t bother with infrastructure?

Or

Higher user fees?

Or

Let your children and grandchildren pay for it?

Or

How about an annual tax on every gun you own?

oee
oee

Good! party time for the top 01% is over. higher taxes will not hurt the economy per my previous posts...

Nonpartisan
Nonpartisan

Mish says "Using the EU as an example model, a VAT would be very destructive to the economy." Can you explain why a VAT would be very destructive?

whirlaway
whirlaway

Yes, a VAT would be regressive. But it would be ideal to fund something like a national health insurance system like Medicare For All, for example.

Captain Ahab
Captain Ahab

Every so often I breeze by MISHTALK to see if anything has changed--like a serious discussion of global economics. What I see makes me wish for the old days, when Mish and his readers were comparable with Roubini et al, insightful and thoughtful analysis.


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