In politics, you never say it’s over until it’s really over—and you know what the vote count actually is.
That said, as Congress begins to consider the most significant tax legislation in years, and as someone who was Republican staff director on the Senate Finance Committee for seven years, I can tell you that I’m already meeting with corporate clients and telling them to prepare for taxes to increase by a third, from a 21% rate to a close to 28% rate as outlined in the latest version of the infrastructure bill.
Since the early days of the presidential campaign, President Biden has said that his tax plan would cover the cost of his spending agenda. But of course what has been less clear is the amount of taxes that will likely be raised at the corporate and individual levels. In just a matter of weeks we are shifting from a massive Covid relief and economic stimulus to the President’s even larger and arguably more ambitious infrastructure plan.
What is also not clear yet is how bipartisan the President and members of Congress—Democrat and Republican—will choose to be. Like many Washington veterans, I’ve seen President Biden’s bipartisan instincts up close and personal. But this is a new era.
In 2012, Vice President Biden helped save the day. I was serving as the Republican Staff Director on the Senate Finance Committee, which has jurisdiction over tax policy. This was the year that the entirety of 2001 and 2003 Bush tax cuts were set to expire. Simply letting them all sunset would have meant a massive tax hike on virtually all taxpayers amid an economic recovery. Neither party wanted to see that happen.
Congressional Republicans were almost uniformly opposed to any tax increases, and virtually all Democrats were unwilling to entertain any major spending cuts without a substantial tax hike on high-income earners. Those intractable positions made any substantial progress impossible.
In December of that year, with the country headed over the cliff, we came to the table with the Obama administration one last time. It was then-Vice President Biden who negotiated on behalf of the administration and worked with Senate Republicans in those final days to reach a compromise. Again, President Biden’s willingness to recognize and seize an opportunity to compromise was a key turning point in this sequence of events.
By nature, President Biden wants to work with both sides of the aisle, but given the challenging current environment, I see less likelihood of that now. Large majorities are difficult to control—no matter who is in charge—and good intentions from thoughtful and bipartisan committees may not rule the day.
During the Affordable Care Act early legislative days, the then-chairman of the Senate Finance Committee, Max Baucus (D-Mont.), decided against initially pursuing a Democrat-only process, and instead worked together with several Republican senators, including my then-boss Senator Orrin Hatch (R-Utah). Together in good faith over several months, the bipartisan group of senators and senior staff worked to find a solution on which both parties could agree.
Ultimately, after months of conversations—many, many hours of conversations—there was no bipartisan agreement to be reached. After the bipartisan negotiations failed, Democrats began a process of putting together what ultimately became Obamacare.
Partisanship comes in different sizes and flavors and at different speeds, and sometimes there’s little intention of bipartisanship right from the get-go. During my time at the Department of Treasury, when we on the Republican side had the responsibility to implement the Trump tax cuts in 2017, there was no doubt that Republicans were unable to find Democrats who were willing to partner to make the Trump tax reform bill a success, ultimately leading to a partisan approach. Different issues create a sense of momentum and a “here and now” mindset.
It will be a pleasant surprise if the White House or some on the Hill demand and achieve a bipartisan legislative result—dare I say it might even be an amazing, heroic effort. But unfortunately, I’m betting on a partisan effort and divisive process. I’m telling my corporate clients that it’s likely they’ll face an entirely new tax regime, and they should be prepared with immediacy. Companies need to start making important, difficult decisions now based on the assumption that their corporate tax burden will be raised significantly.
So, if you’re in corporate America—get ready. Tax increases are coming, they will be expensive, and they will pass and become law—even on a fully partisan basis and when the vote count is indeed truly over.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Chris Campbell is chief strategist at Kroll and a Fellow of the Kroll Institute. Chris was the Assistant Secretary of the Treasury for Financial Institutions from 2017 to 2018. Prior to his role at the Treasury department, Chris was the majority staff director to the U.S. Senate Committee on Finance.
Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at TaxInsights@bloombergindustry.com.