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Making the Most of a Crisis, Biden Links Recovery and Reform

Posted on Apr. 1, 2021
[Editor's Note:

This article originally appeared in the March 22, 2021, issue of Tax Notes State.

]

Winston Churchill had many quotable things to say about politics, and even a few about taxation. Like his complaint about excessive burdens: “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” Or his observation on the virtues of tax consciousness: “Direct taxation was a great corrector of extravagance.”

But for sheer pithiness, few of Churchill’s aphorisms can top his famous insight about urgency and opportunity: “Never let a good crisis go to waste.”

Sadly, Churchill did not utter these words, which seems inexplicable: They sound so perfectly in character! But that’s the nature of “Churchillian Drift,” a phrase coined to describe the more general phenomenon of attributing quotations to famous people who should have said them, even if they actually didn’t.

It’s possible, perhaps even likely, that Churchill harbored a thought about crisis and opportunity. He certainly weathered plenty of crises, many with aplomb. And the insight itself is rather banal; other public figures have made similar observations, including then-Sen. John F. Kennedy in 1960. “In the Chinese language, the word ‘crisis’ is composed of two characters, one representing danger and the other, opportunity,” Kennedy told an audience.

Maybe so. In any case, it seems unlikely that we can pin down the origin of this pseudo-Churchillian warning about squandered crises. But we can identify its most (in)famous recent usage in American politics: a 2008 appearance by Rahm Emanuel, then preparing to assume his new role as White House chief of staff for Barack Obama. “You never want a serious crisis to go to waste,” Emanuel told a group of business executives fretting over the financial collapse. “What I mean by that is, it’s an opportunity to do things you think you could not do before.”

Emanuel took a lot of heat for that comment, with critics accusing him of trying to exploit the nation’s financial crisis for naked partisan gain. In fact, however, Emanuel had gone on to stress the importance of bipartisan cooperation:

This is an opportunity. What used to be long-term problems — be they in the health care area, energy area, education area, fiscal area, tax area, regulatory reform area, things that we have postponed for too long that were long-term — are now immediate and must be dealt with. This crisis provides the opportunity, for us, as I would say, the opportunity to do things that you could not do before. The good news, I suppose, if you want to see a silver lining, is the problems are big enough that they lend themselves to ideas from both parties for the solution.

These were words of conciliation — surprising ones for a well-known partisan like Emanuel. But the early months of the Obama administration proved to be a disappointment for fans of comity and compromise: 2009 did not yield a surge of bipartisan problem-solving. The economic stimulus passed during Obama’s first year won not a single Republican vote in the House and only three in the Senate. Other major laws passed during Obama’s first two years got a similar, polarized reception on Capitol Hill.

The financial crisis, in other words, did turn out to be a catalyst — but for conflict, not cooperation.

If the 2008 crisis didn’t produce the bipartisanship that Emanuel claimed to want, it certainly delivered the partisan results that Republicans said they feared. Urgency greased the skids for several key Democratic priorities, including not just the 2009 stimulus but other landmark laws, including the Affordable Care Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Both were made possible by the same crisis that got Obama elected in the first place.

Using the crass metrics of partisan advantage, Democrats didn’t waste their crisis.

Biden’s Crisis

Or did they? Despite the achievements of Obama’s first two years, many Democrats now view the period as a disappointment. While much was accomplished, they contend, much was also sacrificed in a vain bid for Republican support. The crisis, in other words, was squandered in pursuit of GOP votes that were never seriously in play.

Many Democrats seem determined to avoid repeating those errors, despite their thin majorities in Congress. Bill Galston, a senior fellow at the Brookings Institution and a former adviser to President Clinton, explained the party’s fading interest in compromise.

“I underestimated the extent to which the experience of 2009 has seared itself into the memory of senior Democrats,” Galston told The Guardian. “The interpretation of going too small and paying the price in a painfully slow recovery, spending too long at the beginning negotiating with members of the other party who were never going to agree and never going to compromise, not telling the American people what they had accomplished for them.”

Is President Biden one of those “senior DemocratsGalston was talking about? You won’t hear the president criticize Obama in public. But Biden’s early track record suggests that he may harbor a few heretical thoughts. Like Obama, Biden arrived at the White House amid a full-blown national crisis. And like Obama, Biden has approached his crisis with words of compassion, compromise, and conciliation.

But when it comes to working with Republicans, Biden has taken a tougher stance than Obama ever did during those crucial years of 2009 and 2010. If Biden’s rhetoric still features some of Obama’s “hopey changey stuff” (to recall Sarah Palin’s memorable insult from 2010), his legislative agenda is built on something altogether more hard-nosed.

Biden’s agenda, moreover, is ambitious. Early on, he made clear that he intended to use pandemic recovery legislation to accomplish more than just short-term emergency relief. The sheer size of the American Rescue Plan Act of 2021 (P.L. 117-2) suggests its transformational goals: $1.9 trillion is a lot of money. And in fact, politicians, journalists, and political analysts from across the political spectrum have recognized the act as a landmark:

  • “Next to civil rights, voting rights and open housing in the ‘60s, and maybe next to the Affordable Care Act — maybe — this is the biggest thing Congress has done since the New Deal,” declared Senate Finance Committee member Sherrod Brown, D-Ohio, in comments to The New York Times.

  • The Times itself described the legislation in similar terms, calling it “a poverty-fighting initiative of potentially historic proportions, delivering more immediate cash assistance to families at the bottom of the income scale than any federal legislation since at least the New Deal.”

  • Christopher Faricy and Christopher Ellis, political scientists at Syracuse and Bucknell universities, respectively, have judged the law to be “the largest expansion to the American welfare state in a generation.”

The transformational character of the American Rescue Plan is made possible by its blend of short-term recovery and long-term reform provisions. Although the latter are generally structured as temporary, emergency measures, Democrats built the law to last. In drafting the act, they took pains to make permanence a real possibility — chiefly by framing the law’s most controversial elements as tax provisions.

Faricy and Ellis made that point in their op-ed for The Hill. Smart policy design was the key to winning passage for this contentious legislation, they asserted, especially in a Congress in which Democrats have exceedingly slim majorities. “The Democrats were able to generate conservative support for the bill by designing the most progressive components of the bill as a tax credit rather than a direct check,” they wrote. “According to a new CNN poll, the tax credit portions of the bill are the most popular with voters.”

The act’s provisions expanded the earned income tax credit and the child tax credit to target the working poor, and both will be especially helpful to families of color, Faricy and Ellis pointed out. Operating together, those provisions are likely to slash total child poverty in half, they wrote. Those measures lie at the heart of the law’s transformational character. Or they will if they are made permanent.

If Democrats had tried to achieve that result with cash payments, Republicans might have found traction for their attacks on the legislation. But structuring the anti-poverty measures as tax provisions made it hard for the GOP to mount an effective attack; such tax-based programs are popular, even with Republican voters. As Faricy and Ellis explained:

In our new book, The Other Side of the Coin, we find that social assistance for the poor designed as a tax credit appeals to particular groups of voters that are integral to the Republican Party, including fiscal conservatives and citizens with low trust in the federal government. A program designed as tax credit signals to voters suspicious of big government that the recipients are both workers and taxpayers and therefore deserving of federal aid.

Faricy made the case even more succinctly on Twitter: The American Rescue Plan passed because “the GOP was not able to generate anger at the bill’s welfare benefits. The lack of outrage allowed senators like [Sen. Joe Manchin III, D-W.Va.] to vote for it. Biden and Dems designed a bill that not only cut child poverty in half but limited GOP backlash,” he wrote.

Tax Expenditures for the Win

The key, again, is policy design. Tax experts may be uneasy with “spending through the tax code,” but political scientists and historians are pretty clear that it’s a winning political strategy.

According to popular mythology, Americans are inherently anti-statist. They are reputed to be especially wary of a bloated welfare state. In fact, however, history tells a different story. Over the decades (and even centuries), Americans have not opposed the development of a modern welfare state. Indeed, they have repeatedly endorsed it with their votes. But they have clearly preferred a welfare state that’s “hidden” or “out of sight” (to steal some phraseology from scholars like Christopher Howard and Brian Balogh) to one that’s more obvious or intrusive.

Americans like healthcare programs structured as tax incentives for employer-provided private insurance. They like housing programs structured as tax deductions for mortgage interest. And they like anti-poverty programs designed as tax credits for working people. All these forms of backdoor spending still constitute elements of the welfare state. They are just less visible than alternative (and arguably more efficient) direct spending programs designed to solve the same problems.

Perhaps tax-based, backdoor spending is a form of self-delusion. Or maybe these Rube Goldberg contraptions reflect an impulse to privatize elements of welfare provision, leaving recipients with more agency than equivalent programs administered directly by, well, agencies.

Either way, welfare-by-tax-credit is an actual thing in American political history. And if the American Rescue Plan is any indication, it’s a thing that won’t be disappearing anytime soon.

Of course, that’s just a guess, albeit a popular one these days. Conventional wisdom says that tax provisions are like tenacious weeds: Once rooted, they are hard to dislodge. “Getting something out of the code is often harder than getting something into the code,” House Ways and Means Committee Chair Richard E. Neal, D-Mass., said in reference to the relief bill’s provisions. “What we did is unlikely to go away.”

Perhaps. But the annals of tax reform are littered with tax preferences that found themselves on the losing side of a political bargain. Not a lot of tax preferences, mind you, but more than a few. The recent fate of the mortgage interest deduction in 2017 could serve as a cautionary tale: Tax breaks, even popular ones, are not immune to the laws of political and partisan gravity.

Moreover, if durability is the name of the game, then champions of welfare state expansion must grapple with the undeniable success of Social Security and Medicare. Both of these marquee achievements of the American welfare state were designed using the bought-and-paid-for model for ensuring political longevity.

On the other hand, both programs were also born of a different era; the formulas that worked to promote longevity in 1935 and 1965 might be the wrong choice for 2021. The political world has changed, including the parties, their ideologies, their institutions, and their electorates. Maybe it’s time for a new model.

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