The Washington PostDemocracy Dies in Darkness

Clinton, Sanders, Pfizer and America’s horribly cramped tax debate

Photographer: Daniel Acker/Bloomberg
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There are at least two important tax debates going on right now.

First, Democratic candidate Hillary Clinton is going after rival Bernie Sanders for proposing plans that would necessitate raising taxes on the “middle class.”

Second, the big U.S. pharma company Pfizer is planning a tax inversion wherein it acquires a smaller foreign company so it can keep most of its operations here but move its tax mailbox to a country with lower rates (Ireland, in this case).

While the first example is arguably more portentous, or at least sexier, than the second — elections are more exciting than tax law — they share an important commonality: Our tax system is a hot, revenue-losing mess and our tax debate is way too cramped to do anything about it.

The Hillary/Bernie dust-up has been well-covered elsewhere. To summarize, Clinton pledges that she won’t raise taxes on the bottom 97 percent of households, with incomes under $250,000. But, she asserts, there’s no way Sanders can pay for his robust, progressive agenda — free college, single-payer health care, major infrastructure overhaul and more —without breaking that pledge.

She’s probably right about that, and, for the record, President Obama made the same pledge. But if that’s the debate, then here’s where things stand:

If you’re a Republican running for president, you can’t raise taxes.

If you’re a Democrat running for president, you can’t raise taxes on 97 percent of households.

And that, my friends, is a cramped tax debate.

Matt Yglesias persuasively argues that Clinton’s pledge is “destructive of the long-term possibilities of progressive governance. The best and most effective American … social programs are used — and paid for — by everyone, creating a virtuous cycle that keeps them reasonably effective and reasonably popular. [If the pledge is truly] … a political necessity … it also speaks to a certain amount of intellectual bankruptcy in contemporary American liberalism. It’s an ideology that stands for the creation of new government programs but won’t stand up for the idea that these programs are actually sufficiently valuable to ask people to pay for them.”

Is the pledge a political necessity? Does it make economic sense? Perhaps so, if you consider the difficulty many lower-income families have had getting ahead on their pretax incomes in the era of inequality. Hitting such families up for more taxes is both bad economics and bad politics. And since so much pretax growth has accrued to the wealthiest, the Democrats are right to start at the top.

U.S. Democratic Presidential Candidate Hillary Clinton condemns Pfizer's deal with Allergan as a tax dodge. Rough Cut (no reporter narration). (Video: Reuters)

But when and why did it become allegedly impossible to get elected president unless you promised not only to start raising revenues solely from those at the top but to stop there as well? And who decreed that the middle-class goes all the way up to the 97th percentile?

This is the stuff of anti-tax lobbyist Grover Norquist, full-bore on one side of the partisan divide and slightly watered down on the other. It’s also, as I’ve shown on these pages, fiscally irresponsible. Even if you have no use for Bernie’s agenda — one that arguably has much to offer in terms of restructuring the skewed rewards of growth — even if you couldn’t care less about climate change, infrastructure, education, poverty and inequality, we’d still need more revenue than we’re set to collect simply to keep up with population growth, demographics and interest on the debt.

I’ll get to Pfizer in a minute, but reflect on a related tax rant of mine (also mentioned by Yglesias): Congress’s and the administration’s refusal to consider raising the federal gas tax from the 18.4 cents/gallon it has been stuck at since 1993. This tax feeds directly into the Highway Trust Fund. You want to drive on decent roads, you gotta pay for ‘em, right?


In the magical tax world we and our politicians have conspired to create, we can maintain our roads and bridges and support our urban mass transit without accounting for inflation or improved vehicle mileage.

Meanwhile, Pfizer claims to have paid about 25 percent in taxes last year, but two-thirds of that alleged tax liability is from foreign earnings that have yet to find their way into the Treasury’s revenue coffers. When you add up what the company actually paid in taxes as a share of its earnings, you get 7.5 percent.

But Pfizer’s management claims that even that rate is too great a burden for it to compete in global markets. It must tap an even bigger loophole than foreign deferral and “invert,” changing its tax address to pay Irish rates that may well end up even lower than the 7.5 percent cited above (e.g., once they invert, they will likely be able to use their deferred foreign earnings without paying taxes on them).

And once again, beyond some speed bumps that Treasury can impose, there’s no stopping it. Congress will neither act on corporate tax reform nor change the rules necessary to block inversions.

Like other progressives, I don’t like to hear Clinton embracing Norquistian tactics. But I’m not running for office, and her calculus may be that absent those tactics, Democrats lose and any progressive agenda gets set back much further.

That’s not her fault. It’s the result of a deep public distrust in government to get anything right, a sentiment that is amplified by politicians who use dysfunction as a tactic — “Washington’s broken! I know, ‘cuz I helped to break it!”

It’s the result of deepening inequalities, slow growth, financial bubbles and busts, and slack labor markets, all of which ensure that growth fails to reach the middle class and the poor such that they’re highly receptive to anti-tax messages, except maybe those that go after a narrow slice of the rich. And remember, though Obama ran in 2012 on raising taxes on those above $250,000, the final deal ended up raising that threshold to $450,000.

It’s a cramped cul-de-sac of a debate, and we won’t get out of it until we and our representatives stop pretending it’s sustainable.