Biden's 'Read my lips' problem: Broken tax pledge could prove fatal for coming election

After the Democrat-led Senate on Sunday passed a massive spending and tax bill supported by the White House on a party line vote, President Biden said in a statement that the legislation "does not raise taxes on those making under $400,000 a year — not one cent."

Biden was reiterating a promise he's made repeatedly since the 2020 presidential campaign: that during his presidency there will be no new taxes on Americans making under $400,000 a year.

According to experts, however, Biden will break his promise if he signs into law the so-called Inflation Reduction Act, which they argue will have the effect of imposing new taxes on the middle class, raising the prospect of the president repeating a political mistake that cost one of his predecessors the White House.

That mistake occurred at the 1988 Republican National Convention, where then-presidential candidate George H.W. Bush accepted the GOP nomination and declared: "I'm the one who will not raise taxes ... My opponent won't rule out raising taxes. But I will. And the Congress will push me to raise taxes, and I'll say no, and they'll push, and I'll say no, and they'll push again, and I'll say to them, 'Read my lips: No new taxes.'"

The promise of those last six words helped get Bush elected president. Once in office, however, the economy slowed and the budget deficit worsened. At the same time, Congress imposed on itself certain restrictions requiring automatic spending reductions if it didn't meet deficit targets.

As a result, reducing the deficit became a priority and the subject of months-long negotiations between the Bush administration and Democratic leaders in Congress. Eventually, in June 1990, Bush caved to the Democrats and agreed to what he termed "tax revenue increases" as part of a plan to reduce the deficit. The budget bill that was ultimately enacted raised a slew of taxes.

The political consequences were devastating. "Read My Lips: I Lied," read a New York Post headline. Bush's opponents in the 1992 Republican primary and, later, Democratic nominee Bill Clinton in the general election ripped him for flip-flopping and accused him of lying. Bush became a one-term president, and his 1992 loss was widely attributed to going back on his pledge not to raise taxes.

Fast-forward three decades, and it appears Biden could be setting himself up for history to repeat itself, with the de facto tax hikes on those making less than $400,000 in the Inflation Reduction Act.

Biden's promise is "technically the truth but substantively misleading," said Douglas Holtz-Eakin, president of the American Action Forum.

Holtz-Eakin explained there are no taxes in the bill, such as income or sales tax, directly levied on Americans with an annual income of under $400,000. However, he added, the legislation creates a 15% minimum tax for corporations which, according to Congress's Joint Committee on Taxation, will amount to a $313 billion tax hike from 2023 to 2031.

Since businesses won't just pay more without trying to make up for such substantial losses, Holtz-Eakin continued, they'll either raise prices, cut payments to shareholders, or cut wages. Regardless of the option, "those most affected, taking on the economic burden, will be people making less than $400,000."

Beyond a new corporate tax, the bill includes about $80 billion in additional funding for the IRS that will allow for more tax audits and the hiring of 87,000 more IRS agents. The Congressional Budget Office has projected such an increase in IRS funding would increase tax collections by about $200 billion over the same period from 2023 to 2031.

Idaho Republican Sen. Mike Crapo had proposed an amendment to the Inflation Reduction Act that would've restricted additional IRS audits to those who make more than $400,000. The amendment failed, however, with every Democratic senator voting against it.

Preston Brashers, senior analyst for tax policy at the Heritage Foundation, used figures from the CBO and the Joint Committee on Taxation to calculate that taxpayers with adjusted gross incomes below $75,000 would ultimately pay an estimated $136 billion, or about 26%, of new revenues from the corporate minimum tax and the IRS enforcement provisions contained in the bill.

Brashers noted taxpayers making less than $25,000 per year — those least able to bear additional costs — account for about 5% of total income in the economy but would shoulder a disproportionate 8% of the new tax collections.

Americans making $75,000-$200,000 would shoulder an estimated $152 billion, or about 30%, of new revenues from the corporate tax and IRS provisions, according to Brashers, with taxpayers earning $50,000-$100,000 taking on about $2,431 of the burden. Individuals earning less than $50,000 would face about $1,009.

The Biden-backed legislation would also raise taxes on energy by billions of dollars between oil and natural gas. Americans for Tax Reform noted multiple times last year when senior Biden administration officials themselves said taxes that raise consumer energy prices would violate Biden's $400,000 pledge.

Many experts argue that inflation itself is a tax that primarily hurts middle and working class Americans. Holtz-Eakin told Just the News that the Inflation Reduction Act "won't reduce inflation," explaining most of the spending is up front and relief on inflationary pressure won't be felt for years.

A recent study by the University of Pennsylvania reached a similar conclusion.

"The act would very slightly increase inflation until 2024 and decrease inflation thereafter," the study stated. "These point estimates are statistically indistinguishable from zero, thereby indicating low confidence that the legislation will have any impact on inflation."

Sen. Bernie Sanders (I-Vt.), who voted for the bill, said on the Senate floor that "according to the CBO, and other economic organizations that study this bill, it will, in fact, have a minimal impact on inflation."

Multiple recent studies have found inflation, which is currently at its highest levels in four decades, will cost families about $4,000 this year, not including projected additional tax costs imposed by the Inflation Reduction Act .

In his statement on Sunday, Biden said the bill would "lower the cost of prescription drugs, health insurance, and everyday energy costs and reduce the deficit, while making the wealthiest corporations finally pay their fair share."

After passing the Senate, the legislation heads to the Democrat-controlled House, where it's expected to pass and be sent to Biden's desk to be signed into law.

The Senate's passage of the Inflation Reduction Act comes as polling indicates Americans are feeling economic pain due to inflation and pointing the finger at Biden.

A recent Harvard CAPS/Harris poll, for example, found 64% of Americans think their financial situation is getting worse. Other surveys have shown about 6 in 10 Americans are living paycheck to paycheck.

Meanwhile, Biden's economic approval rating dropped to just 30%, according to a CNBC survey from last month.