“We’ll have a big robust discussion about the appropriateness of a big tax increase,” Senate Minority Leader Mitch McConnell said last month, predicting Democrats would pursue a reconciliation bill that forgoes the GOP and would aim for a corporate tax even higher than 28%.
Kevin Brady, the top Republican on the House Ways & Means Committee, said, “There seems to a be a real drive to tax investment of capital gains at marginal income rates,” and called that a “terrible economic mistake.”
While about 18% of the George W. Bush administration’s tax cuts were allowed to expire in a 2013 deal, and other legislation has seen some increases in levies, 1993 marks the last comprehensive set of increases, experts say. That bill passed on a two-vote margin in the House and required the vice president to break a tie in the Senate.
“I don’t think it is an understatement to say the current partisan environment is more severe than 1993” said Ken Kies, managing director of the Federal Policy Group, a former chief of staff of the congressional Joint Committee on Taxation. “So you can draw your own conclusions” about prospects for a deal this year, he said.
Still, there could be some tax initiatives Republicans could get behind. One is a shift from a gasoline tax to a vehicle-miles-traveled fee to help fund highway projects.
Another is more money for Internal Revenue Service enforcement—a way to boost revenue without raising rates. Estimates have found that for every additional $1 spent on IRS audits, the agency brings in an additional $3 to $5.
Democrats are also looking to revise tax laws that they say don’t do enough to stop U.S. companies from shifting jobs and profits offshore as another way to raise revenue, one aide said. Republicans could potentially support incentives, though it’s unclear whether they’d back penalties.
White House officials including deputy director of the National Economic Council, David Kamin—who wrote a 2019 paper on “Taxing the Rich”—are in the process of fleshing out the Biden tax plans.
As for timing, if passed, tax measures would likely take effect in 2022—though some lawmakers and Biden supporters outside the administration have argued for holding off while unemployment remains high due to the pandemic.
Lawmakers have their own ideas for tax reforms. Senate Finance Committee Chairman Ron Wyden wants to consolidate energy tax breaks and require investors to pay taxes regularly on their investments including stocks and bonds that have unrealized gains.
“A nurse pays taxes with every single paycheck. A billionaire in an affluent suburb on the other hand can defer paying taxes month after month to the point where their paying taxes is pretty much optional,” Wyden told Bloomberg in an interview. “I don’t think that’s right.”
Warren has pitched a wealth tax, while House Financial Services Committee Chair Maxine Waters has said she would like to consider a financial-transaction tax.
Democratic strategists see the next package as effectively the last chance to reshape the U.S. economy on a grand scale before lawmakers turn to the 2022 mid-term campaign.
“Normally, the party in power gets one or two shots to do major legislative packages,” said Chuck Marr, senior director of Federal Tax Policy at the left-leaning Center on Budget and Policy Priorities. “This is the next shot.”
—With assistance from Erik Wasson.
This article was provided by Bloomberg News.