A key Biden administration proposal to collect more tax revenue from wealthy individuals appears poised to be watered down by lawmakers, and may even be removed entirely from the Democrats’ tax and social spending agenda, according to people familiar with the matter.
Democrats in the House and Senate are moving toward scaling back or potentially dropping President Joe Biden’s proposal to significantly limit the tax exemption known as step-up-in-basis for assets passed on at death to heirs, the people said on condition of anonymity because the talks are private.
Biden had proposed raising the capital gains tax rate for top earners to 39.6% from 20%. If Democrats drop the plan to treat death as a taxable event for capital gains for individuals with real-estate and other asset appreciation over $1 million, then a capital gains rate above 28% would likely cost the federal government money.
The situation remains fluid, with efforts to draft the tax portion of the Democrats’ $3.5 trillion social-spending plan expected to run through the weekend, the people said.
The Biden proposal aims to both tax inherited wealth and help offset programs like a multi-year extension of an expanded child tax credit or paid family medical leave. Tweaks to Biden’s plan could mean Democrats also have to pare back their aspirations toward equalizing treatment of work income and long-term investment income, a stated priority of progressives.
Dimming Chances
Third-party estimates of how much money the Biden administration’s plan would raise range from $213 billion to approximately $400 billion over 10 years.
Representative Bill Pascrell, a senior member of the House Ways and Means panel, said in an interview Friday that he believes the administration’s proposed changes to step-up-in-basis faced an uphill climb for inclusion in the committee’s draft legislation, downplaying its chances compared to those related to addressing the cap on state and local tax deductions, or SALT.
“If I was a betting man I’d probably think that that does not have as good a chance, as of this moment, as a SALT reprieve or a SALT change of threshold,” said the New Jersey Democrat, who has made repeal of the $10,000 SALT-writeoff limit a top priority.
The White House didn’t immediately respond to a request for comment.
Senate Democrats are already planning for the possibility of scaling back some of Biden’s proposals by focusing revenue-raising efforts more toward businesses than individuals.