Weeks after President Joe Biden pitched the first major set of tax increases since 1993, signs are mounting that anxiety among congressional Democrats will significantly temper any increases that manage to pass Congress.
“We are trying to identify a menu of options” that can pass, Senator Chris Van Hollen of Maryland said in an interview. “You need to get every one of your 50 Democratic Senators on board. There is no room for error.”
The Treasury Department is slated to release the administration’s most detailed tax proposals yet, in a report known as the Green Book. But congressional staff are already paring down the ideas that have been floated and fine-tuning them to make them workable from both policy and political standpoints, a Democratic aide said on condition of anonymity.
With the economic recovery still leaving more than 8 million Americans without jobs compared with before the coronavirus pandemic, some Democrats are wary of criticism that higher taxes could damage growth. Moderate Democrats in the House—vital to holding the party’s slim majority in next year’s elections—are well aware of Republicans’ success in tarring the Obama administration’s spending and tax plans in the 2010 midterm elections.
Biden’s proposal to increase the corporate tax to 28% from 21% hit a roadblock early on, with moderate Democratic Senator Joe Manchin of West Virginia saying he preferred 25%. Another element—a dramatic hike in the capital gains tax, especially for the wealthy at the time they inherit assets—has recently been subject to potential easing, with the staff of House Ways and Means Committee Richard Neal floating options, Bloomberg News has reported.
At the same time, a group of lawmakers from high-tax states are demanding greater relief for some taxpayers, whose state and local tax deductions were capped in the Republican tax overhaul of 2017.
Months of negotiations are likely, not least because lawmakers need to determine how much new spending has to be funded from the tax measures. Talks on a bipartisan infrastructure deal showed no progress Friday, increasing the likelihood of a Democrat-only push for Biden’s $4 trillion in spending and tax proposals.
Neal, whose committee is in charge of drafting tax legislation, said he’s been inundated with ideas from colleagues about how to craft a package, and said he intends to move quickly. Yet he’s mindful of what can get through the 50-50 Senate.
“As closely as we can align ourselves with Senate thinking and administration thinking, the better off we are going to be,” Neal said in an interview. “That’s why I’ve been so deliberative about not thinking out loud about tax policy. I’ve been very guarded on it and I’m going to stay that way” until a consensus is reached among Democrats and on the panel, he said.
These machinations showcase the challenges the White House faces to finance the president’s sweeping legislative proposals on infrastructure and social spending.