House Democrats on Monday outlined an assortment of tax hikes on corporations and wealthy Americans to fund a sweeping, multitrillion-dollar spending bill that seeks to dramatically expand the government-funded social safety net.
The House Ways and Means Committee released a plan to pay for President Biden's $3.5 trillion climate change and family plan, including by raising the corporate tax rate to 26.5% for businesses earning more than $5 million in income. The corporate rate would be lowered to 18% for small businesses earning less than $400,000; all other businesses would continue to pay the current rate of 21%.
The Democrats are also planning to raise the top income tax rate to 39.6% from 37% for married couples who report taxable income of more than $450,000 and for individuals who report more than $400,000. The proposal also includes a 3% surcharge on individual income above 5% and increases the top tax rate for capital gains – the proceeds from selling an asset – to 25%, up from 20%.
Under the plan, the IRS would receive an additional $78 billion in funding in order to ramp up enforcement and crack down on tax evaders. The proposal would also prevent rich individuals from contributing to their retirement plans, including IRAs, if the value exceeds $1 million.
It was not immediately clear how much revenue the tax increases could generate and whether they would fully offset Democrats' partisan spending bill, which is expected to include federally funded paid family leave, expand public education, establish community colleges and combat climate change.
The proposals may ultimately change before Democrats craft the final bill they plan to pass along a party-line vote in coming weeks using the procedural tool known as budget reconciliation, which allows them to bypass a Senate filibuster by GOP lawmakers. The Ways and Means Committee is slated to debate tax policy this week when it continues its markup of the spending package.
The tax provisions included in Monday's proposal also fall far short of what Biden was pushing for – a 28% corporate tax rate, a 39.6% capital gains tax rate and the elimination of the so-called "step-up" in basis, which allows heirs to inherit appreciated assets without paying taxes on those gains. Democrats left the step-up basis completely untouched in their proposal.
The preliminary outline comes amid a brewing fight among Democratic lawmakers over the passage of the $3.5 trillion spending package after both chambers of Congress approved the blueprint for the bill last month and the Senate-passed, bipartisan infrastructure bill.
At the heart of the division is a fight for control over the size and scope of the spending package. Progressives say that $3.5 trillion is the bare minimum needed to vastly expand the social safety net and combat climate change. Centrist Democrats, however, are wary of another multitrillion-dollar bill – funded by a bevy of new taxes, no less – after the coronavirus pandemic pushed the U.S. deficit to a record high.
With their incredibly slim congressional majorities, Democrats face a delicate balancing act in pursuing their so-called "two-track" agenda – approving both a bipartisan deal and a reconciliation package that could cost several trillion dollars – or they risk losing the support of either moderate or progressive members.
Sen. Joe Manchin, D-W.Va., has called for a "pause" in the reconciliation bill and has repeatedly said he does not support passing another multitrillion-dollar spending bill.
"[Senate Majority Leader Chuck Schumer] will not have my vote on $3.5 (trillion) and Chuck knows that, and we've talked about this," Manchin said Sunday during an interview on CNN.
Other Democrats have blasted Manchin's comments; Sen. Bernie Sanders, the chairman of the Senate Budget Committee, likewise pledged to tank the infrastructure bill unless it was accompanied by the reconciliation measure.
Senate Democrats are drafting their own tax proposals; Manchin has pushed for a corporate rate of 25%, lower than the level endorsed by Houses Democrats (26.5%) and the president (28%).