How Democrats are planning to change the tax system to pay for Biden’s $3.5 trillion budget plan

Working with their counterparts in the Senate, they’ll race to forge deals between progressive and centrist Democrats to allocate new spending for Medicare and Medicaid expansions, drug price reductions, green energy subsidies, child care subsidies, the child tax credit, and paid family leave. Creating a plan that pleases all factions of the party will be crucial as the resolution will require every Democratic senator to sign on in order to even narrowly pass. 

But the most difficult sell, on the Hill and beyond the Beltway, will be the tax increases and changes required to offset the costs of the mega-budget. 

The current plan to pay for the sweeping budget resolution is to raise taxes on the wealthy. That means increasing corporate tax rates and rates on individuals in the top income bracket. A new tax on companies’ overseas profit is also being considered. 

Senate Finance Committee Chairman Ron Wyden (D-Ore.) said that there are a number of options for lawmakers to consider and pick from, including increases on “multinational corporations, the wealthiest individuals,” and “enforcement against wealthy tax cheats, and savings from other programs.”

Democrats are currently considering increasing tax rates on corporations to 28%, up from 21%. The rate was previously 35% before Republicans passed a tax reform that lowered it in 2017. Democrats also plan to raise the top tax bracket back to 39.6%, where it was before the 2017 cut. Biden has proposed raising the rate on the capital gains tax to 39.6% from 20%, and senators Elizabeth Warren (D-Mass.) and Angus King (I-Maine) have proposed a corporate tax of 7% on profits of more than $100 million. That tax, they say, could raise $700 billion over 10 years. 

Still, most Republicans and some Democrats will be hard to sway. Sen. Joe Manchin (D-W.Va.) raised concerns about the bill and will likely try to scale back the spending. “Given the current state of the economic recovery, it is simply irresponsible to continue spending at levels more suited to respond to a Great Depression or Great Recession—not an economy that is on the verge of overheating,” he said in a statement. Manchin has also said he would not support a corporate tax hike to 28%. 

“They’ve set out trying to tax and spend our country into oblivion,” Senate Minority Leader Mitch McConnell (R-Ky.) said of the potential plans. 

Lawmakers from New York and New Jersey, meanwhile, will fight for the reinstatement of the deduction for state and local income taxes (SALT) and an increase on the cap for property investments, two changes made under President Donald Trump. 

“No SALT, no dice,” said Rep. Josh Gottheimer (D-N.J.) on potential changes to the tax code. The reduction of the SALT tax would cost the federal government an additional $380 billion, according to the Tax Foundation, a Washington think tank.