Democrats float largest tax increase in decades to fund Biden’s $3.5 trillion budget
The Senate returns from their August recess this week armed with a major directive handed down from the White House: Get infrastructure done, and get it done quickly.
Democrats on the Hill will spend the next few weeks hammering out the details of their proposed $3.5 trillion budget resolution that will fund President Joe Biden’s massive “human infrastructure” plan. That means figuring out how exactly they intend to spend the money and also where they’ll get that money from.
Over the weekend, details on how Democrats want to fund the bill came to light in a five-page memo sent around by Hill aides that outlined $2.9 trillion in tax increases proposed by House Ways and Means Democrats, the largest increase in decades. Sources familiar with Ways and Means Chair Richard Neal’s unreleased plan outlined the proposal, which will include a number of measures to launch bargaining off of.
About $1 trillion, or roughly one-third, of the funding will come from high-income Americans. Democrats will propose raising the top individual rate to 39.6%, where it was before President Donald Trump cut taxes in 2017. The top capital gains rate would also be increased from 20% to to 25%.
Other interesting proposals would be a 3% surtax on individuals with adjusted gross income in excess of $5,000,000. Wealth taxes like this had been proposed by several progresive candidates during the presidential primaries, and would mark a radical shift in tax policy within the United States.
Corporate tax rates would increase from 21% to 26.5% for businesses with income in excess of $5,000,000. Small businesses with income below $400,000 would see their rate lower to 18% and all of those in between will have their rate remain the same, at 21%. Neal estimates this change will provide $540 billion in extra revenue.
Neal would also raise taxes on overseas profits from multinational corporations and tighten estate tax rules.
While Republicans and moderate Democrats will likely find fault with the initial proposals, the plan is already a pared back version of what the White House originally proposed. The Biden administration had floated taxing inheritances of the ultra-wealthy and more aggressive corporate tax increases. The White House is in support of Neal’s plan and spokesperson Andrew Bates said Sunday evening that it “makes significant progress toward ensuring our economy rewards work and not just wealth.”
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%.
When pressed, Manchin refused to give specifics on what size spending bill he would be willing to support. His lack of clarity is a troubling development to Democrats who will need every member of their party and a tie-breaking vote from Vice President Kamala Harris to pass the spending bill.
Senator Bernie Sanders (I-Vt.) spoke out against Manchin’s actions around the bill on Sunday, saying ”I don’t think it’s acceptable to the president, to the American people, or to the overwhelming majority of the people in the Democratic Caucus.”
If passed, the resolution would provide funding for much of Biden’s social agenda: a historic expansion of Medicare, expanding the child tax credit, providing paid medical and family leave, changing the tax code, taking climate action, and possibly even making changes to immigration law.
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