Senate

Democrats back away from quick reversal of Trump tax cuts

Democrats are backing away from vows to reverse President Trump’s tax cuts if they take control of the Senate and White House.

Senate Democrats had suggested they could move quickly on the issue, but now say they are likely to delay stand-alone tax legislation if Democratic nominee Joe Biden is elected president and their party controls the House and Senate.

Instead, the priority will be on spending to create jobs and raise wages, investments in green technology and infrastructure and a national plan to contain the coronavirus pandemic.

Some of those stimulus and relief bills could include tax incentives for clean energy infrastructure and strengthening the nation’s supply chain and domestic manufacturing base. Tax relief in the form of child tax credits and earned income tax credits for lower- and middle-income families are also on the table.

But potential tax increases on wealthy individuals and corporations are expected to come into play later, depending on how significant the deficit concerns are next year.

The coronavirus and the way it is hitting the economy is a huge factor. Raising taxes while the country is recovering from a recession would be a risky political move.

Democrats realize they need to tread carefully on taxes and the economy. While Biden is leading Trump in the national polls, voters still give Trump higher marks on handling the economy.

There are also divisions among Democrats over how far to go with taxes on corporations and the wealthy, which makes it difficult to move quickly on the issue.

“I think we ought to make the decision when we have a better sense of where the economy is going,” said Sen. Dianne Feinstein (D-Calif.), who added “there’s an element of truth” to the argument that policymakers shouldn’t raise taxes during a recession. 

Sen. Debbie Stabenow (D-Mich.), a member of the Senate Finance Committee and one of Senate Minority Leader Charles Schumer’s (D-N.Y.) closest allies, said she has “no idea” when Democrats would move a tax package next year if they win control of the White House and the Senate.

“We have so much on our plate. We’ve got to deal with COVID and testing,” she said. “We need to put in place a whole thing to get our arms around the virus and a recovery act.”

“I’m sure a tax piece will be in there somewhere, but No. 1 priority will be COVID,” she added.

Sen. Richard Blumenthal (D-Conn.) said Democrats will need to “balance” the need to raise revenues with the overall health of the economy, which has slowed dramatically as a result of the pandemic.

“I think a tax bill can be made effective at a time when we think the economy will be sufficiently robust that some increase in taxes will have no detrimental effect,” he said.

Sen. Chris Coons (D-Del.), a prominent Biden ally, laughed out loud when asked what the Democratic plan for tax reform is next year.

“Look, if Joe Biden is successful in being elected the next president it will be because we’re in the middle of three crises at the same time: a pandemic, a recession and a renewed focus on racial inequality.”

“He will have the challenge and the mandate to address some of those,” he said. 

Some Democrats are pushing for ratcheting up taxes on millionaires and billionaires immediately if their party wins big in November.

Charles Chamberlain, executive director of Democracy for America, a liberal political action committee, said waiting to raise taxes on the rich is a “terrible idea.”

“Over the course of the pandemic, we’ve seen billionaires make $600 billion since March while the minimum wage hasn’t been raised in over 10 years,” he said. “I think the billionaires and millionaires, they have benefited from the [Trump] tax cuts and many of them have benefited from the pandemic itself.”

Progressive leaders such as Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) are pushing for a wealth tax, but Schumer is more focused on lifting the cap on deductions for state and local taxes (SALT), a top priority in New York and other states with high costs of living.

Schumer has said including a provision to lift the cap on SALT deductions is a top goal of Democrats in the next coronavirus relief bill.

“We need to cushion the blow of this virus,” Schumer said in July. “The SALT cap hurts people affected by the virus. It hurts so many of the metropolitan areas like New York.”

Speaking more broadly, Schumer has vowed of the limitation on SALT deductions: “If I become majority leader, one of the first things I will do is we will eliminate it forever.”

Biden’s tax plan does not include a wealth tax. Instead, he would raise revenue by raising the top income tax rate on individuals from 37 percent to 39.6 percent, subject earnings over $400,000 to Social Security payroll taxes, and tax capital gains at the same rate as other income for people who earn more than $1 million.

Biden’s plan also calls for raising the corporate tax rate from 21 percent to 28 percent and increasing taxes on foreign profits.

When asked during an interview with CNN last week whether he would wait to raise taxes until unemployment goes down, Biden said he would make corporate tax changes “on day one.”

Biden has also promised comprehensive immigration reform on “day one.”

Democrats in the Senate appear to have other ideas.

“I do agree that the pandemic, jobs and climate are the top orders of business. Climate and jobs go together; a lot of that is infrastructure and investments,” said Jim Kessler, a former Schumer aide who now serves as executive vice president for policy at Third Way, a centrist Democratic think tank. 

“I expect at some point there’s going to be an increases in taxes to pay for it, I just don’t know when in the order it’s going to be,” he said. “They’ll look at where the economy is at that moment and what needs to be done and it will be to pay for certain things.”