Democrats scramble to reach deal on taxes

Democrats are facing new challenges in figuring out how to pay for their social spending package, as they seek to reach an agreement on a framework for the legislation.

Lawmakers and the White House say they want to fully offset the cost of the package primarily through tax increases on the wealthy and corporations. But key Democrats are acknowledging they may have to drop proposals to raise tax rates, due to opposition from Sen. Kyrsten Sinema (D-Ariz.).

Democrats are looking at other options for financing their spending measure focused on wealthy individuals and corporations, but those have their own challenges as well. The obstacles on paying for the package indicate that Democrats have a ways to go before they get legislation enacted.

Democrats are working to pass legislation that includes a number of spending provisions and tax cuts aimed at strengthening the social safety net and combating climate change. The White House and prominent lawmakers have said they want the bill to be fully paid for.

Biden and House Democrats have both proposed financing the package in part through increases to the corporate tax rate, the top individual income tax rate and the top capital gains rate. But Sinema has been resistant to that approach.

House Speaker Nancy Pelosi (D-Calif.) said Thursday that Sinema’s position on taxes is “well known” and that a bill without tax-rate increases is “one of the options.”

Lawmakers say Sinema is interested in reaching an agreement on the spending package. House Ways and Means Committee Chairman Richard Neal (D-Mass.) said Thursday after speaking with Sinema that the senator is supportive of items such as renewable energy incentives, the child tax credit and paid family and medical leave.

The centrist Arizona Democrat appears to be open to other ways to raise revenue besides raising rates. A source familiar with Sinema’s thinking told news outlets Thursday that the senator has agreed to proposals on wealthy individuals, corporations, international and tax enforcement that could raise enough revenue to pay for a package of the size that is currently being discussed. 

The Hill has confirmed from a Democratic source that the statement is accurate.

But some of the ideas that Democrats have for raising revenue besides rate increases face their own pushback from lawmakers in the party.

One alternative to raising rates that Democrats are looking at is taxing billionaires’ unrealized capital gains annually, an idea that has been championed for several years by Senate Finance Committee Chairman Ron Wyden (D-Ore.). 

Wyden on Thursday talked up his proposal and emphasized Biden’s support for it, though he also said he wasn’t going to concede that a corporate rate increase is unlikely.

“When you see for example, the president of the United States specifically endorsing the billionaire’s income tax. I think that counts for something, so I’m gonna say it,” Wyden said.

But some Democratic lawmakers expressed reservations about Wyden’s idea, saying it’s untested.

“Anytime you get into stuff that’s not proven in the tax code, it becomes a bit dangerous,” said Sen. Jon Tester (D-Mont.).

Another tax idea receiving renewed attention is to impose a minimum tax on large corporations’ profits as they are reported on financial statements. Biden has supported such an idea, as has Sen. Elizabeth Warren (D-Mass.), who argues that it would address the fact that some profitable large companies pay nothing in federal income taxes.

“That one provision goes a long way toward paying for this package,” Warren said.

But it’s unclear how widespread support for this idea is among Democratic lawmakers. The proposal was not included in the bill that the Ways and Means Committee approved last month.

Some of the revenue-raising ideas that Democrats had already been strongly considering for the spending package do not involve increasing tax rates, but have nonetheless generated pushback.

Senate Democrats announced on Tuesday that they were narrowing the scope of an administration proposal to increase the amount of information that financial institutions provide to the IRS about bank accounts, following criticism of the proposal from Republicans and banking groups.

But not every Democratic lawmaker is on board with even the revised version of the IRS proposal. While supporters of the proposal say it will help the IRS conduct enforcement against wealthy tax cheats, some Democratic lawmakers have echoed concerns raised by Republicans that the proposal would also end up affecting middle-class Americans.

“I will not support any IRS account reporting requirements that go after the middle class and working families.” Rep. Charlie Crist (D-Fla.), who is also running for governor of his home state, said in a statement Thursday. “That dog won’t hunt.”

As Democrats consider alternative revenue-raising options to raising tax rates, some lawmakers are warning them against reviving proposals that they find problematic. 

Tester on Thursday sent a letter to Wyden and Senate Majority Leader Charles Schumer (D-N.Y.) reiterating his opposition to changes that the administration had proposed to the “stepped-up basis” tax preference that benefits heirs.

The White House had proposed ending stepped-up basis earlier this year, arguing that doing so would help to prevent wealthy people from avoiding taxes, but a number of Democratic lawmakers representing rural areas have expressed concerns that ending the preference would hurt families’ ability to pass down farms and businesses to future generations. The House Ways and Means Committee did not include ending stepped-up basis in its bill.

“I continue to strongly oppose any change to the tax code that would hurt the continued operation of family farms, ranches, and small businesses,” Tester wrote.  

Some Democrats are continuing to push for tax-rate increases, arguing that it’s the simplest way to raise revenue.

Neal said that when speaking to Sinema, he “made the argument for efficiency in tax policy and the way you do that is the simplicity of corporate increases.” 

Neal didn’t rule out turning to new ideas for raising revenue but expressed skepticism about doing so.

“I did point out, it’s the ninth inning,” he said. “I mean, when are you gonna vet these issues?”