Moderate and progressive Democrats are on a collision course over how to pay for President Joe Biden’s economic agenda, a disagreement that has the potential to stall the legislation or sink it entirely.
Biden has proposed an ambitious set of tax increases on wealthy households and corporations to pay for trillions of dollars in new spending. Congressional Democrats have set in motion a $3.5 trillion legislative vehicle to vastly expand the government’s role in health care, climate change, child care and education.
Taxes are emerging as a particularly contentious issue as lawmakers keep an eye on next year’s midterm elections, when Democrats’ razor-thin majorities are at risk. Moderates want a smaller overall package of tax increases and are hesitating on some of Biden’s plans. Progressives view a total rewrite of the Tax Code as a moral imperative in order to fund social programs and climate measures as well as address a widening wealth gap.
The debate will play out on Capitol Hill starting around the second week of September, when the tax-writing House Ways and Means Committee will take up its part of the massive bill and allow lawmakers to offer amendments. Further clashes may happen in coming months as the plan moves to the Senate, where the bill requires unanimous support from Democrats given the chamber’s 50-50 split with Republicans.
Keeping the tax portion on track will fall initially to Ways and Means Chairman Richard Neal, a moderate and key ally of House Speaker Nancy Pelosi. While his portion of the bill will include benefits with broad Democratic support such as extending tax credits for families with children, Neal said pairing those with tax increases is a tougher sell.
“Sometimes in congressional life people want their dessert without having their vegetables,” the Massachusetts Democrat said in an interview Tuesday. “That generally doesn’t work with revenue.”
Biden’s plans, unveiled in the spring, call for raising the corporate tax rate to 28% from 21%, higher rates on the incomes and investments of wealthy individuals and the elimination of some tax breaks for private equity and the fossil-fuel industry.
Meanwhile, Democrats in New York, New Jersey and California are pushing to roll back the locally disliked Trump-era limits on the writeoff for state and local taxes, or SALT.
The current $10,000 cap on the tax break curbs the benefit for many in those high-tax states. But expanding it would also largely benefit top earners, a fact progressives such as New York’s Alexandria Ocasio-Cortez have repeatedly pointed out.
Disagreements over the SALT deduction, the carried-interest tax break for the private equity industry and the appropriate capital-gains tax rate will prove the most “politically challenging” to resolve, said House Budget Committee Chairman John Yarmuth of Kentucky.
Neal and Pelosi will need the support of Ways and Means members such as Representative Stephanie Murphy, a moderate Democrat from Florida.
No ‘messaging’
“I’m here to pass bills that will actually become law and help the American people,” Murphy said.
They’ll also need Representative Lloyd Doggett of Texas, a progressive member of the panel, who said: “The inequity of our tax system, exacerbated by the Trump tax cuts, needs to be corrected.”
Broader divisions among Democrats were on display this week as a small group of moderate lawmakers persuaded Pelosi to commit to a vote on the Senate-passed bipartisan infrastructure bill by the end of September — a condition they required in order to vote for the resolution to start considering the Democrats-only reconciliation bill.
As part of that deal, those moderates also secured a pledge that Pelosi wouldn’t bring to the House floor a package that couldn’t pass the Senate.
That means the bill likely can’t include the full $3.5 trillion in spending that would be permitted under the budget agreement, because senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona have both said that’s a red line — without suggesting a number of their own. Manchin has also said he would support raising the corporate tax rate to only 25%.
The package’s overall size is likely to be the subject of intense debate in the Senate. Budget Committee Chairman Bernie Sanders, who negotiated the $3.5 trillion level with Democratic leaders earlier this summer, said in an
Outside pressure
Moderates are likely to face pressure from outside progressive organizations, who point to polling that shows higher taxes on the wealthy and large companies are politically popular.
“The trick is going to be to make it so that the moderates in each chamber can coalesce around a certain set of options, rather than having them all object separately to separate options,” said Jesse Lee, a senior adviser at the Center for American Progress, a liberal think tank.
The lure of providing tax credits and keeping campaign promises may be enough to overcome divisions.
“I can’t imagine anyone saying ‘no’ to families having economic stability,” said Representative Ilhan Omar, a progressive Democrat from Minnesota. “When push comes to shove, people are going to be pushed by their constituents to support the priorities they ran on.”
— With assistance from Erik Wasson
