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House Democrats circulate new tax plan as party seeks unity on key economic package

Senate Democrats sparred but House Democrats tried to reach a consensus on some thorny issues

September 12, 2021 at 6:40 p.m. EDT
In September, Sens. Joe Manchin III (D-W.Va.) and Bernie Sanders (I-Vt.) shared their perspectives on a multi-trillion dollar spending package. (Video: The Washington Post)
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A powerful panel of House Democrats on Sunday circulated a draft plan that would raise $2.9 trillion in new taxes and revenue predominantly targeted toward wealthy Americans, corporations and investors, as party lawmakers continued to spar in public over the size and scope of their new tax-and-spending package.

The new proposal includes many measures Democrats are widely expected to embrace, such as increasing the top tax rate on Americans earning over $435,000 from 37 percent to 39.6 percent. It also calls for a new corporate tax rate of 26.5 percent for large profitable businesses, up from the current rate of 21 percent but lower than President Biden’s original proposal of 28 percent. Some smaller firms would see their taxes stay the same or even cut under the plan.

Many items in the new draft scale back the more ambitious tax increases sought by Biden earlier this year. But the ideas taken together amount to a significant unwinding of the tax cuts enacted by Republicans under former president Donald Trump four years ago, drawing praise from the White House on Sunday.

Biden’s sweeping — and fluid — tax plans are making some Democrats nervous

The draft tax proposal also includes some surprises, including a smaller than expected increase in the capital gains rate paid by investors from 20 percent to 25 percent. Biden’s plan had suggested approximately doubling the capital gains rate. In exchange, however, the plan also calls for a new “surtax on high-income individuals” for Americans earning more than $5 million — a measure they say would raise more than $127 billion.

Democrats also floated a tiered system for the corporate tax rate: Only firms with incomes above $5 million would pay the new 26.5 percent rate. Businesses that earn between that benchmark and $400,000 would see their taxes stay at 21 percent, and those with less than $400,000 in revenue would actually see a tax cut to 18 percent.

The proposal further calls for increasing taxes on “tobacco and nicotine” by roughly $100 billion, while also raising $16 billion from changing rules to “treat cryptocurrency the same as other financial instruments.” And it would overhaul America’s international tax system to enact change aimed at preventing firms from artificially shifting their profits abroad to tax havens. It would further limit the deductions on U.S. taxes that firms with headquarters abroad can claim.

Rep. Richard E. Neal (D-Mass.), the chairman of the House Ways and Means Committee, circulated the document among members Sunday, a copy of which was obtained by The Washington Post. Two people familiar with the matter, who spoke on the condition of anonymity to describe tax policy changes that have not yet been finalized, confirmed the details of the plan. The committee declined to comment.

Democrats contended the total slate of proposed tax increases can help raise as much as $2.9 trillion over 10 years, which Democrats cautioned in the document is a preliminary estimate. The sum also includes savings achieved as a result of greater enforcement of existing tax laws and additional policy reforms targeting Medicare prescription benefits. Lawmakers believe this means the total $3.5 trillion package is paid for in full, since it also relies on a budgetary move known as dynamic scoring, which takes into account the economic activity generated by federal spending.

Reacting to the news of the plan, White House spokesman Andrew Bates said Sunday evening that the proposal “makes significant progress toward ensuring our economy rewards work and not just wealth,” while satisfying the president’s promise to repeal the Trump tax cuts in a way that does not raise rates on Americans who earn less than $400,000 annually.

The new tax details arrived on a day when Democrats continued to spar among themselves over Biden’s economic agenda appeared to widen on Sunday, as Sen. Joe Manchin III (D-W.Va.) threatened to vote against a tax-and-spending bill as large as $3.5 trillion.

Manchin instead called on Democrats to whittle down the amount, perhaps by more than half, while reeling in broad swaths of their still-forming proposal, including some of its programs to address child poverty and combat climate change. The potential for spending cuts later troubled Sen. Bernie Sanders (I-Vt.), who described a smaller economic package as “unacceptable.”

The developments foreshadowed a significant political stalemate on the horizon, as Democrats continue laboring to craft a proposal that might overhaul federal health care, education, immigration and tax laws. The process has played out across the Capitol in grueling legislative sessions that have at times pit moderates against liberals over the final package’s price tag and policy scope. House Speaker Nancy Pelosi (D-Calif.) aims to have the proposal fully written by Sept. 15.

Manchin calls on Democrats to ‘pause,’ cut $3.5 trillion spending plan, dealing potential blow to Biden agenda

In sorting out the disputes, Democrats face a tough political reality: They must stay united in a Congress that they only narrowly control if they hope to pass what could become the largest economic package in U.S. history. The risks are especially high in the Senate, where Democrats have only a tiebreaking majority, making Manchin’s early opposition to their plans all the more potent.

Appearing on CNN “State of the Union,” Manchin reiterated his broader concerns that a tax-and-spending measure as large as $3.5 trillion could add to the deficit and worsen the country’s troubles with inflation. Echoing his opinion piece in the Wall Street Journal earlier this month, he called on Democrats to pause their legislative work.

Party leaders have rejected those calls, with Senate Majority Leader Charles E. Schumer (D-N.Y.) saying last week the chamber is moving “full speed ahead” in the hopes of adopting the final measure before the end of the month. Asked about that timeline, Manchin fired back, telling CNN, “That’s fine, he can, he will not have my vote“ on a $3.5 trillion package, adding, “Chuck knows that.”

Manchin on Sunday also revealed some of his thinking about the package, raising new concerns with some of Democrats’ biggest priorities.

Democrats sort through painful sacrifices as economic bill enters final stretch.

He trained his fire on party efforts to extend the expanded child tax credit, for example, a program that Democrats boosted under the most recent economic stimulus. Manchin raised the need for additional rules in the program that limits the tax credits to those with lower incomes and raised the possibility Democrats should tie the aid to work requirements, an idea generally opposed by liberal members of the party.

“I support child tax credits. Let’s see how we’re doing, let’s make sure we’re getting it to the right people,” he began. “There’s no work requirements whatsoever. There’s no education requirements whatsoever for better skill sets,” Manchin continued. “Don’t you think if you want to help the children, the people should make some effort?”

On climate, meanwhile, Manchin also appeared to take fresh aim at one of Democrats’ prized plans to reducing emissions, which is a program that would pay energy providers to use cleaner sources while penalizing those that continue to pollute. Some party lawmakers say the program is essential for reaching Biden’s goal to slash the emission of greenhouse gases in half by 2030, yet Manchin, whose state relies heavily on the coal industry, appeared to describe the effort as unnecessary.

“The transition is happening. Now they’re wanting to pay companies for what they’re already doing,” he said. “It makes no sense to me at all for us to take billions of dollars and pay utilities for what they’re going to do as the market transitions.”

Manchin’s early calls to scale back the package drew condemnations from Sanders in a later interview on CNN. “No, it is absolutely not acceptable to me, I don’t think it’s acceptable to the president, to the American people, or to the overwhelming majority of the Democratic caucus,” Sanders said. “I believe we’re going to all sit down and work together and come up with a $3.5 trillion reconciliation bill, which deals with the enormously unmet needs of working families.”

Sanders touted the broader aims of the package to lower prescription drug prices, expand Medicare benefits and combat such challenges as climate change. He stressed that many Democrats had already compromised in setting a $3.5 trillion ceiling, after Sanders and his allies initially sought close to $6 trillion.

Sanders highlighted the political stakes, pointing to the fact Democrats have tied their tax-and-spending measure to a separate effort of roughly $1 trillion to improve the nation’s infrastructure. Liberal lawmakers have said they will not back that measure unless they can vote on a robust economic package. “It would be a really sad state of affairs for the American people, the Congress, if both of those bills went down,” he said.