Biggest Tax Hike on Wealthy Since 1993 Is Bogged Down in U.S. Congress
(Bloomberg) -- Wealthy Americans wondering how much more taxes they’ll owe after Democrats pass their sweeping social-spending package may have to wait until deep into the fall, or later, to find out.
The tax-writing panels in the House and Senate had until Sept. 15 to finish writing the details of what would amount to the biggest tax-hike package since 1993. Those details are part of a legislative push that incorporates Democrats’ plans for ramping up spending on initiatives including health, child care and clean energy.
They’re almost certain to miss that deadline.
First off, lawmakers don’t yet know how big the final tab will be, a key determinant for how much money will need to be raised. The outline known as a budget resolution that passed last week called for $3.5 trillion over 10 years. But moderate Democrats Kyrsten Sinema and Joe Manchin have said they want a smaller figure in the final so-called reconciliation bill.
Next, legislators have different ideas about which tax measures to enact. President Joe Biden laid out a core set of proposals, including a boost to the capital gains and top income-tax rates, corporate-tax hikes and a change in how a levy on inheritance works. He also laid down a red line against boosting levies on those earning under $400,000.
But Senate Finance Committee Chair Ron Wyden has ideas of his own. In the House, Ways and Means Committee Chair Richard Neal and his staff and panel members are moving on a separate track.
“We’ve put forward this menu of options, and it would be hard for me to say at this point which have a higher chance of success than others,” said Senator Chris Van Hollen, a Maryland Democrat who has worked closely with the White House on tax issues. “We’re going to have strong support for a robust tax package,” he predicted, noting that it will need the support of all 50 Senate Democratic caucus members.
Staff at the House Ways and Means and Senate Finance committees have been rushing to complete the text while lawmakers are largely absent from Washington during the August recess. Legislators serving on the panels don’t have much insight into what they’re drafting, according to two congressional aides.
Given the timeline set by House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer, Democrats are weighing the option of bypassing the usual committee voting practice, where amendments are considered, and instead sending the various components of the overall tax-and-spending legislation -- known as a reconciliation bill -- straight to the House and Senate floors. That would give lawmakers fewer opportunities to add their own priorities, the aides said.
The House is voting early next week on the budget resolution, setting the stage for the reconciliation process, which allows for Democrats to forgo Republican votes in the 50-50 Senate but requires that the caucus remain unified. GOP lawmakers have opposed both the tax and the spending elements of the legislation.
The biggest problem for congressional staff as they try to construct the tax portion of the bill is that they still don’t know how much revenue they will need to raise. Of the $3.5 trillion in spending allowed in the budget resolution, at least half would be funded by tax increases. Manchin and Sinema haven’t specified what top-line number they’d support.
“The big numbers aren’t settled yet. They’re still figuring out how much they can agree to spend,” said Frank Clemente, the executive director of progressive group Americans for Tax Fairness. “Committees are preparing various revenue options and the legislative text that would be needed to achieve the revenue goals that finally get decided on.”
Lawmakers would then consider those options after they return from break. The Senate is scheduled to return Sept. 13. After a brief session starting Monday, the House will be back in session starting Sept. 20.
Van Hollen said that some changes that Biden has proposed -- including corporate tax hikes and funding for the Internal Revenue Service to enhance its ability to go after tax cheats -- are likely to have strong support. Other changes, including increases to capital gains rates and rule changes that would tax assets at the time they are passed on to heirs -- rather than when they are sold -- have faced pushback within the caucus.
A senior White House official said the president’s tax agenda is playing a prominent role. The White House has been part of discussions on proposals including ending step-up in basis -- the change to the IRS code that would tax assets of wealthy individuals before they are passed onto heirs-- and greater funding for IRS enforcement. The White House will continue to meet with lawmakers during the process, the official said.
Wyden is looking to put his own mark on the tax bill with several ideas that he’s developed beyond White House proposals. His committee approved an energy tax credit plan this year, and the Oregon Democrat has released plans in recent weeks for a comprehensive rollback of tax breaks for private equity fund managers and another for annual taxes on derivatives. He plans to release an updated proposal to overhaul the international tax system next week.
“I’m fine-tuning various proposals and having constant conversations with my
colleagues,” Wyden said in a statement. “I’ve been working on many of these proposals for years.”
The constitution requires that tax legislation start in the House, and Neal, a Massachusetts Democrat, is working on his own package.
“We intend to have our own version, with our priorities,” Neal said in an interview. “We assume through strong conversations with the administration and with Chairman Wyden that we can reach an agreement.”
A final bill is likely to look closer to the product written in the Senate, given the narrower Democratic control in that chamber and the crucial talks that will loom between moderates like Sinema and Manchin and progressives including Wyden and Senate Budget Committee Chair Bernie Sanders.
One more niggle for the committees is figuring out how to expand the state and local tax, or SALT, deduction, which is specifically outlined in the budget resolution as an area to address. Eleven Democrats on the Ways and Means Committee have highlighted that expanding the $10,000 cap set by Republicans in 2017 is a priority for them.
With control of Congress at stake in next year’s midterm elections, the pressure on lawmakers is high to hash out a deal before the opportunity is lost.
“I am optimistic about Congress about passing the Biden agenda, more or less,” said Steve Wamhoff, the director of federal tax policy at the Institute on Taxation and Economic Policy and a former aide to Sanders. “A bunch of compromises will be made at the last minute -- because that’s how these things work.”
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