Top Democrat Says Biden Inheritance-Tax Plan Short of Votes
(Bloomberg) -- The top House Democrat overseeing tax policy said Tuesday that President Joe Biden’s plan to substantially raise taxes on inherited assets lacks sufficient support in the lower chamber, further dimming its chances of inclusion in a $3.5 trillion economic package.
“There were enough that raised questions about it,” House Ways and Means Chairman Richard Neal told reporters following a third day of committee sessions to advance parts of the Democrats’ economic and social-spending proposals. “The issue here is very simple and the arithmetic here is very defiant. And that is getting to 218 votes,” he said, referring to the number amounting to a majority in the House.
Neal, a Massachusetts Democrat, plans to wrap up the committee’s debate of tax policies and other provisions within its jurisdiction Wednesday.
Biden’s proposal to end a tax break on inheritances known as “step-up in basis,” which wipes out the capital gains tax on assets when the owner dies, was already facing obstacles even before the House committee left the provision out of its draft tax legislation released Monday.
The plan had been central to Biden’s efforts to overhaul capital gains taxes as part of a broader effort among progressives to equalize treatment of employment income with investment income, and achieve a top capital gains rate of 39.6% before a surtax on top earners.
The House committee instead proposed raising to raise the top long-term capital gains rate to 25% from 20%. The House Democratic leadership could still insert changes after the committee passes its draft and before the entire chamber votes on the legislation. Yet Neal’s exclusion of the measure from his own committee’s proposal, along with his latest remarks, indicate a last-minute addition of the capital gains overhaul is highly unlikely.
“I heard from a lot of constituents about step-up-in-basis,” Virginia Representative Don Beyer, a Democrat on the committee, told reporters during a brief break from debate on the bill.
While Senate Finance Committee Chairman Ron Wyden has hinted at addressing step-up in basis, such a gesture faces opposition from moderate Democrats in the upper chamber. Farm-state lawmakers have voiced particular concern about doing away with tax-free transfers of inherited assets, even though family farms were specifically marked out as an exception by Biden.
Democrats can’t afford to lose any votes in the evenly split Senate. House Democrats are unlikely to vote on a measure they know could be stripped out by the other chamber and could later prove politically damaging.
“This is not about putting on tax seminars and telling everyone what you’re for, this is about getting to 218,” Neal said.
Even with some of the Democrats’ proposals falling short of Biden’s ambitions, White House National Economic Council director Brian Deese hailed the broader momentum on Tuesday, saying lawmakers were making “major progress” with their efforts to increase taxes on corporations and the wealthy.
The package offered by Democrats on the Ways and Means Committee is “not everything that the president called for, but gets at the core issues we face in our tax code,” Deese said Tuesday during an interview on Bloomberg Television’s “What’d You Miss.”
Other outstanding items still being hashed out in the House include a Biden-proposed requirement on banks and other financial institutions to proactively report their customer account and transaction information to the Internal Revenue Service as part of an effort to collect more unpaid taxes, and whether to partly or fully reinstate the state and local tax deduction, or SALT, that many House Democrats ran on restoring in 2018.
Reinstating the deduction, a priority for several members, could take budgetary space away from other Democratic priorities and has contributed to intraparty tension during the negotiation process over the broader multitrillion-dollar package that Democrats hope to pass this fall.
Beyer acknowledged the bank reporting requirement, seen as key part of a two-pronged approach to collect more taxes along with increased IRS enforcement funding, also faced headwinds in the chamber. But the idea of changing how capital gains taxes fall on inheritance, “seems more dead,” Beyer said.
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