Biden's tax hikes are in flux as Democrats grapple with competing pressures

Party leaders have yet to make tough decisions like how much tax revenue to raise, where to set rates and how to handle parochial demands.

President Joe Biden speaks about infrastructure and jobs on May 6, 2021, in Westlake, La.Brendan Smialowski / AFP - Getty Images

WASHINGTON — The tax filing deadline for millions of Americans is Monday, but lawmakers in Congress are no closer to reaching a resolution on what to do about the hefty tax increases President Joe Biden has requested.

Democrats — who have wafer-thin majorities in Congress — are still sorting out how to handle competing intraparty demands and a threat of unyielding Republican opposition to new taxes to pay for the president's proposed infrastructure plan.

Biden is operating on two tracks. He’s emphasizing the high popularity of his tax hikes on corporations and people earning above $400,000 in polls, a bid to garner support in Congress.

But he’s also pursuing talks with Republicans on a slimmer package for roads and bridges, which would be a bipartisan win but likely have to come without tax hikes to fund them.

The president appears set to attempt both: pass a narrow bipartisan deal on infrastructure, then a separate Democrats-only package that raises taxes and funds clean energy programs along with elder and child care.

But the bipartisan talks have so far distracted Democrats from forcing a resolution on sticking points among their own members, including how much to raise taxes and how to handle regional demands, like rolling back the $10,000 SALT deduction cap on state and local taxes.

Dan Rubin, a former senior adviser to the House Ways and Means chair, Rep. Richard Neal, D-Mass., said Democrats have a long way to go.

“There's not only no consensus among Democrats in Congress, there's no consensus downtown,” Rubin said. “You have [Treasury Secretary Janet] Yellen telling Biden: Spend, it's not going to hurt. You have others saying no, no, no, this is going to hurt — the long-term effect. You have the political piece like [Sen. Joe] Manchin. You have the guys from New York saying no SALT, no deal.”

Democratic strategists, anticipating a Republican political assault, are also weighing the impact tax hikes on the nation's wealthiest could have on their hopes of keeping control of Congress after the 2022 elections.

House Majority Whip Jim Clyburn, D-S.C., said in an interview that Democrats have “got the votes in the House” to pass Biden’s spending plans — his $2.25 trillion infrastructure and jobs proposal and his $1.8 trillion program to expand the safety net for families.

But they are far from a consensus on the tax side of it.

“I think we should pay for as much of it as we can,” Neal said in an interview on Thursday.

He wouldn't suggest a dollar amount when asked if the House should aim for $1 trillion, or $2 trillion, or more in revenues.

“Good try,” Neal quipped.

Progressives like Rep. Alexandria Ocasio-Cortez, D-N.Y., have rejected the need to pay for the plans and say tax increases on the wealthy and corporations should be pursued to bridge inequality.

Moderates like Manchin, D-W.Va., say pay-fors are essential. And others say the price tag should factor in macroeconomic effects.

“We need to show fiscal responsibility and we need to be able to pay for it,” said Rep. Elissa Slotkin, D-Mich., who represents a swing district that includes suburban Detroit. She said that financing mechanisms can be stretched out over many years, “but we’ve got to show our math.”

Price uncertainty and policy differences

Rubin, now senior director at the communications firm Glen Echo Group, said he’d be surprised if Democrats are able to agree on more than $1 trillion in new taxes.

“I don’t see it being as much as people think. Members talk big until they actually have to go vote,” he said, adding that House Democrats have, in recent years, had a tendency to demand pay-fors.

“You would be shocked at how many of our caucus meetings internally were spent having a debate about whether or not our bills had to be paid for,” he said. “A good, good portion of our members would say, ‘I will not vote for your bill, even though it’s a great bill, because it's not paid for.’”

Rep. Brendan Boyle, D-Pa., a Ways and Means member, argued that infrastructure spending has “a demonstrated return on investment” that must be factored into the price tag.

“I do not believe the whole thing has to be quote-unquote ‘paid for,’” he said.

Although most Democrats aren't rushing to endorse or oppose Biden's tax proposals, some policy disagreements have emerged.

Not all Democrats are on board with Biden’s call to raise the corporate tax rate from 21 percent to 28 percent, which would be a major source of revenue. Manchin has said he supports a 25 percent rate.

Others are resisting his push to tax capital gains as ordinary income. Others like Sen. Mark Warner, D-Va., disagree with Biden’s opposition to user fees.

And a faction of Democrats in states like New York and New Jersey is insisting that any tax package roll back the 2017 SALT cap, which mostly taxed the rich but hit middle-income earners in areas with high property taxes, like Long Island and suburban New Jersey.

“The only red line for me is SALT,” said Rep. Thomas Suozzi, D-N.Y. “If you're going to change the tax code, you’ve got to fix SALT. No SALT, no deal.”

“People who make $150,000 where I live are middle class,” he said.

Broadening the state tax deduction would counteract Democrats’ goal of raising revenue. But party leaders can’t afford to lose the votes of Suozzi and his allies. Aides have discussed changes short of eliminating the cap, such as raising it and doubling it for couples.

“It's going to be a continuing negotiation between now and the finish line,” Suozzi said.

Senate Finance Chair Ron Wyden, D-Ore., said it's “hugely important” that Democrats press the case for new taxes as a matter of “fairness” in their home states and districts.

“We have all these urgent needs: roads, bridges, child care,” he said. Americans “understand that after the pandemic, there's a real role for activist government. You've got to find a way to ensure that you have the resources,” he added. “That's what makes this so crucial.”