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Biden gives Republicans counteroffer on tax hikes to pay for infrastructure

The president offered a menu of tax increases that wouldn't reverse any of the changes Republicans made in 2017.

WASHINGTON — President Joe Biden offered Senate Republicans an alternative to the tax hikes he initially proposed to pay for a sweeping infrastructure plan, part of his attempt find a bipartisan agreement, according to two sources briefed on the proposal.

In a meeting Wednesday with Sen. Shelley Moore Capito, the lead Republican negotiator, Biden insisted that tax increases pay for most of the plan but signaled he was willing to back a smaller increase than he had initially requested.

Biden's first proposal called for raising the corporate tax rate from 21 percent to 28 percent as the primary way to pay for the infrastructure bill. That was rejected by Republicans and didn't appear to have unanimous Democratic support either.

On Wednesday, Biden presented Capito with a menu of tax increases that don't reverse anything in the 2017 tax cut bill. Senate Minority Leader Mitch McConnell and other Republicans have said they consider the tax cuts to be a signature legislative accomplishment and they are unwilling to undermine them to pay for infrastructure.

Biden floated a 15 percent minimum corporate tax and tougher enforcement on the highest earners, said a source familiar with the meeting. The proposal is part of an effort to prevent corporations from using tax breaks and loopholes to effectively eliminate their tax burden, the source said.

Image: Infrastructure repair
Highway workers repair a hole that opened in the road as a result of the July 5, 2019 earthquake, near Ridgecrest, Calif. on July 6, 2019.Robyn Beck / AFP via Getty Images file

The list also included eliminating the "stepped-up basis," which addressees the tax value of inherited properties, and eliminating some fossil fuel incentives in the tax code.

Biden's goal at the Wednesday meeting was to try to convince Republicans that they can pay for a large infrastructure package simply by closing loopholes, making people and corporations pay the taxes they already owe and putting in a minimum corporate tax rate in place that is below the rate of the 2017 law, said an administration official.

While Biden still thinks the corporate rate should be higher, he understand that is a redline for Republicans so he tried to make the case that his plan can be paid for in other ways, the official said.

Biden also emphasized that he wants to see a significant level of new spending on infrastructure on top of a baseline of $400 billion over five years rather than redirecting funds for other programs, the official said.

McConnell appeared to quickly dismiss the president’s offer, rejecting any tax increases, saying at an event in Kentucky on Thursday that raising taxes will “create an enormous amount of controversy.”

“I don't think that's going to appeal to members of my party, and I think it'll be a hard sell to the Democrats,” McConnell said, “So my advice for the president and the administration, let's reach an agreement on infrastructure that's smaller, but still significant and fully paid for.”

White House press secretary Jen Psaki said that ahead of the meeting, Biden "did a thorough review of all of the tax reforms he's proposed," and said he has long supported a 15 percent minimum corporate tax.

"He looked to see what could be a path forward with his Republican colleagues on this specific negotiation," she said, emphasizing that Biden was "absolutely not" abandoning his support for raising the corporate rate to 28 percent.

"This is a way for him to identify pieces that he's long been a proponent of" in a way that would "not violate" the GOP's red line of not rolling back the 2017 tax law in infrastructure talks, she said.

Biden also told Capito that he wanted to see a Republican proposal that includes $1 trillion in new money. Biden had proposed $1.7 trillion in new spending, which Republicans countered with $250 billion in new spending and the rest of a $928 billion package largely comprised of unspent Covid-19 relief funding.

Capito, of West Virginia, took the offer back to her five-member Republican negotiating team Wednesday evening, which includes Sens. John Barrasso of Wyoming; Roy Blunt of Missouri; Roger Wicker of Mississippi; Pat Toomey of Pennsylvania; and Mike Crapo of Idaho.

Throughout the process, Capito has briefed McConnell, who has enormous sway over his conference and the direction of the negotiations, according to a source.

McConnell on Thursday specifically dismissed the idea of taxing inherited property at a capital gains rate calculated at the time of death instead of at the time of purchase, saying the idea “sends chills through the hearts of everybody who runs a small business or family farm.”

Capito and Biden are expected to talk again on Friday, and Republicans are considering a counteroffer to present to the president.

But time appears to be running out. Administration officials have said they want to see a "clear direction" on legislation when Congress is back in session next week, but Psaki said Monday isn't a hard deadline for negotiations.

"This has been a good discussion and an ongoing discussion where we are working to find areas of agreement," Psaki said Thursday. "We see a number of paths forward."

Most Democrats are anxious to stop negotiating with Republicans and focus on passing the measure through a budgetary process called reconciliation that needs a simple majority to pass the Senate.

But Sen. Joe Manchin, D-W.Va., a necessary vote even in the reconciliation process, has not yet said he’d support a partisan process and has pushed for a bipartisan bill. He is working with a separate bipartisan group of senators and House members to come up with a proposal should the talks between Republicans and Biden fall apart.