Dems Scramble To Slim Down Biden Tax Hikes

Now that Sen. Joe Manchin has officially come out against President Biden’s $3.5 trillion spending package, the Democrats are being forced to rethink their budget plans – starting with the ‘income’ side, since President Biden has promised to offset additional spending with tax hikes. And so, just hours after Manchin confirmed his opposition to the budget in a series of interviews, Bloomberg reports that the Dems have drafted a new package of tax increases that falls well short of Biden’s ambitious targets.

The new proposal would raise the top corporate rate from 21% to 26.5%, less than the 28% Biden had sought, people familiar with the matter said Sunday night. Meanwhile, the top rate on capital gains would rise from 20% to 25%, instead of the 39.6% Biden had originally proposed, per Bloomberg.

The new set of “business minded” tax increases is estimated to raise more than $2 trillion, which still might not be low enough to appeal to moderate Democrats like Manchin.

Still, the plan was criticized by conservatives, a preview of the fight ahead as the House Ways and Means Committee prepares to meet Tuesday to debate the tax portion of the economic package.

Americans for Tax Reform, a conservative group that fights for lower taxes, said the proposed tax hikes would lead to an immediate increase in consumer utility bills and make the US less competitive on the world stage.

“Democrats want to take the current rate of 21% and raise it to 26.5%, higher than communist China’s 25% and higher than the developed world average of 23.5%. This does not even include state corporate income taxes, which average another 4 – 5% nationwide,” the group said.

The tax increases described in the document, which is circulating among lawmakers of both parties, would raise $2.9 trillion in revenue when combined with $700 billion in revenue and cost savings from Medicare drug price changes. To fully pay for the president’s plan, the proposal factors in $600 billion from the estimated economic growth effects of the spending increase.

What’s more, the proposal would raise an estimated $16 billion by limiting deductions for executive compensation and $96 billion by higher taxes on tobacco and nicotine products, including e-cigarettes.

Despite pushback from the crypto community, Dems are still planning to include cryptocurrency in general tax rules allowing for cryptocurrencies to be treated the same as other financial instruments and to prevent taxpayer abuse of the rules.

Other new taxes in the new plan include: a proposal to cut in half the $24,000 estate and gift tax exemption for married filers on Dec. 31, 2021, four years earlier than set in the tax cuts passed under former President Donald Trump.

Notably absent from the document is any discussion of lifting the $10,000 cap on the state and local tax deduction, raising questions about the fate of that costly proposal.

The Ways and Means proposal “meets two core goals the President laid out at the beginning of this process – it does not raise taxes on Americans earning under $400K and it repeals the core elements of the Trump tax giveaways for the wealthy and corporations that have done nothing to strengthen our country’s economic health,” White House spokesman Andrew Bates said in a statement.

While the numbers are still subject to change before the proposal is officially released, such scaled-back plans would amount to an acknowledgment that even higher rates would have a tough time getting through Congress after some moderate Democrats expressed objections.

With thin majorities in both chambers, Democrats can afford just three defections in the House and none in the Senate as they try to use a process called “reconciliation” to get their budget passed.