As progressive lawmakers push President Biden to jack taxes on the rich, some of his top Democratic allies have begun to push back.
To wit, the House Ways and Means Committee has scaled back ‘some of the most ambitious elements’ of the Biden administration’s economic blueprint ahead of a Tuesday vote, according to Bloomberg, adding that the changes “reflect the political reality of a Senate that requires moderate Democrats to vote en masse for the final package, given the razor thin margins of the party’s control of the chamber.”
Biden’s move to tax rich families on inherited assets at the time of transfer — ending the so-called step-up in basis measure — is absent from the House plan unveiled Monday. His top capital gains tax rate of 39.6% gets weakened to 25%. There is a 3% surtax on incomes exceeding $5 million, but the principle of bringing levies on investments more into line with wage-earners’ incomes is eroded.
While Senate Finance Committee Chairman Ron Wyden 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. -Bloomberg
“The biggest area where it falls short compared to Biden is changing the capital gains tax base, which is key to making sure billionaires pay taxes on those gains and making sure those gains don’t go un-taxed entirely,” said former Obama tax policy adviser, Seth Hanlon. “There is still this hole in the tax code that allows wealthy people to avoid taxes on their gains entirely.”
Biden’s so-called ‘Build Back Better’ plan was launched in part to enact his promise to roll back Trump tax cuts from 2017, which preceded record-breaking economic growth and unemployment in the American economy, particularly among minorities.
Progressives, however, say the tax rollbacks don’t go far enough.
The most glaring omission in the House package is that it does not tax capital gains at death – i.e. people like Jeff Bezos and Elon Musk will continue to go through life and death without paying our main tax – individual income – on much of their income. Senate needs to fix.
— Chuck Marr (@ChuckCBPP) September 13, 2021
Opposition to the tax hikes is strong among Democrats in the farming community – which is currently exempt from taxation for farms passed down to heirs, and only taxes gains when a property is sold or stops being operated by the family.
Even though Biden’s plan to eliminate step-up in basis included exemptions, opposition from groups including the National Corn Growers Association has been vocal. The administration’s package exempted from taxation any family business or farm passed down to heirs and would tax the increase in the value of the business or property only when it is sold, or stops being run by the family. Biden’s plan also exempts the first $2.5 million in gains from family farms from taxation.
One outside coalition, run by former Heidi Heitkamp, a former Democrat senator from North Dakota, argues that the proposed tax changes would still hit ordinary Americans like farmers or those who run smaller family businesses. She said the Biden proposal has generated deep skepticism among farm owners and rural business owners who fear the provision would erode land values or that the exemptions could later be weakened.
“When you think about this in the long run, is the revenue that would be raised commensurate with the political liability you’re taking on?” Heitkamp said in an interview. “To think there is no political liability, that may be true in downtown Queens, but it’s not true in states like North Dakota, South Dakota, Montana, in rural districts, in swing districts.” -Bloomberg
Recall that the Democrats’ entire $3.5 trillion economic blueprint is doomed if they can’t convince moderate Democrats – such as Sen. Joe Manchin (WV) to sign off.
While the Biden administration continues to advertise their tax plans as an assault on the rich, and only the rich, House Democrats are eyeing a handout for the rich with a two-year repeal of the SALT cap.
The cap, implemented by the GOP in 2017, limits the federal deduction for state and local taxes to $10,000.
According to senior Ways and Means Committee Democrat Bill Pascrell of New Jersey, the SALT cap rollback is one of the “main considerations” before the body.
“There’s no final decision,” he said, however. “It’s a working project.”
The SALT cap discussions come as lawmakers from high-tax states (California and New York in particular) threatened Speaker Nancy Pelosi over support for other parts of Biden’s economic agenda unless the deduction cap is eliminated or at least modified.
The Ways and Means committee did not include a specific strategy for the SALT deduction in its tax plan released Monday to help pay for Biden’s agenda. But Chairman Richard Neal of Massachusetts joined Pascrell and Tom Suozzi of New York in releasing a statement that the SALT cap would be addressed in the legislative process later on.
The committee on Tuesday was meeting to finalize details of the bill, intending to send that to the House Budget Committee by Wednesday. –Bloomberg
Two years ago, Suozzi sponsored legislation attempting to double the cap to $20,000 for married couples filing jointly, and then temporarily repeal it altogether for two years for people making less than $100 million per year.
According to the report, restoring the full SALT deduction would cost the US Treasury $88.7 billion in 2021 alone, according to the Joint Committee on Taxation. A repeal lasting multiple years would of course mean considerably more.