A new levy on the wealth of US billionaires is emerging as an alternative to increases in income tax rates to fund Joe Biden’s spending agenda, as the White House and senior Democrats dash to rework their tax plans.
The last-ditch effort to reach a compromise on tax is part of a broader push by Biden and congressional leaders to reach a deal on the president’s bills to bolster the US economy before he heads to the G20 in Rome next week.
Lawmakers and administration officials have been painstakingly trying to reduce the size of the $3.5tn climate and social safety net proposals to about $2tn in order to appease moderate holdouts within the party.
Their plans to increase income tax rates on corporations, individual income and capital gains for wealthy Americans to pay for the bill have also been upended by entrenched resistance from Kyrsten Sinema, the senator from Arizona.
This has forced them to consider a series of new measures, including a tax on the wealth of between 600 and 700 billionaires, and a domestic minimum tax on corporations to ensure they did not benefit from too many tax deductions and loopholes.
“I think it’s been clear that the majority of Democrats, the progressives and the leadership — have wanted to do a lot more than they had the votes for, and that’s kind of put them in this bind,” said Donald Schneider, an analyst at Cornerstone Macro and a former Republican congressional aide.
Biden had planned to fund his flagship economic legislation with an increase in the US corporate tax rate from 21 per cent to 28 per cent, partially reversing a central element of Donald Trump’s 2017 tax cuts package.
House Democrats had suggested limiting the increase to 26.5 per cent in September, and that figure seemed destined to decrease further to 25 per cent in a compromise with Senate Democrats. The likelihood that there may now be no increase in the corporate tax rate, or a very minimal one, has left progressive Democrats aghast.
“Every year without a partial rollback of the [Trump tax cuts] makes it harder to chip away. It was a terrible piece of legislation, showering tax benefits on corporate shareholders who had seen a bonanza in recent decades,” said Josh Bivens, director of research at the Economic Policy Institute. “So in this sense it is all very discouraging.”
Business groups had led opposition to Biden’s planned tax corporate tax increase, arguing it would deter corporate investment and reduce US competitiveness.
The US Chamber of Commerce calculated the increase would affect 1.4m businesses with fewer than 500 employees, and provided lists to members of Congress of how many smaller companies in their state would be affected. But corporate America is not yet declaring victory in the fight.
Richard Neal, the Massachusetts Democrat who chairs the tax-writing Ways and Means committee, has not yet thrown in the towel on tax rates, however, so another twist may be in store.
“The chairman continues to stand by the Ways and Means product, maintains that the package will be fully paid for, and believes we can still raise the corporate rate and reach an agreement on the overall package,” one Ways and Means committee aide told the Financial Times.
The replacements may be equally unpalatable for business groups.
Biden and the Democrats are considering a surtax on share buybacks — as well as enacting a 15 per cent minimum tax on the income of large companies as a replacement, which would negate the benefits of many of their tax breaks. They have also proposed limiting Trump-era tax breaks for so-called pass-through businesses — often small companies where income “passes through” to the owners to be counted for individual income tax.
“We calculated that the corporate tax rise would generate $700bn, so that is a big gap to fill,” said Garrett Watson, a senior policy analyst at the Tax Foundation think-tank. “The Democrats could look to fill that gap with more complicated measures such as the minimum tax on book income. But if they do so, they risk undermining other parts of the tax code designed to incentivise research and development or business investment.”
On the individual side, the negotiations are also in flux. Biden planned to raise the top tax rate for wealthy individuals from 37 per cent to 39.6 per cent, and increase tax rates on capital gains and dividends, but those are now in question.
Instead, Ron Wyden, the chair of the Senate finance committee, is pushing a tax on the wealth of billionaires — echoing longstanding proposals by progressives such as Elizabeth Warren, the Massachusetts senator. While some Democrats are pleased with that solution, others are wary, saying it would be hard to get such a big change in tax policy over the finish line in short order.
Democrats are increasingly feeling pressure to end their internal disputes over the legislation and find a compromise to move ahead with the package, given the growing concerns that the extended talks are damaging Biden’s approval ratings.
“It’s hurting Biden. It’s hurting the Democrats. It’s undermining the vision of all the accomplishments we will have as being highly significant,” Jeff Merkley, the Democratic senator from Oregon, told NBC on Thursday. “It has to come to an end. I don’t know if soap opera or a nightmare soap opera is the right wording, but we’re in big trouble right now with this extended, getting nowhere negotiation.”
Rana Foroohar and Edward Luce discuss the biggest themes at the intersection of money and power in US politics every Monday and Friday. Sign up for the newsletter here