House Democrats will consider a $2.9 trillion tax hike over the next 10 years in order to fund President Joe Biden’s budget plan, setting the stage for clashes over spending leading into the midterm election cycle between lawmakers in both parties, but also within the Democratic majority.
The drafted tax plan from the House Ways and Means Committee would raise taxes on the wealthy and large corporations to fund the Build Back Better Act, which is currently a $3.5 trillion proposal.
HOUSE DEMOCRATS AIM FOR 26.5% CORPORATE RATE IN LIST OF TRILLIONS IN TAX HIKES
The plan would raise the top personal income tax rate to 39.6% from 37% for individuals making taxable income of $400,000, households making $425,000, or married couples making $450,000 or more.
The tax plan would introduce a graduated rate structure for businesses: The first $400,000 in income would be taxed at 18%, then 21% on income up to $5 million, and 26.5% on income exceeding $5 million.
Erica York, an economist with the Tax Foundation’s Center for Federal Tax Policy, said in an interview that “the Build Back Better agenda as proposed by President Biden would be a net negative for the economy according to our modeling.”
“While some of the investments, particularly in hard infrastructure, would boost economic output, that benefit would be more than offset by using economically harmful tax increases to finance the new spending,” York said.
York said that “it remains to be seen how the legislation might be changed by the Rules Committee, and how it squares with what moderate lawmakers in the Senate are willing to do.”
“For instance, the corporate rate increase could be further pared back to 25%,” she said. “A lot of it will depend on how much lawmakers decide to increase spending by, as that determines the level of offsets required.”
Seth Hanlon, a senior fellow at the Center for American Progress focusing on federal tax and budget policy, said in an interview that the Build Back Better Act is a “transformative piece of legislation that makes overdue investments” that will help create a “stronger and more inclusive economy.”
The drafted tax proposal to fund the legislation, Hanlon said, “is a major step towards tax fairness,” although it doesn’t “go as far as President Biden’s.” Biden proposed taking large corporations at 28% rather than the 26.5% rate in the committee’s draft.
“It’s a good first step,” Hanlon said. “I think it will get stronger as the process goes on.”
The spending proposal and the plan to fund it are under consideration by the House Ways and Means Committee, where the package faces a process to approval that will highlight disagreements not just between Democrats and Republicans but between Democratic lawmakers in both chambers as well.
Democratic Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona have objected to the $3.5 trillion plan as too large, while Vermont Sen. Bernie Sanders has described it as already the result of compromise. New York Rep. Alexandria Ocasio-Cortez criticized Manchin’s objections to the bill on Twitter.
While the committee has not yet finalized the drafted spending and tax plans, a recent USA TODAY/Suffolk University Poll found that a majority of voters support the $3.5 trillion budget plan.
The tax hike will likely become the target of Republicans on the campaign trail as conservative groups move in opposition to the proposal. Americans for Tax Reform will launch a seven-figure campaign in 30 House districts describing the tax plan as the Democrats’ “tax-and-spend blowout,” Politico reported.
Rep. Richard Neal, chairman of the House Ways and Means Committee, said in a statement that in the committee’s markup of the infrastructure plan, it will consider “investments to provide critical support to families, spur the development of clean energy, reinstate Build America Bonds, and improve Americans’ ability to afford health care.”
“Our proposals allow us to both address our perilously changing climate and create new, good jobs, all while strengthening the economy and reinvigorating local communities,” Neal said. “We seek to help families better afford essentials with the continuation of the expanded Child Tax Credit and investments that will lower the cost of prescriptions and health insurance premiums.”
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Neal said all of those proposals could be accomplished while “responsibly funding our plans.”
“Taken together, these proposals expand opportunity for the American people and support our efforts to build a healthier, more prosperous future for the country,” Neal said.
