WASHINGTON – Democrats have been scrambling to find other sources of revenue to pay for their roughly $ 2 trillion social and climate policy package, seeking to target high net worth businesses and individuals in innovative ways after increases in proposed tariffs failed in talks.
Senator Kyrsten Sinema (D., Arizona) ‘s continued opposition to any increase in top marginal rates on corporations, individuals or capital gains has emerged as a major obstacle in the party’s quest to achieve a new legislative framework. . Democrats want to cover the full cost of spending with tax increases, and the measures opposed by Ms. Sinema represent a significant chunk of the revenue the party relied on to do so.
Top Democrats are now looking for other ways to generate income that would affect similar groups of businesses and individuals, including taxing billionaires’ unrealized capital gains every year, but these measures meet their own dose of skepticism. from the centrist Democrats. The legislation will ultimately need the support of all 50-50 Senate Democrats and nearly all House Democrats.
âI think anytime you get into things that aren’t proven in the tax code it gets a little bit dangerous,â said Sen. Jon Tester (D., Mont.), Who has already done so. opposed to proposed changes to the way capital gains are taxed. “So we have challenges there.”
Still, the Main Democrats have said they are close to reaching agreement on a framework for the legislation. Lawmakers are rushing to reach agreement on the bill by the end of next week, as they face a deadline for passing a separate infrastructure bill from about $ 1,000 billion. Progressive Democrats have said they will block public works legislation without an agreement on the social policy and climate bill.
House Speaker Nancy Pelosi (D., Calif.), Who had said lawmakers could reach agreement on a framework this week, said negotiations on the tax measures were continuing.
“We will see what survives, what prevails,” she said.
Ms Sinema and Senator Joe Manchin (D., W.Va.), another critical centrist, met with White House officials on Capitol Hill on Thursday.
In addition to the challenges Democrats face raising money to foot the bill, they are also sorting out spending measures in legislation. The amount of money to spend on climate measures, home care for elderly Americans and affordable housing is on hold as Democrats haggle over the bill.
In the House, Democrats have proposed raising the corporate tax rate to 26.5% from 21%, lowering the personal income tax rate to 39.6% from 37%, and increasing the capital gains rate from 23.8% to 28.8%. The corporate tax rate hike was expected to generate $ 540 billion over a decade, while tax rate increases on ordinary income and capital gains would rise by nearly $ 300 billion. Ms Sinema has maintained for weeks that she opposes all of these tax hikes and it is not clear if there are any other House-backed tax hikes she would block.
“There are a lot of ways to get here, my personal take is it’s crazy to take the corporate tax rate and the higher tax rates off the very wealthy people from the table,” said Senator Chris Van Hollen (D., Md.).
Other elements of the House proposal, such as tightening the net on foreign profits for U.S. companies and improving tax collection efforts at the Internal Revenue Service, are still part of the negotiations.
Ideas that were previously not part of Democrats’ tax plans, such as an excise tax on share buybacks, have gained traction in recent days. Democrats could also explore some form of alternative minimum business tax, a levy designed to raise taxes on businesses that currently pay low rates because of the legal use of tax breaks.
One of the main alternative ideas for increasing income comes from Senator Ron Wyden (D., Oregon), chairman of the Senate Finance Committee. The plan aims to redefine the long-standing rules about how capital gains are taxed, for those at the top of the wealth distribution.
Currently, gains are only taxed when an asset is sold, and no income tax applies to gains held at death. As a result, taxpayers have a strong incentive to hold valued assets without selling them.
Mr Wyden’s plan, on the other hand, would tax those unrealized gains every year for life, but only apply the levy to a few hundred billionaires. He proposed the concept in 2019 and finance committee staff have been working on the technical details since then.
For example, consider someone who was worth $ 100 billion at the start of the year and $ 120 billion at the end, all held in stock in a company they founded. Under the current law, they would pay no income tax. Under Wyden’s proposal, they would pay capital gains tax rates â currently 23.8% â on that $ 20 billion gain. This annual assessment is called the mark-to-market approach.
Even before these annual taxes began, Wyden’s proposal includes a one-time tax on the existing unrealized earnings of billionaires, a measure that would tax the stock price gains they have experienced in recent years. Something like this annual tax could bring in over $ 800 billion, according to the Penn-Wharton budget model.
For Democrats aiming for the top of the wealth distribution, this is potentially politically attractive, and it could generate substantial income, but comes with several challenges, including likely legal challenges and knowing how to collect the money. taxes when billionaire investments lose money.
Senator John Hickenlooper (D., Colorado) said he was concerned that the tax would affect the value of certain assets if they were to be sold to pay the tax.
âI’ve always had questions about anything that involved valuing the market on an annualized basis. You start to put pressure on the valuation and maybe the sale of assets, whichever is more liquid and that can often skew the value, âhe said.
“I am in favor of more adjustments in different ways without anything so dramatic,” Hickenlooper added.
Mr Wyden said the tax increase on billionaires was popular with Democrats.
“I haven’t heard any congressman say he thinks it is right or fair that billionaires pay little or no income tax for years, not a single congressman has said so “said Mr Wyden.
âNatalie Andrews contributed to this article.
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