Democrats face divisions over pledge to scrap Trump’s tax cuts

By Lauren Fox and Katie Lobosco, CNN

Democrats have been waiting for years to reimagine the tax code so that, in their words, the wealthy are paying their “fair share” and working and poor families aren’t disproportionately hit with the tax burden. But overturning key pieces of the GOP’s 2017 tax law — a boon for businesses that lowered individual and corporate taxes — won’t happen without a bruising fight, potentially within their own party.

Special interest groups are already preparing for a sustained campaign against those changes, and the next weeks will test whether Democrats have the resolve to make good on what has been a campaign slogan up until now.

“I still think we can find the revenues to do the $3.5 trillion,” Sen. Mark Warner of Virginia, a Democrat on the Senate Finance Committee, said of his party’s sprawling spending package. “If we cannot generate the revenue, it all becomes somewhat moot.”

He added, “It’s not going to be easy.”

Democrats’ ability to roll back tax breaks for corporations and individuals will ultimately determine how much they’ll be able to spend on their bill to boost the child tax credit, provide paid family and sick leave and expand health care programs over the next decade as many moderate Democrats have argued that most of — if not all of — those programs need to be fully paid for.

Democratic leaders and top committee chairs have been bracing for the moment. For months, Senate Finance Committee Chairman Ron Wyden has been meticulously rolling out a series of options for how to pay for the package, unveiling a plan to restructure international taxes and pulling together legislative language to raise the corporate tax rate, increase the tax on capital gains and rework how businesses that operate as pass-throughs are taxed. Over the weekend, Democrats on the House Ways and Means Committee also began circulating a document that showed plans to raise the corporate tax rate to 26.5% and return the top marginal individual rate to 39.6%.

But some of the options have already been met with stiff resistance as corporate interests and DC lobbyists clamor to stop rollbacks of tax breaks they’ve enjoyed.

The other challenge is that some of the Democrats who are most committed to fully paying for their $3.5 trillion package are the same ones with serious concerns about raising taxes too much, with some facing tough reelections back home. Those tensions have frustrated some Democrats who argue that it’s up to members who want to pay for the package to be flexible in the ways to do so.

“For senators who are focused on paying for the entire package, the revenue is there. No one can say it’s not. Many options have been released publicly and there are multiple paths to hitting our revenue targets,” one Democratic aide said.

Internal and external tensions

Democratic lawmakers said internal tensions over how much of the bill should be paid for and how to do it are already creating schisms within the caucus.

“A lot of the members who want to go big on all these benefits want to have it all paid for and simultaneously don’t like any of the ways you pay for it,” one Democratic member said.”This is how being in the majority is different than being in the minority. When you are in the majority and have to figure out how to reconcile that, we have had some of those conversations within the caucus and it’s tough.”

Already, outside groups have started a lobbying and advertising blitz. The US Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers all oppose the tax proposals, arguing that they will destroy jobs and undermine the economic recovery.

“Business Roundtable is deeply concerned about potential tax increases on U.S. job creators that would counteract the benefits of infrastructure investment,” Joshua Bolten, the group’s president and CEO, said in a statement.

The American Farm Bureau Federation and hundreds of other farm organizations have urged lawmakers to leave some tax provisions alone, worried about the effect the proposed changes would have on family-owned farms.

Behind the scenes this month, efforts to block several changes to what is known as the “step-up basis” have become the latest fight. Former Sen. Heidi Heitkamp, a North Dakota Democrat, has been campaigning against a provision that would change the way appreciated assets are taxed upon death — arguing that it would hurt family farms and family-owned business.

Currently, individuals can inherit property without paying taxes until they sell it — allowing farms to be passed from one generation to the next tax-free. Historically, capital gains on property or securities have not been taxed until realized. But critics say this creates a loophole, allowing the wealthy to avoid paying taxes, and closing it could raise billions of dollars in revenue for the US government.

The Biden administration has vowed to protect family farmers so that they are exempt from a capital gains tax at death, but Heitkamp is skeptical that those exemptions will stay in place over time.

“Taxing unrealized gains will have economic ramifications, but equally important, political ramifications for Democrats in rural America,” Heitkamp, who lost reelection in 2018, told CNN.

“It won’t be well received,” she added.

Controversial tax provisions

That provision is just one of dozens of tax provisions that Democrats will have to work through in their caucus.

Increasing the corporate tax rate from 21% has been another area where moderates and progressives have disagreed. Sen. Joe Manchin of West Virginia has signaled he doesn’t want to go above 25%, but each percentage point is estimated to provide about $100 billion in revenue. Going up higher gives Democrats more money to work with and spend on key social programs they want to expand.

Increasing the tax rate on capital gains is another area where Democrats are hitting a wall of opposition. A reworking of the international tax code has been a top target for Wyden for years, but has also spurred backlash from lobbyists.

In an interview Sunday on CNN, Manchin laid out where he stands on taxes.

“I believe there are some changes made that [do] not keep us competitive,” he told CNN’s Dana Bash on “State of the Union.” “I want to increase taxes on corporations, I’ve spoken to corporations, I want the wealthy to pay their fair share.”

As a sign of the controversy ahead, Democrats on the House Ways and Means Committee began their mark up Thursday on the spending portion of their bill, but had held out revealing the tax increases. A draft proposal was circulated over the weekend ahead of an expected officially unveiling on Monday.

But one moderate Democrat on the committee, Rep. Stephanie Murphy of Florida, pledged last week to vote against every section of the bill in committee until she saw the full scope of the legislation.

“While I support many provisions in the Build Back Better Act, it’s being rushed through my committee before we know exactly what’s in it, what it’s going to cost, & how we’re going to pay for it,” Murphy wrote in a tweet Thursday, becoming the latest moderate in Congress to urge Democrats slow down the legislation’s progress.

For Democrats, the weeks ahead will test to what extent their rhetoric can actually become policy. With just a three-vote margin in the House, Speaker Nancy Pelosi is managing a caucus with disparate views on how bold the tax changes should be. She also has members who have vowed to vote against Biden’s economic agenda bill if they don’t get a rollback of the cap on the state and local tax deduction, which could cost billions of dollars to do and would need to be offset with additional revenue. Many of the members fighting to include the rollback on the limit hail from states like New York, New Jersey and California where state and local taxes are higher.

“For me, I have one issue SALT,” Rep. Tom Suozzi, a New York Democrat, told CNN. “No SALT, no deal. Everything else, how much do we spend? How will we do the programs? I will support whatever we can come up with as a team.”

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