Democrats weigh a $ 3.5 trillion agenda – and the way a lot needs to be paid for

WASHINGTON – Democrats trying to get their $ 3.5 trillion health, education, and climate legislation wrestled over what to pay in tax hikes and other policy changes – and what to fund with deficit spending.

When first introduced, Democratic leaders said the plan would be fully offset by higher taxes on businesses and wealthy households, as well as spending cuts such as the ability to let Medicare negotiate lower drug prices. But while faced with detailed decisions, senior lawmakers have begun to point out that intra-party consensus on taxes may not provide enough money. This scenario could lead them to increase federal borrowing or reduce their spending ambitions.

“I would have liked to have paid for it in full. We’ll see what is possible, “House spokeswoman Nancy Pelosi (D., Calif.) Told reporters last month. “Members have their views on how high the payouts can be,” she said, “but it’s a matter of size.”

The Democrats’ dilemma this month centers on how much of President Biden’s proposed taxes on capital gains and multinational corporations they are willing to accept. There is broad agreement on tax rate increases and tax enforcement that could gross in more than $ 1 trillion in a decade. Additionally, some changes are likely, but the center Democrats in both houses have raised concerns about the breadth of the Biden proposals.

They are particularly concerned about plans to tax unrealized capital gains in the event of death and to raise capital gains tax rates. Rural Democrats say they are concerned about the impact on family-run farms and businesses, despite administrative plans to protect these groups.

Rep. Jim Costa, California, is a third generation family farmer and has raised concerns about the impact of the legislation on family farms and businesses.


Caroline Brehman / Zuma Press

“A significant number of Democratic members in the House and Senate would likely not support this type of proposal that affects family businesses and family businesses,” said Jim Costa, Calif., Rep., A third generation family farmer.

A cut in tax rules would give Democrats another uncomfortable choice: deciding whether to shrink their spending plans or borrow some of the cost.

“It seems like paid in full might just mean something paid,” said Alec Phillips, chief economist at Goldman Sachs Research. “In a survey, that’s one hypothetical thing, and another if tax increases are actually implemented.”

The decisions ahead are likely to already spark high tensions between the centrist and liberal wings of the party, both of which will have to support the legislation in order to pull it through Congress without the support of the GOP. Democrats rely on a special budget-bound process to get the comprehensive package passed with only 50-50 Senate votes, and they can’t afford more than three defectors in the House of Representatives.

“I can find $ 3.5 trillion, but the question, of course, is whether we can get all 50 Senators on board with a particular proposal,” said Senator Chris Van Hollen (D., Md.).

House Budgets Committee chairman John Yarmuth (D., Ky.) Says he wouldn’t worry if the package wasn’t paid for in full, but others in the Democratic Group would.


Stefani Reynolds / Bloomberg News

You are trying to move quickly. Ms. Pelosi is working to endorse the progressive-favored tax and spending bill along with a separate bipartisan infrastructure bill already passed by the Senate and slated for a House vote in late September. Legislators are trying to resolve major differences between the House of Representatives and the Senate by September 15, and by then complete a rough draft to allow for more detailed negotiations, a senior Democratic adviser said.

On taxes, there is general agreement on the architecture of the international tax system and the desire to raise hundreds of billions of dollars, but no decision on tax rates, said Senate Democratic advisors. There is even less consensus on capital gains, they said.

“The proposed offsets are becoming problematic,” House Budgets Chairman John Yarmuth (D., Ky.) Said in an interview this week. Mr Yarmuth said he wouldn’t worry if the package wasn’t paid for in full, but others in the Democratic Group would.

The Senate Democrats’ $ 3.5 trillion job and infrastructure plan is a sprawling law. Gerald F. Seib of the WSJ reviews the handful of provisions that are the most popular and that are considered the most controversial. Photo illustration by Todd Johnson

There is no consensus among moderate Democrats, a challenge to the leaders of Congress. House MPs are more concerned about tax increases, while Senators are more concerned about making sure they pay for new expenses, said a person familiar with the negotiations.

Senate Finance Committee chairman Ron Wyden, D. Oregon, has come up with a long list of tax increases, including some that are more aggressive than the government proposed. His committee’s list of options includes proposals like an excise tax on share buybacks, a tax on corporations based on the ratio of executive salaries to average employee salaries, and restrictions on trusts used to avoid inheritance tax. Finance committee options also include an annual tax on billionaires’ unrealized profits and an excise tax on certain new plastics. It also suggests a softer version of the government’s capital gains proposal, with an exception of $ 5 million per person instead of a $ 1 million exception and a potential $ 25 million exception for family businesses.


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In the House of Representatives, Richard Neal (D., Massachusetts) was more reluctant to raise taxes, despite suggesting expanding family tax breaks and renewables, as well as a new paid vacation program.

Major centrist Senate Democrats, including Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, have already signaled their view that the $ 3.5 trillion price tag may be too high. Mr Manchin called for a “strategic break” in talks this week to assess inflation risks and the impact on national debt.

However, the chairman of the Senate Budget Committee, Bernie Sanders (I., Vt.), Who has proposed a package of US $ 6 trillion, has indicated that he does not want to go below US $ 3.5 trillion. This number corresponds to an increase in projected federal spending over a decade of about 5.5%; Ms Pelosi, in a letter to the Democrats in August, stressed the importance of sticking to this figure.

The strength of this top-line number could push the Democrats to take out additional borrowing and use some of the roughly $ 1.75 trillion in their budget. In 2017, Republicans talked about paying tax cuts and ended up using almost all of the $ 1.5 trillion in higher deficits they allowed in their budget.

Given the razor-thin Democratic majorities in both houses and their control over the White House, the $ 3.5 trillion budget package represents the party’s best and likely last chance to fulfill its wish list before next year’s midterm elections.

The package is expected to include priorities that the Democrats have been pushing for years. This includes paid family and sick leave; universal pre-kindergarten for 3 and 4 year olds; subsidized child care; an expansion of Medicare to include dentistry, health, and vision; two years of free community college and renewals of both expanded child tax credits and expanded grants under the Affordable Care Act. The package also aims to address climate change through measures including urging utilities to generate 80% of the country’s electricity from clean sources by the end of the decade.

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Democrats could also cover up internal disputes by hiding the real cost of programs and giving lawmakers a chance to claim their agenda is getting paid, even if the official score says otherwise. The Democrats could phase out some new programs in a few years, which would cut headline costs without diminishing short-term impact.

You could point to something called dynamic scoring, or estimates that new programs could boost economic growth, increase tax revenues, and reduce federal spending. Democrats can also refer to estimates that go beyond the official Congressional Budget Office results to argue that the bill is being paid more than it appears – possibly with revenue from stricter tax enforcement. On Thursday, a CBO number fell below Treasury Department estimates.

The Democrats’ budget

Write to Richard Rubin at [email protected] and Kristina Peterson at [email protected]

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