Democratic Lawmakers’ Fast-Track Option
At some point, Democrats will confront the question of whether to pass some of Biden’s proposals on their own, without Republicans, who firmly oppose items including the rolling back some of President Donald Trump’s signature tax cuts and large-scale expansion of social spending.
They would need to do that using budget reconciliation, the special fast-track process they used to ram through the Covid-19 bill. But reconciliation bills have special rules, including some that likely leave out some of the infrastructure elements.
How much flexibility the Democrats have could depend on a ruling expected in the coming days or weeks from the Senate parliamentarian, who makes judgments on the matter.
Democrats would still need to reach agreement among each other on what to proceed with. Progressives have said they view Biden’s $4 trillion as too small and want to add more health-care provisions. Moderate Democrats like Manchin have indicated discomfort with the size of the spending as well as some of the tax increases.
A key factor: whether Biden’s proposals keep polling well, in effect putting pressure on the party to support them. The White House plans to keep selling the plans with public outreach.
Taxing The Wealthy
Biden’s proposals to increase the corporate tax rate to 28% from 21% hit quick turbulence in his own party. Manchin and others indicated they could be comfortable with a lower, 25% rate. A proposal to increase capital gains taxes is also facing skepticism and could be pared back in legislation.
“Right-sizing that is going to take a delicate balance and a lot of wisdom,” Representative Don Beyer, a Virginia Democrat, said Monday on Bloomberg Television.
Key decisions on the scope of tax increases will be made by Senate Finance Committee Chairman Ron Wyden and House Ways and Means Chairman Richard Neal.
Both committees are expected to act on taxes once the scope of the spending is decided. Wyden has put forward his own ideas on both corporate and individual tax increases.
Another wild card: demands to lift the $10,000 cap on the state and local tax (SALT) deductions. Nearly two dozen House Democrats and Republicans have formed a SALT Caucus, vowing to hold any tax-code bill hostage to secure a lifting of the ceiling imposed by the GOP tax-cut bill of 2017. A compromise here could involve enlarging the cap rather than abolishing it.
“We expect Congress to raise the cap to something like $50,000, or reinstate it for taxpayers under a certain income threshold, which could be done at a fraction of the cost,” Goldman Sachs Group Inc. wrote in a recent research note to clients.
Potential Complication: Debt Ceiling
One potentially complicating factor lurking in the backdrop of Congress’s agenda is the need to raise the nation’s debt ceiling, which comes back into effect in August after a two-year suspension. While the Treasury has options to keep servicing U.S. debt for a time, legislative action will be vital.
Democrats are widely expected to use a budget-reconciliation measure to raise the ceiling to defuse any Republican move to use it as leverage for spending cuts—as they did in 2011. But, it isn’t yet clear if all 50 members of the Senate Democratic caucus and the slim Democratic House majority are on board with increasing the limit.
—With assistance from Daniel Flatley.
This article was provided by Bloomberg News.