Democrats wrestle over tax hikes for infrastructure

Senate Majority Leader Charles Schumer (D-N.Y.) is in discussions with the White House over whether to combine a massive infrastructure proposal with tax reform to appease moderates in his caucus who are worried about the federal deficit.

The move comes after an initial White House plan to offset a $3 trillion infrastructure bill with $1 trillion in tax increases is starting to look more like $4 trillion in new spending and $3.5 trillion in taxes.

Schumer says the White House is still working out its strategy on whether to seek a standalone infrastructure bill or pair it with a broad tax reform package to offset the cost.

“We’re discussing all of this with the White House, our discussions have just been preliminary,” he said Thursday.

On Monday, Schumer’s office said it is trying to give Biden as much flexibility as possible.

A significant number of Senate Democrats want to pay for at least part of the infrastructure package, but tying it to tax reform will slow the entire process and make Democrats up for reelection in 2022 vulnerable to charges that they are raising taxes during a pandemic.

“I think there have to be substantial pay-fors,” said Sen. Angus King (Maine), an Independent who caucuses with Democrats. 

Sen. Jeanne Shaheen (D-N.H.) said she also wants to see offsets attached to Biden’s infrastructure plan.

“Hopefully there will be some of that,” she said.

One such proposal has come from centrist Sen. Joe Manchin (D-W.Va.), who wants to raise the corporate tax rate from 21 percent to 25 percent, which he says would create about $400 billion in new revenue. 

A Schumer aide said the majority leader wants to maximize his options to give Senate Democrats multiple pathways to advance Biden’s Build Back Better infrastructure initiative “if Senate Republicans try to obstruct or water down a bipartisan agreement.”

Schumer’s top aides are making their case to the Senate parliamentarian that Democrats should be allowed to move two separate proposals under budget reconciliation later this year.

Moving multiple reconciliation packages would allow Schumer to split up infrastructure and tax reform in case there’s political blowback to raising taxes to pay for infrastructure priorities, such as roads, bridges, railways and water works, as well as people-focused Democratic priorities like free community college and universal pre-kindergarten. The approach also would allow Democrats to sidestep Republican filibusters, requiring only simple majorities to pass the two measures. 

But pairing an infrastructure package with a significant tax increase that could raise more than $3 trillion over the next decade has support from progressive leaders such as Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.), who want wealthy corporations and individuals to pay more in taxes.

Warren has proposed raising $3 trillion over 10 years through her Ultra-Millionaire Tax Act that would require the wealthiest 100,000 households in America pay a wealth tax.

She is calling for a 2 percent annual tax on households and trusts between $50 million and $1 billion and a 1 percent annual surtax on top of that for households and trusts above $1 billion.

Warren also wants to apply a 7 percent flat tax on corporations that report more than $100 million in profits annually.

Sanders and Warren joined Sens. Chris Van Hollen (D-Md.), Cory Booker (D-N.J.) and Sheldon Whitehouse (D-R.I.) on Monday in unveiling a plan to tax unrealized capital gains passed on after death, one of several Democratic tax proposals jockeying for attention.

Sanders recently told The Hill that he would like wealthy individuals and corporations to pay more in taxes, when asked about raising taxes to soften the budget impact of a major infrastructure bill.

“We should be raising substantial sums of new money from the wealthy and large corporations who significantly are not paying their fair share,” he said on Thursday.

Pushing $3 trillion to $3.5 trillion in tax hikes when the real unemployment rate is estimated at around 10 percent and businesses have yet to fully recover from the pandemic poses serious political risks. Republicans are sure to seize on any tax increases to blame the Democrats if the economy fails to come roaring back, as most economists are predicting.

“Some people’s reform is somebody else’s tax hike,” said former Sen. Ben Nelson (D-Neb.) of the prospect of reforming the tax code to pay for trillions of dollars in infrastructure priorities, including some proposals that fall outside the realm of traditional infrastructure.

“I understand the rabbit hole that people are in in D.C., in Congress, but I’ve never felt that raising taxes is the answer to spending,” he said. 

“If you have to choose between raising taxes and delaying spending … my choice is delay the spending for a period of time, unless you’re prepared to borrow like they have with all the other trillions of dollars that have been spent here lately by the Trump administration trying to get out of the COVID hole and the same thing with this administration,” he added. 

Nelson was a pivotal vote when former President Obama and Democratic leaders negotiated an economic stimulus package during the Great Recession. They eventually hammered out a $787 billion bill that passed with three GOP votes in 2009.

Sen. Susan Collins (R-Maine) is the only Republican still in the Senate who voted for it.

Sen. Martin Heinrich (D-N.M.) says his top priority is to move a bold infrastructure bill that addresses climate change in a way that maximizes the odds of success.

Heinrich said if pairing infrastructure with tax reform enhances the chances of passage then he would support doing so, but he warned that he doesn’t want an unwieldy debate over the tax code to threaten Biden’s infrastructure initiative.

“My bigger issue is that we get an infrastructure and climate bill. If tax reform is part of how we get there, I’m all for that. If it’s a distraction, then I’m not,” he said. 

Heinrich said if tax reform is in the mix, “that also gives us to do some new tax policy around infrastructure.” 

Sen. Ben Cardin (D-Md.), a member of the Senate Finance Committee, says his first goal is to reach an agreement with Republicans on how to pay for at least an initial round of infrastructure spending.

“I would like to see us fully have financing in place to cover the ongoing infrastructure program that’s passed,” he said. “I’ll consider any reasonable revenue source.”

In a separate interview, the Maryland Democrat said, “If we can get a bipartisan infrastructure package with financing, that’s our first goal.”