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Democrats scramble for ideas to finance $2T spending bill
Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, shares insights on US politics:
How are Democrats going to finance their $2 trillion spending bill?
Well, I don't know. And the Democrats don't know either. The original idea was to undo a lot of the Trump tax cuts from 2017. This is a very unpopular tax bill that every Democrat voted against, but moderate Senator Kyrsten Sinema told the White House earlier this month that she's against any and all tax rate increases. This takes the top individual income tax rate going up off the table. And it takes the top corporate rate going up off the table. And it probably takes capital gains rates going up off the table. So, now the Democrats are scrambling to backfill that revenue that they can no longer raise through rate increases with other ideas. One of those ideas is a tax on the unrealized gains of billionaires.
This would be a radical departure from how the US taxes income. Typically, it taxes capital gains income when those gains are realized. And the proposal from the Senate Finance Committee would be to tax them on an annual basis based on the appreciation. So, in some cases, you could be taxing somebody on gains they haven't realized and forcing them to pay with money they don't have, forcing them to sell off assets. Unfortunately for Sinema, and Ron Wyden, and other Democrats who support this, moderate Senator Joe Manchin from West Virginia said he's against it. So, they've got to go to other ideas, such as a corporate alternative minimum tax. The US used to have such a tax in place before the Trump tax cuts, but it was repealed because it didn't raise that much revenue, and it was a little confusing and had high compliance burdens.
Now, the Democrats want to bring that back. It would involve taking away some of the deductions and credits that companies use to minimize their tax liability, and would apply to a very narrow group of companies, about 200. If you look at the corporate minimum tax, if you look at the billionaires tax, which would affect about 700 people in this country, you're looking at raising an awful lot of revenue from not a large number of people. And this is a really big problem because you're not going to be able to get all the way to $2 trillion in spending with these somewhat narrow tax increases. This party's a long way from ending though. They probably have weeks, or potentially months of negotiations ahead of them. They'd like to get an announcement this week before the President leaves for his trip to the G20, and the Glasgow Climate Summit. They may get something announced, but the details of that are going to be worked out over a long period of time.
Moderate Democrats will determine the infrastructure bill's fate
Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, shares insights on US politics:
What happened with the infrastructure bill in the House this week?
The infrastructure bill, $550 billion in new spending on infrastructure, roughly doubling the amount of money that the US spends on roads, bridges, tunnels, ports, airports, water infrastructure over a five-year period was scheduled for a vote on Monday of this week. That was later delayed so that Speaker Nancy Pelosi could negotiate between progressives in her caucus and moderates, the moderates who wanted to get the bill done quickly. It was bipartisan.
They see it as a huge win and it was necessary to reauthorize highway spending for the fiscal year 2022, which begins on October 1st. The progressives support the infrastructure bill, but they see it as leverage for a much larger social spending package that President Biden is pushing. Unfortunately for the progressives, their appetite is a little bit larger than the stomach of the Democratic Party. They started at $6 trillion. They compromised down to a $3.5 trillion amount, but there are some conservative Democrats who are saying they won't spend more than $1.5 trillion, and there are other conservative Democrats who are giving strong hints that they don't want to do this bill at all.
Not a lot of trust between Democrats right now, which means that the floor vote on the infrastructure bill was totally derailed this week. Now, what's next is they have to try to find common ground to see if they can find a way to advance on the social spending package in order to get the infrastructure bill done. That could take weeks. That could take months. This is probably something we're going to be talking about through the end of the year. Democrats are going to have to compromise. You're probably going to get somewhere much lower than where the progressives are because they have very narrow margins in the House and Senate. This is not a majority that can afford to lose even a single vote. Because of that, it means their most moderate members are going to be the ones that determine the tune that everybody else dances to.