Democrats Weigh Increases in Corporate, Personal Income-Tax Rates

Once the White House completes its proposals, lawmakers will have their own ideas about spending, taxes and the sequencing and packaging of the legislative agenda. Democrats in Congress have started discussions about tax increases, which they back as a way to pay for programs and combat inequality.

House Speaker

Nancy Pelosi

(D., Calif.) said raising the corporate tax rate and increasing taxes on capital gains were possible options during a meeting last week, according to a senior Democratic aide. Senate Majority Leader

Chuck Schumer

(D., N.Y.) said he had a lengthy discussion with White House officials last weekend about various options.

The next legislative push faces a number of headwinds on Capitol Hill, and it is likely to be much more challenging to complete than the pandemic-relief law. Many Republicans oppose significant new spending and broad tax increases, while some Democrats are skeptical of linking complicated tax-policy changes with what they see as urgent needs such as infrastructure.

“Trying to tie something as big as real tax reform to this would just bog down the process and not get the funding out to the economy as quickly as necessary,” said

Rep. Mark Pocan

(D., Wis.), a leader among House progressives.

Republicans are already mobilizing against the potential tax increases, arguing that they would hurt the economy as it recovers from the coronavirus pandemic. GOP lawmakers have said they could back a narrow infrastructure package that doesn’t make significant increases to the deficit.

At the same time,

Sen. John Thune

of South Dakota, the No. 2 Republican in the Senate, said that GOP support for the infrastructure package could be imperiled if Democrats teed up a later, broader package that Democrats could pass along party lines through a process called reconciliation.

“If they decide to do that as a ploy to lure Republicans in to vote for the easy stuff and then do all that stuff, the controversial stuff through reconciliation, I don’t think our guys are going to take the bait on that,” Mr. Thune said.

Many elements of the preliminary tax plan reflect ideas from Mr. Biden’s campaign, including raising the corporate tax rate to 28% from its current 21%, according to the people familiar with the discussions. The White House plan would also increase taxes on companies’ foreign earnings in changes companies say could discourage investment in the U.S. and hurt U.S. companies’ ability to compete in foreign markets.

For the second tranche, the plan would raise the top marginal income-tax rate for high earners and increase taxes on investment gains. During the campaign, Mr. Biden proposed raising the top income-tax rate from 37% to 39.6% and taxing capital gains at roughly the same rate as income for the highest-income households.

He also put forward changes in how assets are taxed at death. Under current law, a capital-gains tax upon sale is only applied to the increase in an asset’s value after the original owner dies—and not the increase in value during the original owner’s life. Mr. Biden proposed applying a capital-gains tax on appreciated assets at death, ending what is known as the stepped-up basis.

Mr. Biden, during an interview with ABC’s “Good Morning America” last week, said his tax increases wouldn’t affect Americans making less than $400,000 a year. His campaign promise on the $400,000 level was regardless of whether people are filing alone or as married couples, meaning that, like current top tax rates, it could include a marriage penalty. He said he was confident Democrats would vote for raising the top marginal income rate and the corporate tax rate.

Some Democrats have questioned whether they even need to raise taxes to pay for the infrastructure bill, given its potential to boost the economy. Treasury Secretary

Janet Yellen

said Tuesday that longer-term programs should be accompanied by tax increases to pay for them.

“A longer-term plan that addresses critical needs of this economy probably would be accompanied by some revenue raisers,” she said at a House hearing.

During the campaign, Mr. Biden said permanent programs should be paid for. That is a description that fits more with expansions of child care and other items such as tuition-free community college in the second package. The infrastructure in the first package may be seen as partially permanent and partially one-time spending that isn’t paid for.

Sen.

Joe Manchin

(D., W.Va.), a key moderate Democrat, said Wednesday that lawmakers should raise as much revenue as possible to cover the cost of the proposal. He said he was open to rolling back elements of the tax bill Republicans passed in 2017 and raising the corporate tax rate to 25%. A large price tag was likely, he said.

“I can tell you one thing: It’s going to be enormous,” he said.

Lawmakers in both parties have for years said they see infrastructure funding as an area for bipartisan compromise. Because of procedural rules, Democrats likely couldn’t pass both parts of the $3 trillion plan along party lines, meaning they might consider passing part of the proposal with Republican support or consolidating all the spending and tax measures into one large package.

Even if Democrats move forward with tax increases without Republican support, they will still likely need to negotiate the specifics of many of the provisions among themselves. Lawmakers sometimes say they want tax increases to pay for new programs until they start debating the specifics of the tax increases.

Some aides expect that the final product will include smaller tax increases than Mr. Biden proposes. Given the likely size of the final package, Democrats are unlikely to try to cover its full cost through tax increases.

“Both the amount and makeup of any tax provisions in the infrastructure package are going to be determined by what the moderate Democrats in the Senate can stomach,” said Mac Campbell, a former Democratic aide on the Senate Finance Committee who is now a lobbyist.

—Andrew Restuccia and Kate Davidson contributed to this article.

Write to Andrew Duehren at [email protected] and Richard Rubin at [email protected]