Analysis

Democrats Face Hurdles Putting Biden Tax Plan In Place

By Alan K. Ota
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Law360 (November 8, 2020, 11:27 AM EST) -- President-elect Joe Biden's ambitious plan to raise taxes on corporations and wealthy families to pay for pandemic relief and other priorities will face significant hurdles on Capitol Hill.

President-elect Joe Biden addressed supporters Saturday night in Wilmington, Del. In moving ahead on his tax agenda, Democrats had said they would look to start with stimulus measures to counter the effects of the novel coronavirus pandemic. (AP Photo/Andrew Harnik)

The election was called for Biden on Saturday after apparent victories in Pennsylvania and Nevada, and while President Donald Trump is maintaining multiple legal challenges to the outcome, Biden said he was going forward with his transition plans so that he would be able to hit the ground running on Inauguration Day in January. Meanwhile, control of the Senate next year has not yet been determined and will likely hinge on the results of two runoff elections in Georgia.

Before the election, key Democrats told Law360 said they would look to expedite Biden's tax priorities if he became president-elect with a House controlled by Democrats. Whether or not Republicans retain control of the Senate, they said, Democrats would look to move Biden's tax agenda by laying the groundwork for stimulus measures aimed at countering the effects of the novel coronavirus, which causes the respiratory disease COVID-19.

Sen. Chris Coons, D-Del., an adviser to the Biden campaign, predicted that should Biden become president with a divided Congress, Democrats would push for quick action on a stimulus package in early 2021. They would also look for ways to advance Biden's vision for reshaping the 2017 Tax Cuts and Jobs Act and finance key priorities such as incentives for education and renewable energy, and expanded health care benefits, Coons said.

Coons said many Democrats wanted to expedite pandemic-related tax measures in order to "move big pieces of the economy" and head off a potentially prolonged economic downturn.

"If he's elected, he'll have a clear mandate to revive the economy and get us out of the pandemic," Coons told Law360.

Sen. Tim Kaine, D-Va., the 2016 Democratic nominee for vice president, said Biden's strategy for moving tax proposals would need to be tailored to clear Senate roadblocks with bipartisan support.

"A Biden presidency will be vastly different depending upon whether you have a Republican or Democratic Senate majority," Kaine told Law360. "We're going to work to accomplish any mandate that Biden gets." 

Under a GOP-controlled Senate, Kaine said, Biden probably would need to move his tax priorities in bipartisan stimulus legislation in the next Congress.

"The key is going to be, what do we need to do to help America climb out of this COVID catastrophe?" Kaine said.

Sen. Debbie Stabenow, D-Mich., a senior member of the Finance Committee, said Democrats would look for openings to attract GOP support for an early stimulus package, then look for ways to advance other parts of Biden's tax plan along with other priorities, including an expansion of health care benefits.

"I think the goal would be to get things done in the first half of the year," Stabenow told Law360.

Despite the desire to move quickly, House Ways and Means Committee Chairman Richard Neal, D-Mass., and Sen. Ron Wyden, D-Ore., ranking member on the Senate Finance Committee, both said the plan faced possible speed bumps. Those include unexpected delays in election results, procedural hurdles and contentious intraparty talks to resolve differences over pandemic-related measures and parts of Biden's plan.

Biden's blueprint would tax capital gains at ordinary income rates for those earning more than $1 million, raise the top individual tax rate from 37% to 39.6% and cap itemized deductions at 28% of their value for people earning more than $400,000. The plan would apply payroll taxes to wages exceeding $400,000 and leave in place the $137,700 wage base cap for such levies.

The plan would also raise the corporate rate from 21% to 28% and apply a 15% minimum tax on so-called book income, or income reported in financial statements, for corporations with $100 million or more in earnings and little tax liability.

Under Biden's original plan, such tax changes were designed to raise revenue for items aimed at helping workers and spurring growth, including an expansion of health care benefits and incentives for renewable energy and infrastructure. A stand-alone highway bill could also provide more funding for tax-related measures aimed at boosting the economy.

Both Neal and Wyden have envisioned an ambitious 2021 stimulus measure but said no decisions had been made on how to achieve other items on Biden's tax agenda. The Tax Foundation, a conservative research group, has projected the original plan would raise $3.8 trillion over 10 years, but some of that revenue could be used to pay for other tax incentives for workers and their families that Biden has promoted in recent months.

"It's speculative on how we would want to do it," Neal told Law360.

On the other side, several senior Republicans stressed their strong opposition to Biden's vision for raising taxes on corporations and wealthy families and financing Democratic priorities.

Sen. Mike Crapo, R-Idaho, said he and other Republicans would gauge prospects for any negotiations with Biden if he was elected. Crapo will be in line to become chairman of the Finance Committee, replacing Chairman Chuck Grassley, R-Iowa, who faces a term limit in early January under Republican Conference rules.

"It's hard for me to predict how he would be to work with," Crapo told Law360, referring to Biden. Raising taxes "comes at a price to the economy and to everyone," Crapo added.

Senate Majority Whip John Thune, R-S.D., a senior member of the Finance Committee, said any drive by Democrats to move their own version of a stimulus package in early 2021 probably would require some GOP support. He pointed to Senate GOP opposition to the unfinished pandemic response deal negotiated by House Speaker Nancy Pelosi, D-Calif., and Treasury Secretary Steven Mnuchin as an indicator of challenges that the winner of the presidential race could face.

"Most of the things that are being talked about for purposes of stimulus have to be under regular order, which would require 60 votes," Thune told Law360. "The margins are going to be close either way. So we're going to have to work together."

With an eye on extracting concessions, some Republicans have signaled interest in forging bipartisan alliances to try to shape potential provisions in a stimulus measure. For example, Thune has vowed to oppose Biden's proposal to end the traditional allowance for heirs to claim a step-up basis for inherited assets. And Sen. Ben Cardin, D-Md., a senior member of the Finance Committee, said some members of the Democratic Caucus also might push back against that proposal.

On other issues, Biden already has offered ideas that could attract bipartisan support, including a plan for changes to opportunity zones, credits for renters and first-time home buyers and other incentives aimed at workers and their families. Some of his initiatives could be moved in a stimulus package to follow up on the Coronavirus Aid, Relief and Economic Security Act enacted in March, including his version of an expanded earned income tax credit for low-income workers and proposals to broaden the child tax credit and the child and dependent care credit.

While Democrats look to play offense on such proposals, Mark Mazur, the director of the Urban-Brookings Tax Policy Center, said he believed they would try to abide by Biden's vow not to raise taxes on taxpayers earning less than $400,000. That promise mirrors the parameters of the 2013 fiscal cliff deal that Biden helped negotiate as vice president: It extended expiring tax cuts for individuals making less than $400,000, or $450,000 for married couples.

A deal to extend some of the 2017 law's temporary individual tax cuts, which expire by 2026, could avert another fiscal cliff and deliver on Biden's promise. But Mazur predicted Biden would punt negotiations on the fate of most of these expiring provisions into the next Congress, and instead focus on cementing other items in his campaign platform.

"There's no need to decide in 2021 what the tax code of 2026 will look like," Mazur told Law360.

--Editing by Robert Rudinger and Neil Cohen.

For a reprint of this article, please contact reprints@law360.com.

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