Democrats try delicate tax maneuver for $3.5 trillion bill

To pay for the massive social plans that President Joe Biden envisions, House Democrats began serious work Tuesday on a maneuver worthy of the most agile circus acrobats. They’re looking to squeeze revenue from the elite 2% of Americans who earn more than $400,000 a year while leaving untouched everyone else — who Biden has pledged won't see any tax increases.

Republicans as opposed to those tax increases as expected, also turned their anger on Tuesday against proposed tax breaks they portrayed as subsidies for wealthy elites rather than help for the poor and middle class. Electric vehicles became a rallying symbol as class-warfare overtones echoed through a committee session.

The Democrats are proposing that the top tax rate rise back to 39.6% on individuals earning more than $400,000 — or $450,000 for couples — in addition to a 3% surtax on wealthier Americans with adjusted income beyond $5 million a year. For big business, the proposal would lift the corporate tax rate from 21% to 26.5% on companies’ annual income over $5 million.

“Look, I don’t want to punish anyone’s success, but the wealthy have been getting a free ride at the expense of the middle class for too long,” Biden tweeted Tuesday. “I intend to pass one of the biggest middle class tax cuts ever — paid for by making those at the top pay their fair share.”

For middle- and low-income people, tax help, not increase, is on offer as the House Ways and Means Committee digs into debate and drafting of tax proposals to both fund and buttress Biden’s ambitious $3.5 trillion rebuilding plan that includes spending for child care, health care, education and tackling climate change.

It’s an opening bid at a daunting moment for Biden and his allies in Congress as they assemble the “Build Back Better” package considered by some on par with the Great Society of the 1960s or even the New Deal of the 1930s Depression.

The proposals call for $273 billion in tax breaks for renewable energy and “clean” electricity, including $42 billion for electric vehicles and $15 billion for a “green workforce” and environmental items. Increases in the child tax credit to $300 a month per child under 6 and $250 monthly per child 6-17, which came in coronavirus relief legislation earlier this year, would be extended through 2025.

All GOP lawmakers are expected to vote against the legislation. But Republicans are largely sidelined as Democrats rely on a budget process that will allow them to approve the proposals on their own — if they can muster their slight majority in Congress.

Democrats have no votes to spare to enact Biden’s agenda, with their slim hold on the House and the Senate split 50-50 and Vice President Kamala Harris the tiebreaker if there is no Republican support.

But one Democratic senator vital to the bill’s fate, Joe Manchin of West Virginia, says the cost will need to be slashed to $1 trillion to $1.5 trillion to win his support. And Manchin appeared Tuesday to dig in his heels on insisting that parents meet work requirements to receive the child tax credit.

A day earlier, Biden appeared to respond to concerns about the plan’s size, saying the cost “may be” as much as $3.5 trillion and would be spread out over 10 years as the economy grew.

Republican lawmakers, who have denounced the Democratic spending plan as socialist and job-killing, also went after proposed tax breaks on Tuesday.

The Democrats propose to extend to five years the current $7,500 electric vehicle tax credit for five years, with another $4,500 if a car is made by union workers, and $500 more for a U.S.-made battery. But Republicans painted electric vehicles as a bourgeois-bohemian accessory to be subsidized by taxpayers, the latest symbol of excess.

“Speaking of outrageous green welfare, this bill allows a near-millionaire family to buy a $75,000 Beamer, Jaguar or Benz luxury electric vehicle — and their maid is forced to send them a $12,500 subsidy from her taxes,” said Rep. Kevin Brady of Texas, the panel’s senior Republican. “Why are blue-collar workers, nurses, teachers and firefighters subsidizing the wealthy and big business with a quarter of a trillion dollars in green welfare checks?”

Hold on, said Rep. Dan Kildee, D-Mich. “We’re not going to subsidize the wealthiest buying luxury vehicles.” The legislation does impose caps on the sale price of the vehicle ($55,000 for a sedan) and the income of the buyer ($600,000 adjusted gross income for a head of household.)

The proposal hits another nerve for Republicans, Democrats’ support of labor unions, by adding the incentives for vehicles and batteries manufacture by union workers.

As they slogged through the legislation, members of the majority Democratic committee voted down a series of Republican amendments seeking to tighten the limitations on electric vehicle credits and to eliminate other tax breaks denounced as smacking of progressive Democrats’ proposed “Green New Deal.”

The House tax proposal is pitched as potentially raising some $2.9 trillion — a preliminary estimate — which would go a long way toward paying for the $3.5 trillion legislation. The White House is counting on long-term economic growth from the spending plan to generate an additional $600 billion to make up the difference.

To reach the Democrats' goal, much of the revenue raised would come from the higher taxes on corporations and the highest earners, increasing the individual tax rate to 39.6% from the current 37%.

Targeting wealthy individuals, the Democrats propose an increase in the top tax rate on capital gains for those earning $400,000 a year or more, to 25% from the current 20%. Exemptions for estate taxes, which were doubled under a 2017 Republican tax law to $11.7 million for individuals, would revert to $5 million.

In all, the tax hikes are in line with Biden’s own proposals and would bring about the most substantive changes in the tax code since Republicans with then-President Donald Trump slashed levies. Business interests have registered their objections, and lobbying has buzzed.

“Rolling back job-creating tax reforms will slam the brakes on hiring and wage increases,” the U.S. Chamber of Commerce’s chief policy officer Neil Bradley said in a statement. “Every CEO and business leader is concerned about this proposal, and the Chamber strongly opposes it. This reconciliation bill is an existential threat to America’s fragile economic recovery and future prosperity.”

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Associated Press writer Matthew Daly contributed to this report.