“With business-minded and more centrist members on the Democratic side in both the House and Senate, they look at the scope and breadth of these tax increases for the infrastructure and families plans and they just find them jaw-dropping,” said Neil Bradley, chief policy officer at the U.S. Chamber of Commerce. “You are talking about tax hikes that could hit millions of small businesses across the country and taxes that could kill investment. From a raw political perspective, it would be a really funky decision for these moderates to say they would be willing to put this much of a wet blanket on an economy that is really poised to take off.”
If the executives are right, Biden will have to either break his pledge to pay for his massive spending agenda and further swell the deficit or he’ll have to sharply scale back his plans. And slashing them in any significant way would anger the progressive wing of his party, which sees this as the president’s only chance to fundamentally tilt the economy back toward workers and make it more equitable.
Lobbyists and executives say they have been talking to moderate Democrats in the Senate like Joe Manchin of West Virginia, Kyrsten Sinema of Arizona and John Hickenlooper of Colorado along with House members like Josh Gottheimer of New Jersey, Tom Suozzi of New York and Stephanie Murphy of Florida. Most of the lawmakers either declined to comment or did not respond to requests for comment.
The lobbyists say most of the members they’ve spoken to have indicated a willingness to push back against many of the proposed tax increases in Biden’s plan.
“They are mostly willing to go with a 25 percent corporate tax, and the odds of that getting through reconciliation are pretty solid,” said the head of one of the most powerful lobbying groups in Washington, referring to the parliamentary maneuver that would require a simple majority vote on the legislation. “Where it gets murky for them is when you talk about a carbon tax or a gas tax or a financial transactions tax or higher carried interest or capital gains taxes. That’s where the coalition of the willing falls through.”
The lobbyist did not want to be identified by name or organization to avoid giving away strategy. Others spoke on condition of anonymity to avoid angering the lawmakers with whom they’re engaging.
There are also a number of Democrats from the Northeast and California, like Gottheiner and Suozzi, who say they won’t back any tax hikes unless the state and local (SALT) tax deduction, which was reduced under former President Donald Trump, is restored, further easing the path for lobbyists to block many of Biden’s proposed tax hikes.
“I support the president’s agenda, but any changes to the tax code must be accompanied with a fix of SALT – “no SALT, no deal!” Suozzi said in a statement.
Lobbyists and executives say they expect Biden to cut a smaller infrastructure deal and perhaps get through some of his families agenda, which includes expanding free public education and assistance for child care. But they don’t believe that the White House will be able to move significant tax hikes through the House or the Senate.
“It’s going to be very tough on them to do anything on the personal side,” said a senior Washington lobbyist who works on tax issues. “It’s not impossible, but even that’s a struggle. Moderates in the House make it much more difficult to pass this stuff. I think the personal side probably gets left alone. And most of the rest of it has no chance.” Among other measures, Biden has proposed raising the top marginal tax rate on individuals to 39.6 percent from 37 percent now.
The White House and progressive groups reject all of this, saying that boosting taxes on corporations and the wealthy is necessary to make long-term economic investments. And they note that such tax hikes — including raising the capital gains rate and returning private equity taxes to the regular income rate — are politically popular.
They also say that much of what Biden aims to do will take place over a decade and that the tax hikes will do nothing to slow economic growth or boost inflation.
“A lot of people are thinking about this the wrong way,” said a person close to the administration, who also didn’t want to be identified because he’s not authorized to speak publicly about Biden’s plans. “The spending is over a long time frame and most of the taxes we are talking about would just return some fairness to the code and make those who are able to pay more to pay more. And we are talking about increasing long-term productivity and addressing a lot of structural problems in the economy.”
Yet the White House faces significant pushback over the price tag of its plans — an additional $4 trillion on top of the more than $5 trillion that Congress has already appropriated for Covid relief so far. The case for pumping in more money is especially complicated with inflation showing signs of ticking up even as the Federal Reserve and many economists predict the price hikes will be transitory and ease as the pandemic fades and production ramps up.
April’s jobs number was surprisingly poor but could have been an anomaly. And most economists expect hiring to pick up sharply in May with significant wage hikes to follow. But the economic trajectory remains highly uncertain, leading many executives and lobbyists to argue that raising taxes right now doesn’t make sense.
“I’ve been through a lot of the tax hike efforts, but now is a tough time for [Democrats] to get a lot of them done,” said a former Democratic operative now working in a senior role on Wall Street. “The economy is clearly coming back, but it would be a weird time to slap more taxes on people.”
Democrats sympathetic to Biden’s proposal and in favor of his tax plans argue that the economy is set to roar back, making it the ideal time to increase some tax rates on investment gains and corporate profits.
“There are real challenges to selling the ‘Build Back Better’ agenda to moderates on both sides,” said Jason Furman, a Harvard professor who chaired the Council of Economic Advisers under President Barack Obama. “But I don’t think a strong economy should really affect the case. In fact, if anything it’s an argument that we can move from a short-run focus on Covid recovery to a much longer-run focus on improving the economy.”
But lobbyists believe that the combination of inflation fears and an economy that is showing signs of booming but remains vulnerable will leave them plenty of room to kill most of Biden’s proposed tax increases.
“It really all depends on how far they go,” said a senior financial services industry lobbyist. “[Biden’s] advisers will at some point say that they can get something that is kind of down the middle of the fairway with a corporate rate hike. Anything else and Democrats are just going to get killed over it.”