Senate Democratic leaders on Tuesday night announced they reached a budget agreement that will allow tax increases to be expedited into law, but details on those increases are scant.
Normally, when an agreement is announced, the details are made public. That did not happen last night. There was no trove of paper released to the press or anyone else.
Most of the facts about the budget agreement that were gleaned by reporters stemmed from the press conference conducted last night by Senate Majority Leader Chuck Schumer (D-N.Y.), Budget Chairman Bernie Sanders (I-Vt.) and Budget Committee Member Mark Warner (D-Va.).
The trio announced an agreement on a $3.5 trillion budget for fiscal year 2022 (which begins on October 1) that will include reconciliation instructions to increase taxes. This agreement appears to be between Senate Democratic leadership and Democrats who sit on the Budget Committee.
The budget will be fully paid for, but there are no details on what those payfors will be. Sanders told reporters after last night’s press conference that the revenue target was “still evolving,” as reported by Roll Call.
“I think you’ll hear more details in the coming days,” he told reporters.
Tax increases will be a part of that mix, whenever it is announced. Sanders said they will be aimed at corporations and wealthy individuals.
“This is in our view a pivotal moment in American history. And for a very long time, the American people have seen the very rich getting richer and government developing policies, which allow them to pay, in some cases, not a nickel in federal income taxes. They've seen corporations make huge profits – in some cases, they're not paying a nickel in taxes. And what this legislation says, among many, many other things, is that those days are gone,” Sanders said.
No one earning less than $400,000 a year is expected to see a tax increase.
Update: An “explainer” being circulated late this afternoon by staffers with Speaker Nancy Pelosi (D-Calif.) says that “small businesses” and “family farms” would also not see a tax increase. The “explainer” does not define what is meant by “small business” or “family farms.”
What comes next?
President Joe Biden will meet with Senate Democrats later today and encourage them to support the budget. This could be a tall order considering that several moderate Senate Democrats said they would only support a budget costing much less, around $2 trillion.
All Senate Democrats must support the budget for it to pass their chamber because no Republicans are expected to support it.
Assuming the Senate brings its budget up for a vote, it will not include the tax increases championed by Senator Sanders. Instead, the budget will provide instructions for how the tax-writing committees should create the tax legislation.
A big point about these instructions (called “reconciliation” instructions) is they allow tax legislation to pass the Senate by a simple majority (51 votes) instead of 60 votes. All 50 Senate Democrats (plus Vice President Kamala Harris) must support this bill for it to pass the chamber.
Senator Schumer plans to vote on the budget before the Senate adjourns for the August recess.
At some point, the House will also vote on the budget, where the margin for error is also slight. House Democrats can only lose four votes (soon to be three with Republicans expected to win a runoff in Texas).
After the chambers approve the budget is when activity on the tax legislation will begin (at least to the public eye; behind closed doors, staffers are already working on the text).
Congressional rules require that tax legislation begins in the House, but there are work arounds to that rule. Still, which ever committee starts the process, it will either be the Senate Finance Committee or the House Ways and Means Committee.
Provisions in the tax legislation are expected to come from President Joe Biden’s American Jobs Plan and American Families Plan, which the Treasury Department recently detailed and include:
- Raising the corporate income tax rate from 21% to 28%
- Taxing long-term capital gains and qualified dividends at ordinary income tax rates for taxpayers with adjusted gross income of more than $1 million
- Significantly modifying the taxation of the international activities of U.S.-owned businesses
- Limiting the amount of gain eligible for deferral under section 1031
- Repealing tax provisions benefiting the fossil fuel industry
- Providing additional tax incentives for renewable and alternative energy
- Transferring appreciated property by gift or on death would be taxed as realization events, subject to a $1 million per person exemption, effectively allowing stepped-up basis with respect to exempted property
- Ensuring that all trade or business income of taxpayers with adjusted gross income in excess of $400,000 would be subject to either the 3.8% Medicare tax or the 3.8% net investment income tax
The Senate budget proposal is also expected to provide relief on the SALT deduction cap, but details have not been made public. It is expected that the cap will be repealed for taxpayers earning less than $400,000 a year.
To Sum Things Up:
Biden has two plans he wants enacted:
- Track 1: An infrastructure bll that is expected to not include tax increases and will require the support of at least ten Senate Republicans to pass the chamber
- Track 2: The aforementioned budget agreement that is expected to include tax increases and will pass both chambers by Democratic support only
If congressional Democrats pass Track 2 first, that could endanger Track 1.
Senate Republicans have warned that they will oppose supporting Track 1 if Democrats continue to say that both pieces of legislation are linked, i.e., both bills must pass. Republicans contend that this position means that a vote for Track 1 legislation is also a vote for Track 2 legislation, which they oppose.
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