Senate and the House Democrats are Divided on a $3.5 Trillion Plan

by Wall Street Rebel | Michael London | 09/10/2021 11:13 AM
Senate and the House Democrats are Divided on a $3.5 Trillion Plan

House and Senate moderate and progressive Democrats have reached an impasse on the amount and specifics of the Democratic-planned infrastructure package.

 

A growing schism is forming on Capitol Hill between the chairmen of the two tax-writing committees over the size and details of Democratic plans to fund President Biden's comprehensive economic plan.

Democrats Ron Wyden (D-OR) and Richard Neal (D-MA) are taking different approaches to lay out the funding mechanisms that fuel a $3.5 trillion Democratic-only tax reduction plan.

Wyden has given a lot more detail on what is being examined for the Senate's tax plan, and he has publicly said that he is willing to produce whatever amount of revenue is required to pay for the spending package.

Following a meeting with Democrats on the Finance Committee on Thursday, the Senate chairman said, "We are committed to raising the money required to pay for critical goals for working people in the United States."

On the other hand, Neal has been far more careful in previewing the Chamber tax proposal, reflecting the more challenging path he must walk to garner enough votes in a house where moderate and progressive Democrats are deeply divided.

It takes a tremendous effort to bring the Senate and the House of Representatives together.

The task of bringing Republicans and Democrats together, in my view, is just as essential as the goal of bringing Republicans and Democrats together," said House Ways and Means Committee member Rep. Bill Pascrell (D-NJ).

"We're making certain assumptions here, including the notion that we're in the same position as Democrats in the Senate," he said.

'Do they truly think that dealing with Manchin is their greatest problem?'

Senate Democrats, namely Sen. Joe Manchin, "might have a problem with us," Pascrell added, referring to Manchin (D-WV).

We must get to a point where we can resolve the issue.

On Thursday night, Neal acknowledged problems with the Senate but said that the two parties were resolving their differences.

"At this moment, we may not be fully united with the Senate, but we are certainly working."

"We're essentially on the same wavelength."

"They are aware of our whereabouts, and we are aware of theirs," he said.

The House of Representatives chairman declined to comment on the most important differences between the two chambers.

House Democrats are split as well, with progressive Rep. Alexandria Ocasio-Cortez (D-New York) and other members of "the squad" on one end of the spectrum and moderate Democrats from high-income districts on the other.

Representative Stephanie Murphy (D-FL), a well-known moderate, pledged to vote against portions of the $3.5 trillion budget proposal in the House Ways and Means Committee on Thursday, bringing political volatility to the fore.

Murphy voiced his displeasure with the drafting process, which has left many House members in the dark about what will happen next.

Her disappointment was that, despite the committee's great efforts, she had found herself in an unsustainable situation, and she threatened to vote "no" in committee unless things changed.

Among the problems that House Democrats have yet to address are the deduction for state and local taxes (SALT), capital gains, and international taxation.

According to Reuters, Democrats are bracing for an internal battle over the SALT deduction, which Republicans restricted to $10,000 in the 2017 Tax Cuts and Jobs Act.

On Thursday, Rep. Tom Suozzi (D-NY), a House Ways and Means Committee member, said that he is "advocating for full repeal" of the cap, which would add approximately $400 billion to the bill's cost, according to The Tax Foundation.

When asked how many Democrats are ready to vote against the deal if the SALT deduction is not changed, he replied, "Enough."

Another big uncertainty in the House tax plan is whether it would remove the step-up basis for unrealized capital gains after death, a substantial tax benefit for affluent families that do not reach the estate tax threshold.

This is a significant tax benefit for affluent families that do not reach the estate tax threshold.

According to current tax legislation, stocks and other assets are not subject to capital gains taxes at the time of death. Heirs who sell investments are only obliged to pay taxes on the difference between the sales price and the value of the investments when they inherit them.

According to the Penn Wharton Budget Model, eliminating the step-up in basis — for capital gains exceeding $1 million — combined with raising the highest capital gains tax rate is projected to produce more than $100 billion over the next ten years.

Biden has proposed removing the stepped-up basis for earnings over $1 million per person and taxing such gains after the individual's death.

Over ten years, the Treasury Department estimated that the proposal would produce more than $300 billion in income.

To deflect anticipated Republican attacks on the subject, Wyden, who supports removing the stepped-up base, is exploring exemptions for family farms and small businesses.

It is conceivable, though, that this will not be enough to keep it in the House.

Democrats on the House Ways and Means Committee, including Pascrell, think removing stepped-up base is unlikely to be included in the final House bill.

Pascrell believes it has a 50 percent to 60 percent probability of getting included.

Rep. John Larson (D-Conn.), the senior Democrat on the House Ways and Means Committee, said that the concept on a stepped-up basis, as well as other controversial adjustments, is still "to be determined."

"It's still something we're working on," he said.

Larson replied to a query about whether there were still significant divisions between Senate and House Democrats on taxes with a chuckle, adding, "You think?"

Another potential flashpoint is the argument over whether to levy a tax on company buybacks.

On Friday, Senate Minority Leader Ron Wyden and Democratic Senator Sherrod Brown (D-Ohio), both members of the Finance Committee, will unveil a new tax proposal on stock buybacks.

The idea, however, has proven controversial in the House and may not be included in Neal's plan.

According to a Democratic Senate source, Wyden has been very open about the alternatives he is considering.

According to the aide, Wyden and Neal have generally taken opposing approaches to this, and all of Wyden's effort is public.

Democratic lawmakers said that Wyden and Neal are addressing the problem from radically different viewpoints.

"Looking at what they look at, you can tell they come from such different backgrounds," Pascrell said.

Given the secrecy surrounding the House tax debate, some have expressed concern that Neal's proposal would only produce a fraction of the revenue required to fully balance the $3.5 trillion package.

If Democrats in the House of Representatives want to fund the lengthy list of critical investments that working people need, they must provide a large revenue number.

According to Americans for Tax Fairness executive director Frank Clemente, this is what the voters want, and it also has the best chance of passing in the Senate.

According to his back-of-the-envelope calculations of what has been reported that House Democrats are considering, the income target established by them is much too conservative.

"It is conceivable that they may not even be able to recoup all of the money lost as a consequence of the Trump-GOP tax cuts."

During a news conference on Thursday evening, Neal said that the Democratic plan for the House would generate much less money than the $3.5 trillion needed to cover the entire cost of the reconciliation measure.

Meanwhile, he said, "that is not what we are discussing."

"I have a great line that I'll keep for the weekend and share with you."

Several Democratic members of the House tax-writing committee have said that they expect Neal to submit a draft tax portion of the reconciliation bill, or at the very least comments for the committee to examine, over the weekend.

This would pave the way for a more heated debate inside the House Democratic Caucus and put the Ways and Means Committee in a stronger position to vote on the tax component of the reconciliation measure next week.

Liberal Democratic leaders have already come under fire for what some perceive as a hurried rush to get legislation to the House floor without first conducting a full analysis and debate of its contents.

"I believe this schedule was too rushed and that it was driven more by politics than by policy," Murphy said of the Sept. 15 deadline for committee markups.

 

                     Democrats struggling to find common ground on hefty $3.5T spending package

 

 

 

 

Steady, Reliable, Profitable Options Trade Recommendations [Click here to learn more]

 

Latest News

Stay Up to Date With The Latest
News & Updates

Join Our Newsletter



GET THE NEWSLETTER

Rebel Yell Morning Market Report
Market Alerts
Offers from us
Offers from our trusted partners

Follow Us

Connect with us on social media

Facebook Twitter