ECONOMY

Capital-Gains Tax Hike Exposes Divisions Among House Democrats

Democrats on the House committee in charge of turning Joe Biden’s tax plan into legislation are at odds over how high to increase levies on investment gains, a key part of the president’s agenda.

Most House Ways and Means Democrats support Biden’s plan to raise the capital gains rate on those earning above $1 million to 39.6% from 20%, to make it equal with president’s proposal for the top rate on income, according to a lawmaker and a House aide familiar with the talks. About a third of Democrats on the panel, however, are advocating for a lower rate on investments, potentially around 28%, according to the people, who requested anonymity because the discussions are private.

Some Democrats on the panel are also balking at Biden’s plan to end a tax preference, known as “step-up-in-basis,” that allows appreciated assets to be passed to heirs tax-free, the people said. Various lawmakers have expressed concern that requiring taxes to be paid when the owner dies would hurt family farms and small businesses.

Although the discussions around the rates are just beginning, the divisions suggest trouble for Biden’s plans to raise taxes on investments and generational wealth in a multi-trillion-dollar tax and social spending bill that the House committees are beginning to put together this week. Democrats control the House and Senate by only the narrowest of margins and need unanimity to overcome expected Republican opposition.

Scaling back the tax hikes could leave Democrats with less revenue to spend on the child care, education, health and climate priorities they hope to include in the legislation. Biden’s proposal to raise capital gains rates and end step-up-in-basis would raise about $322.5 billion over a decade, and a 28% corporate rate would raise $857.8 billion in 10 years, according to estimates from the Treasury Department.

Lower tax rates could mean that Democrats have to pursue a less ambitious social agenda or finance some of the new spending through deficits.

The House’s version of the tax portion of the bill could be made public as soon as next week when the Ways and Means Committee will formally begin considering the legislation. The rates in the draft bill have yet to be finalized, the lawmaker said. House lawmakers want the bill to be similar to a version Senate Democrats are writing, the member of Congress said.

A Ways and Means committee spokesperson said talks on the matter remain ongoing and that Chairman Richard Neal doesn’t publicly discuss internal deliberations among members.

The people familiar with talks said the panel largely supports Biden’s proposal to increase the corporate tax rate to 28%, up from the 21% in current law, though a couple lawmakers may support a lower rate. That levy, however, could face opposition in the Senate, where Joe Manchin, a West Virginia Democrat, has said he won’t support a corporate rate higher than 25%.

Ashley Schapitl, a spokeswoman for Senate Finance Committee Chairman Ron Wyden, said that the rates in their panel’s version of the tax bill are not yet set and will be decided with input from Senate Democrats.

“Step-up is not off the table. And nothing is settled on rates,” she said in an email. Wyden is “working on different options given revenue targets.” 

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