Mar 15, 2021 - Politics & Policy

Biden faces pressure to cut taxes, too

President Biden is seen making a point while delivering a speech at the White House on Monday.

Photo: Yuri Gripas/Abaca/Bloomberg via Getty Images

Blue-state lawmakers are pressuring President Biden to cut some taxes — while he raises others — in the horse-trading for his next big package.

Why it matters: The cold math suggests Biden will be forced to sacrifice the size of his infrastructure ambitions or embrace even more deficit spending — and convince Congress to go along.

Driving the news: Democrats, including Senate Majority Leader Chuck Schumer (D-N.Y.), are pressing the White House to repeal the $10,000 limit for deducting state and local taxes — the so-called SALT cap — from their federal tax bill.

  • Removing the limit — imposed by President Trump's 2017 tax reforms — would cost about $357 billion over the next five years, according to an analysis from the Joint Committee on Taxation for Rep. Tom Suozzi, who wants to eliminate the limit.
  • Repealing the cap is deeply unpopular with progressives, who argue doing so would favor the rich.
  • But many voters in high-tax (and Democratic) states — like New York, New Jersey, Connecticut, Maryland and California — hate the limit. The provision is scheduled to expire in 2026.

The big picture: The White House has been reluctant to put a price tag on its infrastructure plans, but Democrats close to the administration say it will likely be $1 trillion to $2 trillion.

  • Some Democrats, including Sen. Joe Manchin (D-W.Va.), are demanding the president find new revenue to pay for at least part of the package.
  • Biden himself has never been crystal clear about what new spending needed to be offset with new taxes, and gave himself an out during the 2020 campaign by maintaining "one-time" spending didn't require tax increases.
  • He never defined what that means and essentially stopped talking about it after he secured the nomination.
  • He also didn’t include it in any of his “Build Back Better” tax and infrastructure proposal.

Go deeper: During the campaign, Biden proposed policies that would raise about $3 trillion in new revenue, according to the Penn Wharton Budget Model.

  • But Democrats close to the White House think new revenue will probably be a total of less than $1 trillion, with the easiest changes on the corporate, capital gains and personal side.

By the numbers: Manchin told Axios he would support the corporate tax rate increasing from 21% to 25%, which could yield $400 billion to $500 billion in new revenue over 10 years.

  • Returning the top personal rate to the pre-Trump 39.6% would bring in another $153 billion.
  • Taxing capital gains as ordinary income — which would eliminate the so-called “carried interest” loophole for private equity — adds another $178 billion.

The bottom line: The amount of new revenue Biden could raise night not exceed the amount of lost revenue from a full repeal of the SALT cap.

Editor's note: This story has been updated to include new figures for the cost of repealing the SALT cap over five years.

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