Apr 18, 2021 - Politics & Policy

Senate Democrats settling on 25% corporate tax rate

Joe Manchin is seen jogging into the Senate Chamber.

Sen. Joe Manchin (D-W.Va.). Photo: Chip Somodevilla/Getty Images

The universe of Democratic senators concerned about raising the corporate tax rate to 28% is broader than Sen. Joe Manchin, and the rate will likely land at 25%, parties close to the discussion tell Axios.

Why it matters: While increasing the rate from 21% to 25% would raise about $600 billion over 15 years, it would leave President Biden well short of paying for his proposed $2.25 trillion, eight-year infrastructure package.

  • Biden’s plan to increase the rate U.S. multinationals pay on their foreign earnings from 10.5% to 21% is less controversial and stands a better chance of remaining intact in the final legislation. That would raise an additional $700 billion.
  • But corporate lobbying groups are preparing for a long-term battle over both rates.
  • The Business Roundtable launched an advertising campaign last week and released a survey of 178 CEOs discussing how the proposed changes would affect their company’s competitiveness.

The big picture: The White House hasn’t publicly backed away from the president's proposed 28% rate but indicated it’s willing to find a compromise to pay for his spending plans.

  • Democrats close to the White House expect Biden will accept 25% and pocket it as a political win.
  • President Trump lowered the rate from 35% to 21%.

Driving the news: A collection of 10 senators from both parties — the so-called Group of 20 — is working to find a compromise on what to include in an initial infrastructure package and how to pay for it.

  • “If we come together in a bipartisan way to pass that $800 billion hard infrastructure bill that you were talking about, that I've been urging, then we show our people that we can solve their problems,” Sen. Chris Coons (D-Del.) said on "Fox News Sunday."
  • Sen. Susan Collins (R-Maine) has crystalized the G-20’s challenge by breaking it down into three issues: scope, size and pay-fors.
  • “It is much easier to come up with appropriate pay-fors and bipartisan agreement if we're talking about a more focused package that truly is centered on infrastructure,” she said last Thursday.

Between the lines: While Manchin (D-W.Va.) has made clear his preference for a 25% rate, he’s far from alone.

  • Democrats who've privately hinted they may be uncomfortable with going to 28% include Sen. Mark Warner of Virginia, Kyrsten Sinema of Arizona and Jon Tester of Montana.
  • The Democratic dynamic is similar to the one about increasing the minimum wage to $15 an hour, which was ultimately rejected by eight Senate Democrats.
  • Some of them talked about something closer to $11.

Go deeper: There’s similar sentiment in the House, where moderates also are opposed to increasing taxes too much, Axios had reported.

  • "I think that 25% is fine," Rep. Scott Peters (D-Calif.) said.

Be smart: Democrats view the debate about the corporate rate as a litmus test for Republican interest in bipartisanship during the Biden era.

  • If they can find a middle ground, they hope to work on other issues.
  • Many are skeptical, though, even as Republicans say infrastructure spending is badly needed.
  • A failure to reach consensus here would only fuel calls to use budget reconciliation to ram through other spending plans.

Editor's note: An earlier version of this article included Sen. Tim Kaine of Virginia among the Democratic senators who have privately indicated uncertainty about raising the corporate rate to 28%. "Kaine supports raising the corporate tax rate to 28% and has never suggested otherwise," said spokesperson Katie Stuntz.

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