WASHINGTON — In most years, the notion that Congress could pass a $1.2 trillion plan to fix the nation’s bridges, highways, tunnels and rail lines without raising taxes would be a politician’s dream, a vision of endless ribbon-cuttings with no angry cries of “tax and spend.”
But that pitch, by a group of senators negotiating a bipartisan infrastructure deal, is receiving a hostile reception from many Democrats who favor a package five times as large, to be paid for in part with at least $2.5 trillion in new taxes. It is not just a much larger economic package they want; they also see a rare opportunity to harness the political popularity of infrastructure spending to achieve their long-held policy goal of raising taxes on the rich.
For liberal Democrats in particular — including newcomers like Representative Alexandria Ocasio-Cortez of New York and more senior members like Senator Ron Wyden of Oregon — the tax side of the ledger is not a mere accounting exercise to pay for spending, but a critical policymaking tool unto itself.
“What we’re doing is generating revenue, but we are also making a major area of American government more fair, so people don’t feel they’ve been played while the rich person gets off scot-free,” said Mr. Wyden, the chairman of the tax-writing Finance Committee.
Centrist senators who have been toiling to find a bipartisan infrastructure compromise have steered clear of tax increases, after Republicans made it clear they were unwilling to touch the vast tax cut they muscled through Congress in 2017. But leading Democrats — following President Biden’s own budget prescriptions — appear determined to move forward on an array of fronts to reshape the tax code as part of any major infrastructure effort.
For weeks now, Mr. Wyden’s committee has been drafting detailed tax policy changes targeting three major areas: corporations, the energy industry and individual taxpayers.
On the corporate tax side, Democrats would raise the tax rate from the 21 percent set under President Donald J. Trump’s 2017 tax cut while reversing other policies in that law that they say created new incentives for American companies to build factories overseas. For instance, one provision they would reverse allows a company to shield from taxation annual overseas profits valued at 10 percent of the cost of a factory built abroad — the bigger the factory, the bigger the tax shelter.
Democrats also want to sharply curtail a 2017 measure that has let many affluent partnerships and limited liability companies qualify for a generous tax break for small businesses. (In its current form, they say, 50 percent of the benefits go to millionaires.) They aim to phase out the deduction for taxpayers making more than $400,000 while eliminating a provision that prevented many small-business owners from using the benefit.
And they would like to finally close the so-called carried-interest loophole that allows private equity titans to have the fees they charge their affluent clients taxed as capital gains, usually at 20 percent, instead of as income, which would be taxed annually at 37 percent.
On the energy side, Senate Democrats on the Finance Committee are moving to toss out 44 separate tax breaks that have been on the books for years, many of them aimed at oil and gas drilling and production, and replace them with tax breaks for clean electricity, clean transportation and energy efficiency.
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Policy changes related to individual taxpayers remain the least developed part of Democrats’ proposal. They had hoped to find a way to tax wealth, by capturing a slice of the fantastic annual gains in value of stocks and other assets held by the superwealthy — gains that are never taxed because they are never sold. Mr. Biden wants to raise the top income tax bracket back to 39.6 percent from the 37 percent that Mr. Trump secured, and to begin taxing capital gains from the sale of stocks by taxpayers who earn more than $1 million a year at income tax rates. For the richest taxpayers, that would nearly double capital gains rates from the current 20 percent.
“Taxes need to be raised on corporations and need to be raised on that wealthiest of people who got a terrible, tremendous windfall from the Trump tax game,” said Representative Steve Cohen, Democrat of Tennessee.
A tentative plan floated by Senator Bernie Sanders, the Vermont independent who is the chairman of the Senate Budget Committee, envisions spending as much as $6 trillion over 10 years on an economic package that would tackle what Democrats call “human infrastructure,” not just roads and bridges, with about half of it paid for. It would include investments in child care, health care, anti-climate-change programs, universal prekindergarten and community college access. Mr. Wyden’s committee would be expected to raise $2.5 trillion, a huge sum that could require significantly reordering the tax code.
“We have learned recently that some of the wealthiest billionaires in this country don’t pay a nickel in a given year in federal taxes,” Mr. Sanders said. “You’ve got dozens of corporations that are going to make billions in profits and not pay a nickel in taxes.” He was referring to a ProPublica report published this month that used a trove of leaked Internal Revenue Service documents to show how America’s richest men — including household names like Jeff Bezos, Elon Musk, Michael R. Bloomberg and Warren Buffett — pay almost no federal taxes, and in some years paid no taxes at all.
“It is obvious that if we’re going to address the needs of working families in this country, we need revenue,” Mr. Sanders added, “and one way that we get that revenue is by demanding that the wealthiest people, the largest corporations are paying their fair share.”
The emerging $1.2 trillion proposal — which still faces substantial obstacles — omits tax increases and focuses entirely on physical infrastructure, leaving out the expansions of the social safety net that Mr. Biden and congressional Democrats argue must be part of any infrastructure initiative.
Even as the White House has pushed hard for a bipartisan agreement, officials have also made it clear they support a reconciliation package to push through the rest of Mr. Biden’s economic agenda, including tax increases. Doing so would allow them to sidestep a Republican filibuster and advance it with 50 votes, but they can do so only if their entire caucus backs it.
Many liberals are concerned they might never reach that level of support if the bipartisan plan succeeds. They are convinced that once conservative Democrats such as Senators Joe Manchin III of West Virginia and Kyrsten Sinema of Arizona get their roads and bridges, they will not support a reconciliation bill. Neither has committed to supporting such a package until they see the details.
“That is absolutely the concern,” said Ms. Ocasio-Cortez, who said she felt as if her wing of the party had already been hoodwinked.
“It was at the insistence of the more conservative Democrats that we had to include how we were going to pay for the infrastructure spending,” she said. “So this comes to the White House, the White House agrees, comes back and says, ‘OK, we’re going to tax the rich,’ and then the same conservative wing that demanded, ‘How are we going to pay for it?’ is now saying, ‘Wait, wait, wait — not like that.’”
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Republicans are already gearing up to hit Democrats hard on any tax increases. Senator Mitch McConnell of Kentucky, the Republican leader, said the Trump tax cut law of 2017 “was the major contributor to us having the best economy in 50 years, before the pandemic.”
But Democrats see a changed landscape. The ProPublica report added fodder. But even before the pandemic recession, corporate tax receipts had plunged 40 percent after the Trump tax cuts. Though the 2017 tax law ostensibly lowered the corporate income tax rate to 21 percent from 35 percent, the effective business rate has fallen to 8 percent, said Representative Lloyd Doggett of Texas, a senior Democrat on the Ways and Means Committee.
“There’s been a big change in voter attitudes on taxes,” Mr. Wyden said. “In the last 10 years, Republicans always want to talk about taxes, nail those Democrats on taxes, ‘tax-and-spend’ and all the rest. Now, the American people are sympathetic with our point, which is that everybody ought to pay their fair share.”
Democrats are divided about how far to go. Senator Elizabeth Warren, Democrat of Massachusetts, pressed Treasury Secretary Janet L. Yellen last week on Ms. Warren’s proposed wealth tax, which would impose a 2 percent surtax on the value of assets owned by people worth more than $50 million — and raise at least $3 trillion.
“This is about choices,” she told a reluctant Ms. Yellen. “We can fund universal child care, or we can hand Jeff Bezos enough tax savings to build a superyacht.”
Other Democrats, even liberals, are not so sure.
“The whole term of a wealth tax scares an awful lot of people who are hoping to achieve some wealth,” Mr. Doggett said. “We don’t want to discourage economic success. We just want to level the playing field.”
Senator Mark Warner, Democrat of Virginia, is stuck in the middle. As a pro-business Democrat, he was tapped by Mr. Wyden to hash out a corporate tax package with Senator Sherrod Brown of Ohio, a pro-labor Democrat. But he is also a member of the group negotiating the bipartisan infrastructure deal.
He said he was confident there would be unanimous support among Democrats to include the international tax framework in a reconciliation bill that followed a narrower infrastructure compromise, “because it’s just so darned complicated.”
But he also said he understood that the infrastructure agreement might not even get to a vote unless his Democratic colleagues were certain they also had the votes to pass all of the tax measures and all of the spending initiatives that would be left out of the bipartisan deal.
“A lot of my colleagues have made clear that they’re not going to be supportive of the infrastructure package, unless they at least have some visibility on what’s going to happen to reconciliation,” he said. “Now that’s a hard challenge to navigate.”
