Dems’ goal to tax the rich hits a roadblock

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 such as Rep. Alexandria Ocasio-cortez of New York and more senior members such as Sen. 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 Wyden, chair 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 Joe 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, 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% set under former President Donald Trump’s 2017 tax cut while reversing other policies

in that law that they say created new incentives for U.S. 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% 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 allowed many affluent partnerships and limited liability companies qualify for a generous tax break for small businesses. (In its current form, they say, 50% 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%, instead of as income, which would be taxed annually at 37%.

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.

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.

Biden wants to raise the top income tax bracket back to 39.6% from the 37% that 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%.

“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 Rep. Steve Cohen, D-tenn.