A plan by Senate Democrats to impose a tax targeting 700 billionaires collapsed after a backlash from moderate members of the party, as chaos enveloped the negotiations over Joe Biden's $2 trillion spending package.
The White House and Democratic lawmakers in Congress were on Wednesday night considering other measures to tax the wealthiest households, including a new levy on income over $10 million, as they tried to clinch an agreement before President Biden heads to Rome for the G20 summit.
Negotiators have been desperately trying to find new sources of revenue to pay for Mr Biden’s “Build Back Better” legislation – a sweeping bid to plough government investment into childcare, education, healthcare and the fight against climate change over the next decade.
Democrats had hoped to simply raise corporate income taxes, and individual income and capital gains taxes on the wealthy, but that effort met opposition from Kyrsten Sinema, a moderate Democrat from Arizona, leading to the late scramble for alternatives.
Meanwhile, the Biden administration and Democratic lawmakers were poised to suffer another big blow after Joe Manchin, the centrist senator from West Virginia, cast doubt on his willingness to include a paid leave provision in Biden's package. This has been a crucial priority for the White House to strengthen the social safety net and bring the country closer to the norms regarding leave in many advanced economies.
A day of intense talks on Capitol Hill began with Ron Wyden, the chairman of the Senate finance committee, announcing details of his billionaire's tax plan, saying it would apply to taxpayers who earn more than $100 million in annual income or hold more than $1 billion in assets for three consecutive years.
But within hours, pivotal Democratic senators voiced concerns about the plan. Given the 50-50 split of party representation in the Senate, any one of them could single-handedly sink its chances of being passed.
“I don’t like the connotation that we’re targeting different people,” Senator Manchin told reporters.
Mark Warner, the Democratic senator from Virginia, said that it made sense to ensure that the "absolute wealthiest Americans pay a fair share", but added that the "devil is in the details" and it was important not to favour "one asset class over another".
Richard Neal, the Democratic chairman of the House Ways and Means Committee, which is responsible for tax legislation, also poured cold water over the prospects for a billionaires' tax, saying there was "a lot of angst over it".
The plan would involve treating their tradable assets, such as shares, on mark-to-market basis each year – a big departure from their traditional treatment under US tax policy, whereby they are taxed only when sold.
Minimum corporate tax
By the end of the day, people close to the talks said it had been taken off the table. A more viable alternative had emerged on Tuesday night from Senator Wyden’s office, in the form of a plan for a minimum tax on corporate profits for 200 of America’s biggest companies, in an attempt to make up for the lack of a rise in the corporate income tax.
That measure would require companies that report more than $1 billion in profits to shareholders to pay at least 15 per cent of those back in taxes – and could raise between $300 billion and $400 billion in revenue over a 10-year period. Although business groups immediately raised concerns about the proposal, it was supported by Senator Sinema, raising hopes that a consensus was in reach.
Throughout the day, White House officials remained optimistic about the fate of the negotiations. Jen Psaki, White House press secretary, said it was still realistic that an agreement could be reached on the broader package before President Biden heads to Europe for the G20 summit in Italy on Thursday.
“Of course he would love to head on his trip with a deal,” she said. – Copyright The Financial Times Limited 2021