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Ways and Means Dems Gaming Out How to Raise $3.5 Trillion

Posted on July 28, 2021

House Ways and Means Committee Democrats are gaming out which taxes should be raised and by how much if they need to come up with $3.5 trillion over 10 years for this fall’s expected reconciliation bill.

“I want people to know what the options are,” Ways and Means Chair Richard E. Neal, D-Mass., told Tax Notes after a private meeting of committee Democrats July 27.

But maybe the mountain of dollars they must climb won’t be $3.5 trillion high. It might be $2.9 trillion if potential prescription drug price savings wind up in the bill, or perhaps closer to $2 trillion if Senate Democrats relent and agree to the White House and House Democratic preference that the bill not be completely paid for.

Neal said that at some point, the exact figure will be known and he wants his committee ready to put together a revenue package on short notice. Neal’s panel was already responsible for putting together about half the dollar value of the $1.9 trillion American Rescue Plan Act of 2021 (P.L. 117-2) earlier this year.

Building Blocks

The 25-member Ways and Means Democratic caucus talked a lot about how much specific tax increases would raise on a sliding scale, like the rule of thumb that $100 billion is collected for every percentage point that the corporate income tax rate is raised, participants in the meeting told Tax Notes.

According to Treasury’s green book explanation of President Biden’s fiscal 2022 revenue proposals, increasing the top marginal individual tax rate to 39.6 percent would raise more than $30 billion per year, while raising capital gains rates to that level would bring in more than $300 billion over 10 years and changing the global minimum tax system would add more than $500 billion over 10 years.

The caucus meeting was largely about getting a better handle on the numbers, said Rep. Judy Chu of California.

“We’re getting a more realistic idea of how much each might raise,” Chu said. “So no conclusion, not at all, but the buckets and how much each might raise and how much we can afford to spend.”

It was helpful, just “realizing that there’s going to have to be building blocks on this, where you can get $200 billion here, $400 billion there,” said Rep. Daniel T. Kildee of Michigan, who also serves as chief deputy whip for House Democrats.

“It still takes a while to get to $3.5 trillion,” Kildee added, noting hopefully that the healthcare provisions on drug pricing could lower that figure by $600 billion.

To Pay or Not to Pay

Despite members throwing it around a lot after the meeting, the $3.5 trillion figure is a bit squishy. After all, that figure has been agreed to by only 11 Senate Budget Committee Democrats. The deadline for the full 50-member Senate Democratic caucus to reach an agreement came and went July 21. Senate Budget Committee Chair Bernie Sanders, I-Vt., told reporters July 26 that he expects an agreement and a bill in early August.

“Certainly, this would be a bit easier if the Senate can finally get its act together and we get more specificity on exactly what our charge would be,” Rep. Brendan F. Boyle of Pennsylvania said after leaving what he described as a nearly two-hour-long meeting.

While the White House proposed about $4 trillion in new spending in Biden’s American Jobs Plan and American Families Plan, it put forth only $2.4 trillion in new revenues. Instead, the White House said the front-loaded spending would be paid for over 15 years with proposed revenue raisers.

Although House Democrats have also endorsed a longer payback period, Kildee noted that Senate Democrats seem “completely committed” to paying for all new spending over the typical 10-year budget window.

The decision whether to abide by the Senate’s 10-year position or not completely pay for the new spending hasn’t been made, Neal said. The House has a “pay as you go” rule, but it specifically exempts spending related to climate change, which is expected to be among the more expensive features of the reconciliation bill.

“I think that we’re going to come to a conclusion, but it won’t be deferential,” Neal said, adding that it would be “the right conclusion based upon the facts.”

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