A back-to-the-drawing-board plan released by House Democrats on Monday that would fund a $3.5 trillion spending bonanza had some on Wall Street breathing a slight sigh of relief.
The plan still raises corporate and individual tax rates, but it’s pared back in some places from an earlier proposal that had been circulating in the Senate: It removes taxes on CEO pay and stock buybacks that had raised hackles. It also does away with a carbon tax the Biden Administration had floated as part of the “Green New Deal.”
Still, the plan looks to hike taxes substantially, including:
- Raising the corporate tax rate from 21 percent to 26.5 percent.
- Hiking the capital gains tax rate from 20 percent to 25 percent.
- Increasing the top individual income tax rate rate from 37 percent to 39.6 percent.
The newest plan still imposes a 3 percent surcharge on incomes over $5 million, according to a memo obtained by The Post.
Still, some people on Wall Street told The Post that the new plan seems less punitive than the original plan floated by an ultra-liberal faction of senators, including Sen. Bernie Sanders of Vermont and Sen. Elizabeth Warren of Massachusetts. The new plan, for instance, does away with a “CEO pay disparity” excise tax that would have applied to companies whose chief executives made more than a certain percentage of an average worker’s pay.
“This is a more traditional tax increase that feels more palatable to the business community since it is in the vein of existing law,” Adam Benson, head of mergers and acquisitions at global consultancy Alvarez & Marsal told The Post. “Recent proposals that have come out from different wings of the Democratic party were transformative changes to how income and wealth were taxes in the US.”
Other people in the finance industry told The Post they were pleasantly surprised the tax proposal didn’t go as far as they had feared: The original plan had corporate taxes rising to 28 percent, and would have taxed capital gains at 39.6 percent — at the same rate as other income in the top tax bracket.
“They punted on so many hard issues,” James Lucier, managing director at Capital Alpha, a Washington-based policy research outfit, told The Post. “The most aggressive parts are gone — and it will only be scaled back from here,” Lucier said.
Even with the scaled-back plan, though, Lucier said pushing it through the entire House and Senate will be a “virtual nonstarter” — even among Democrats.
Democrats are already struggling to unify moderate members like Sen. Joe Manchin of West Virginia and Sen. Krysten Sinema of Arizona who have said they will not support . Manchin has suggested he won’t support a bill larger than $1.5 trillion. Machin and Sen. Mark Warner of Virginia have both said they won’t approve a corporate tax rate that exceeds 25 percent. And in the House, Democrats can’t lose more than three votes for the bill to pass.
Democrats are aiming to raise $3.5 trillion over 10 years, sources with knowledge of the process told The Post. But it’s more likely they’ll only receive approval for around $1.5 trillion worth of tax increases given Manchin’s recent comments.
The tax hikes on the table would fund various proposals that include universal prekindergarten, broadened Medicare benefits, free community college and what Democrats say are measures to deal with climate change.
President Joe Biden had promised not to raise taxes on households making less than $400,000 a year. It isn’t clear if these proposals would hit individuals making less than that threshold.
One surprise addition in the current iteration was the surcharge tax on wealthy individuals that would impose a tax of 3 percent of a person’s adjusted gross income over $5 million, according to finance industry watchers.
“This is a wealth tax being introduced as a surcharge. It’s a wealth tax just with a different name,” Charles Myers, chairman of advisory firm Signum Global Capital told The Post. “We’ll see if it makes it into the final bill, but it’s hard for any elected Democrat to argue against taxing individuals that make $5 million or more.”