Democrats have already slashed their $3.5 trillion Build Back Better agenda nearly in half, but the package might get even smaller if they hope to appease moderates and still fulfill promises President Joe Biden made on the campaign trail.
Sen. Kyrsten Sinema, D-Ariz., has emerged as the biggest obstacle to progressives’ dream of enacting a transformative social agenda while Democrats have unified control of the federal government. According to The Wall Street Journal, the Arizona Democrat has told the White House she opposes tax increases for corporations, wealthy households, and capital gains income.
Sinema is also among a handful of moderates who have rejected the party’s current prescription drug pricing reform proposal, which lawmakers claimed would produce hundreds of billions of dollars in savings over a decade. Meanwhile, Sen. Joe Manchin, D-W.V., has objected to several climate initiatives and penalties for fossil fuel producers.
The White House maintains no options are completely off the table yet, but Sinema – who has kept her negotiations with the president’s aides mostly private – has signaled little flexibility on raising the top corporate and individual tax rates. Top House and Senate Democrats met with administration officials Wednesday to discuss possible alternatives.
As President Biden races to bring progressives and centrists together behind a framework for some version of his domestic spending plan by the end of the month, he has already acknowledged the final price tag is likely to fall below $2 trillion. Democrats estimated the tax hikes Sinema opposes would have raised more than $800 billion over 10 years, and it is not clear how they aim to make up the difference.
"The bill will be fully paid for, and the matter is in the hands of our chairs of the Finance Committee and the Ways and Means Committee," House Speaker Nancy Pelosi, D-Calif., said Thursday.
According to The Associated Press, measures now under consideration include introducing a new minimum corporate tax rate, a tax on stock gains for the wealthiest investors, and a tax on stock buybacks. Proposals to tax international companies’ foreign earnings and boost funding for the Internal Revenue Service to investigate fraud are also still in play.
Sinema’s stance would eliminate some of the most straightforward and politically popular revenue-raisers from the package, leaving Democratic leaders to consider more precarious and complicated options. It has also raised the prospect that they may simply need to further reduce their already-shrinking ambitions.
A central talking point for the White House in recent weeks has been that Biden’s plan has no actual cost because all the spending is offset by savings and tax increases. The administration also remains committed to President Biden’s public assurances not to directly increase taxes on households earning less than $400,000 a year and to avoid increasing the federal debt to fund these programs.
“Ultimately, if you decide that you would not like to raise taxes on the wealthy, and also that you would not like to raise taxes on anyone earning under $400,000, it’s going to be hard to raise revenue,” said Alex Muresianu, a federal policy analyst at the Tax Foundation.
Progressives have expressed mounting frustration with Sinema as she seemingly fights against policies she once supported. She opposed the 2017 Tax Cuts and Jobs Act that Democrats want to roll back, and she previously campaigned on reducing prescription drug costs and ensuring corporations and the wealthy “pay their fair share.”
“You have become one of the principal obstacles to progress, answering to big donors rather than your own people,” five veterans who served on an advisory council for Sinema wrote in a resignation letter Thursday.
However, the reality of Democrats’ fragile majority is that one senator has the power to torpedo their entire agenda for any reason. If Sinema holds firm in her opposition to the tax hikes, the party must find alternatives she considers more palatable.
“This is a guessing game with Sen. Sinema,” Rep. Veronica Escobar, D-Texas, told Politico Wednesday. “Yeah, we're all supposed to be on the same team. And that means transparency, communication, and collaboration. Without it, it makes this significantly more challenging.”
While acceding to moderates’ demands would undoubtedly anger progressives, a less expansive package might prove easier to sell to the public. Cutting the price tag and jettisoning some tax hikes could ease concerns among voters about another massive wave of federal spending as the country begins to emerge from the COVID-19 pandemic.
As it is, critics say the true cost of programs Democrats have proposed would far exceed their estimates. To reduce projected expenses, some programs are designed to expire after a few years with an expectation that a future Congress would find a way to extend them, obscuring the total expenditure.
“The most ardent supporters of these policies should reject a framework that puts their long-term fate in jeopardy to make room for lower priorities. And advocates of fiscal responsibility should reject it because it will create immense pressure for further borrowing,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
According to Muresianu, the corporate and individual tax increases Democrats proposed would have created some threats to the long-term economic recovery from the pandemic by discouraging new investments. Other tax measures they are weighing like the minimum corporate tax could have negative economic ramifications, as well.
“One constant concern is that it would reduce the ability for companies to deduct the cost of capital investments sooner, which would hurt investment and growth broadly, as well as more specifically industries reliant on physical capital, such as utilities and manufacturers,” he said.
The White House declined to comment specifically on ongoing negotiations or on Sinema’s reported objections. However, officials reiterated the president’s position that an increase in corporate taxes is “long overdue” and that he would oppose any tax hikes on the middle class.
“I’m a man of my word,” Biden said at an event in Scranton, Pennsylvania Wednesday. “Not one single penny, if you make less than $400,000.”