Key Democrats want to keep most of Trump’s corporate tax cut — and slash more taxes for the rich

Even some of the most progressive members of Congress are demanding cuts that overwhelmingly benefit wealthy

By Igor Derysh

Managing Editor

Published April 28, 2021 6:00AM (EDT)

Joe Manchin, Kyrsten Sinema, Jamaal Bowman and Katie Porter (Photo illustration by Salon/Getty Images)
Joe Manchin, Kyrsten Sinema, Jamaal Bowman and Katie Porter (Photo illustration by Salon/Getty Images)

After decrying Republican tax cuts that overwhelmingly benefited the rich and corporations, some Democrats, including progressive House members, are pushing to revise President Biden's infrastructure proposal to include tax breaks that will largely flow to the wealthy.

Biden's $2 trillion infrastructure proposal would be primarily funded by raising the corporate tax rate to 28%, after former Donald Trump signed the 2017 Republican tax cut law that cut the rate from 35% to 21%. But after torpedoing Biden's proposed minimum wage increase and forcing reduced unemployment benefits and stimulus checks in the American Rescue Plan, some moderate Democratsm led by Sen. Joe Manchin, D-W.Va., are intent on preserving most of Trump's corporate tax cut.

Senate Democrats' plan is expected to increase the corporate tax rate to just 25%, sources told Axios last week, which would raise about $600 billion over the next 15 years. That would fall far short of the price tag of the bill, though Biden's proposal also includes a hike on corporate foreign earnings that is expected to raise another $700 billion. The White House has not changed its proposal, but Democrats close to the administration told Axios that Biden would accept the 25% as a "political win." Sources likewise told Reuters and other outlets that they expect the final bill to include a 25% corporate tax rate.

Manchin, who called for a 28% corporate tax rate before the Trump tax cuts, said he would oppose the bill unless the hike was pared back to 25% and would use his "leverage" in the 50-50 Senate to force the change.

"If I don't vote to get on it, it's not going anywhere," he told CNN earlier this month. "So we're going to have some leverage here. And it's more than just me, … There are six or seven other Democrats who feel very strongly about this."

The other Democrats calling to preserve most of Trump's corporate tax hike include Sens. Kyrsten Sinema of Arizona, Mark Warner of Virginia and Jon Tester of Montana, according to Axios. Some moderate House Democrats, like Rep. Scott Peters, D-Calif., have also called to reduce the proposed corporate tax rate to 25%, which would effectively result in a bipartisan 10% corporate tax cut from Obama-era levels. Earlier, Biden vowed to "get rid of the bulk of Trump's $2 trillion tax cut," which he labeled "irresponsible."

"I'm not trying to punish anybody, but damn it, maybe it's because I come from a middle-class neighborhood, I'm sick and tired of ordinary people being fleeced," Biden said in a speech earlier this month. "It's just not fair. It's not fair to the rest of the American taxpayers. We're going to try to put an end to this."

Manchin defended his opposition to the higher rate, echoing a frequent Trump talking point that lower corporate tax rates were necessary to keep American corporations "competitive." But even the massive Trump corporate tax cut largely failed to result in the much-hyped windfall that was promised. Even before the pandemic, the tax cut failed to boost longterm corporate investment, spark hiring, boost wages or pay for the deficit it caused, though it did result in record stock buybacks.

Of course, many corporations pay no federal income taxes at all. The Trump tax cut doubled the number of companies that had an effective 0% tax rate, according to the Institute on Taxation and Economic Policy (ITEP), while giving the vast majority of Fortune 500 companies an average federal tax rate of 11.3% the year it went into effect.

The Senate Democrats' 25% corporate tax rate puts them to the right of corporate executives like Amazon CEO Jeff BezosLyft cofounder John Zimmer and even former Trump economic advisr Gary Cohn, who backed a 28% rate.

"To me, 28% is probably a good number to land on, to end up being attractive to corporations to be in the United States," Cohn, the former president of Goldman Sachs, told Yahoo Finance last year.

There is no data suggesting that a 25% tax rate would make the United States more competitive than a 28% rate, said Zach Liscow, a professor at the Yale Law School who studies tax policy.

"There are good reasons to think that those higher taxes will not do much to affect corporations' investment in the U.S., owing in part to the tax incentives the U.S. has adopted over the past few decades to encourage investment, which just get more valuable when the tax rate goes up," Liscow told Salon. "At the same time, there are lots of reasons — based on considerable economic research on the importance of infrastructure to economic growth — to think that better infrastructure will encourage investment in the U.S. and help corporations grow here. All in all, it's a good bet that a somewhat higher corporate tax rate to fund infrastructure would actually be good for U.S. competitiveness, not bad."

A Quinnipiac poll earlier this month found that voters are also significantly more likely to support Biden's infrastructure proposal if it is funded through tax hikes on corporations.

The Senate Democrats' proposal comes as House progressives call on Biden to do more, not less, in his infrastructure proposal.

"This is not nearly enough," Rep. Alexandria Ocasio-Cortez, D-N.Y., said of the $2.25 trillion proposal.

"This package can and should be substantially larger in size and scope," agreed Rep. Pramila Jayapal, D-Wash., the chairwoman of the Congressional Progressive Caucus, calling for the plan to ensure that "large corporations finally pay their fair share in taxes."

Nina Turner, the Ohio House candidate backed by Sen. Bernie Sanders, I-Vt., and other progressives, argued that the corporate tax rate should be even higher than Biden's proposal.

"Saying 'corporations must pay their fair share' should mean that pre-Trump rates are the starting point," she said on Twitter.

But some progressives have been pushing for their own preferred tax cut in the proposal that would primarily benefit the rich.

Every member of the California House delegation, except House Speaker Nancy Pelosi, has called on Biden to lift the $10,000 limit on the State and Local Tax Deduction, a provision of tax law that is massively unpopular in affluent suburban areas increasingly represented by Democrats. Those California members include prominent progressives like Reps. Katie Porter and Ro Khanna, the former national co-chair of Sanders' presidential campaign.

"Enactment of the SALT cap specifically targeted states and localities that have chosen to provide strong taxpayer support for critical government services such as education, health care, transit, and social services," the lawmakers argued.

Every member of New York's congressional delegation, except for Ocasio-Cortez and Rep. Kathleen Rice, D-N.Y., went further, signing a letter vowing to oppose the entire infrastructure bill unless it includes a repeal of the SALT cap. The letter's signatories included newly-elected progressives like Reps. Jamaal Bowman, D-N.Y., and Mondaire Jones, D-N.Y.

"This issue is so critical to our state and our constituents that we will reserve the right to oppose any tax legislation that does not include a full repeal of the SALT limitation," the letter said.

The New York lawmakers claimed that a full repeal would ensure "that New York State middle-class families were not taxed twice on their income." But an analysis by ITEP found that 86% of the benefits of repealing the SALT cap would go to the richest 5% of the population. In New York, 83% of residents earning under $100,000 would get no benefit at all while the other 17% would gain, on average, about $190 per year.

An analysis by the Center for Budget and Policy Priorities (CBPP) similarly found that the bottom 80% of households would receive just 4% of the benefit of the repeal, calling it "very regressive." An analysis by the Tax Policy Center found that 96% of households earning between $52,000 and $93,000 would see no tax reduction, while the remaining 4% would get an average tax cut of $400. On the other hand, 93% of those earning over $1 million would see an average tax cut of $48,000. An analysis by the Brookings Institution concluded that a repeal of the cap would be three times more favorable to the rich than the overall benefits of the heavily pro-rich Trump tax cut.

ITEP also warned that repealing the cap would "worsen economic disparities and exacerbate racial inequities baked into the federal tax system," noting that Black families are 42% less likely to benefit from the cut than white families, while Hispanic families are 33% less likely to benefit. Roughly 72% of the benefit would go to white households.

"There is also a long history of tax and other public policies that have allowed white families to build more wealth," said Carl Davis, the research director at ITEP who authored the report. "Repealing the SALT cap without replacing it with a stronger limit on tax breaks for the rich would cement yet another inequitable policy that advantages rich white families."

Bowman, who will deliver the progressive response to Biden's first congressional address on Wednesday, defended his support for the repeal but backed off the threat to oppose the bill unless it is included, telling Salon that he does "not intend to hold up its passage based on that single provision alone."

"Many of our constituents have communicated to us that repealing the cap on the SALT deduction imposed by Trump is important to them, especially given the economic impacts of the pandemic," Bowman said in a statement. "While it is true that a repeal of the cap would benefit wealthy Americans, the benefits are not exclusive to the wealthy, and we want to be responsive to the needs and priorities of our constituents, which includes first-time homeowners and homeowners of color. For this portion of SALT filers, repealing the cap can present a material opportunity to disrupt intergenerational wealth gaps."

Bowman's district includes part of the Bronx but also part of affluent Westchester County, where the median $89,968 annual income dwarfs the $62,765 median income across the state. Prior to the cap, Bowman said, about 230,000 Westchester County residents used the SALT deduction.

"In communities like Westchester County, where residents pay the highest property taxes in the nation, the SALT deduction cap leaves families in need of additional relief. In addition, the cap limits states' abilities to provide the essential social services needed to recover from this pandemic and ensure our constituents are able to get the resources needed to thrive," Bowman told Salon, noting that he also supports a federal wealth tax and a New York proposal to tax the wealthy, and is working on his own tax legislation.

A full repeal would also undermine the efforts to find revenue to pay for Biden's infrastructure proposal. Repealing the cap entirely would cost about $357 billion over the next five years, according to an analysis from the Joint Committee on Taxation, more than half the revenue to be raised by the Senate Democrats' proposed 4% corporate tax hike over 15 years. An analysis by CBPP estimated that the repeal would cost $600 billion over nine years, effectively canceling out the corporate tax increase revenue.

The issue has caused a rift among progressives. Jayapal told reporters that the Congressional Progressive Caucus "doesn't have a position" on the repeal, but Ocasio-Cortez called it a "giveaway to the rich" and a "gift to billionaires."

"I don't think that we should be holding the infrastructure package hostage for a 100% full repeal on SALT," Ocasio-Cortez told reporters earlier this month. "I think we can have a conversation about the policy, but it's a bit of an extreme position, to be frank."

The issue has resulted in an unusual coalition of progressive Democrats and most Republicans, who oppose the repeal as well. Many Democrats have complained that the cap, which was included in the Trump tax cuts, was intended to punish blue states. Tax fairness groups have long argued that it was a rare progressive measure in a bill that otherwise overwhelmingly benefited the wealthy.

"I think there's better ways to get money to people who need it, rather than folks who have very large values in homes," Rep. Mark Pocan, D-Wis., the former chair of the Congressional Progressive Caucus, told The Hill last week.

The White House, meanwhile, said it was open to discussing the repeal if Democrats find a way to offset the massive cost.

"If Democrats want to propose a way to eliminate SALT — which is not a revenue raiser, as you know; it would cost more money — and they want to propose a way to pay for it, and they want to put that forward, we're happy to hear their ideas," White House press secretary Jen Psaki said this month.

Rep. Josh Gottheimer, D-N.J., has suggested that increasing IRS audits on the wealthy and corporations could pay for the repeal. Biden supports a plan to boost IRS funding by $80 billion to increase audits and enforcement, which the administration believes will bring in an additional $700 billion over the next decade, according to The New York Times, but the proposal is aimed at funding a separate big spending bill -- the American Families Plan.

But even the New York Times editorial board, which has supported similar policies, warned the repeal would be "bad politics and bad policy," instead calling to eliminate the deduction entirely. The limited deduction, the Times argued, primarily benefits the wealthy and drives inequity by burdening lower-income households with a larger share of the tax burden.

"Most members of this editorial board are paying more in federal taxes because of the SALT deduction cap. In a narrow financial sense, we would benefit from its repeal," the op-ed said. "But we believe in the broader benefits of progressive taxation, and in the necessity of concrete steps toward creating a more equal society. Members of Congress who have espoused those principles repeatedly now have an important opportunity to demonstrate their sincerity."

Even Emory University professor Dorothy Brown, the Democrats' lead witness at last week's Senate Finance Committee hearing on the tax code, warned that repealing the SALT cap would benefit the wealthy and worsen racial income disparities.

"Since roughly one in 10 Americans itemize deductions — and you only get this tax benefit if you itemize — repeal of the cap will benefit the highest-income taxpayers," Brown, the author of "The Whiteness of Wealth: How the Tax System Impoverishes Black Americans and How We Can Fix It," told Salon. "If you want to help fix how tax laws exacerbate racial inequality, you won't support repeal of the SALT cap."

By Igor Derysh

Igor Derysh is Salon's managing editor. His work has also appeared in the Los Angeles Times, Chicago Tribune, Boston Herald and Baltimore Sun.

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