Biden pushes back against Joe Manchin, saying he doesn’t think people need to work to get the expanded child tax credit

Joe Biden CNN town hall
President Joe Biden participates in a CNN town hall at the Baltimore Center Stage Pearlstone Theater, Thursday, Oct. 21, 2021, in Baltimore.

  • Biden pushed back against Manchin’s efforts to restrict eligibility for the child tax credit on Thursday.
  • The president responded “no” when asked if he backed work requirements.
  • Biden pitched a one-year extension of the CTC, which was slammed by Democrats for being too short.

President Joe Biden said at a CNN town hall on Thursday evening that he didn’t believe people needed to work to receive the monthly child tax credit, pushing back against a key Democrat’s effort to restrict eligibility for the cash benefit.

The president flatly responded “no” when asked if he backed a work requirement for the bulked-up child tax credit.

Biden’s comments are pushing back against Sen. Joe Manchin of West Virginia, a centrist who holds outsized influence over the future of his economic legislation in the 50-50 Senate. Manchin has pushed a work requirement for the child tax credit over the opposition of most Congressional Democrats.

Instead, they favor ensuring families who pay little or no taxes are able to get up to $300 in monthly checks depending on the child’s age. The vast majority of families earning below $150,000 are eligible for the one-year expansion, set to expire next year.

A recent analysis from the Niskanen Center indicated that at least 60% of all kids benefiting from the child tax credit would face aid cuts if Democrats adopted Manchin’s idea.

The child tax credit makes up only one part of the sprawling Democratic social spending plan. Democrats also aim to include at least four weeks of paid leave, federal subsidies so people can purchase coverage from the Affordable Care Act exchanges, and more.

Biden pitched a one-year extension of the child tax credit during meetings with Democrats at the White House on Tuesday. It triggered a backlash from senior Democrats like Rep. Rosa DeLauro of Massachusetts, House Appropriations Committee chair and Sen. Ron Wyden of Oregon, who heads the Senate Finance Committee.

“I’m gonna get longer than that,” Wyden told Insider on Tuesday. Other Democrats involved in the child tax credit negotiations argue a longer extension is necessary so it becomes a benefit program that’s impossible to dislodge like Social Security.

“I think that we’ve got to try harder,” Sen. Michael Bennet of Colorado, an architect of the measure, told Insider on Thursday morning.

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Kyrsten Sinema’s resistance to undoing the Trump tax cuts is opening the door to new taxes that could hit billionaires even harder

Kyrsten Sinema
Sen. Kyrsten Sinema (D-AZ) arrives to the U.S. Capitol Building for a vote on October 19, 2021 in Washington, DC.

  • Democrats are scrounging for new tax proposals given Sinema’s resistance to rolling back the tax cuts Trump instituted in 2017.
  • It may cause them to consider aggressive new taxes on billionaires, some of which haven’t been done before.
  • Sen. Mark Warner of Virginia told Insider it’d be a “great irony” if Democrats failed to roll back the Trump tax cuts.

Congressional Democrats are in a tough bind.

They’re scrambling to wrap up negotiations on President Joe Biden’s economic spending plans before the end of the month, a feat that appears more unlikely with every passing day. Internal divides are bogging down Senate Democrats over the size and scope of their social safety net bill to expand access to education, healthcare, and confront the climate crisis.

Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona are insistent that the price tag of the $3.5 trillion social spending plan must come down to clinch their support. Manchin said Thursday he didn’t believed a deal would be reached “anytime soon.”

Another major part of the hold-up is Sinema’s resistance to hiking tax rates on richer individuals and large corporations, a move that all but slams the brakes on Democrats’ plans to roll back President Donald Trump’s signature tax law. Democrats may be forced to abandon a central plank of their economic agenda to earn her vote in a 50-50 Senate.

Sinema’s opposition to lifting tax rates cuts at least $700 billion in revenue meant to cover priorities like an extension of the bulked-up child tax credit, Medicare and Medicaid expansion, paid leave and more. To salvage their sweeping ambitions, Democrats are floating alternatives that would hit the richest Americans even harder with a slew of new tax increases on capital gains, along with stock buybacks among others.

Howard Gleckman, a tax expert at the nonpartisan Tax Policy Center, described the dilemma facing Democrats as “an odd thing.”

“I don’t know what’s in Kyrsten Sinema’s head,” he said in an interview. “In some ways, the other proposals are a much more direct tax increase on high-income people. So if what she’s trying to do is protect the wealth of very rich people, pushing Democrats to a mark-to-market structure or even a wealth tax actually makes that harder, not easier.”

Sen. Ron Wyden of Oregon, the chairman of the tax-writing Senate Finance Committee, argued that Democrats have plenty of alternatives to choose from, including one of his own to tax capital gains. “We are ready to go now,” he told Insider.

How Democrats may sidestep Sinema and embrace new taxes on wealth

Bernie Sanders Chuck Schumer Ron Wyden
Sens. Chuck Schumer, Ron Wyden, and Bernie Sanders.

Senate Democrats can’t spare any votes in their endeavor to turn Biden’s economic plans into law over united Republican opposition. The tricky political maneuvering required to get Sinema’s vote is already infuriating the party’s progressive wing who want the package to transform the economy and alleviate inequality.

“It would be outrageous to not include something that so desperately needs to be done, that’s the most popular part of this package, that all of us ran on,” Rep. Pramila Jayapal of Washington, who chairs the Congressional Progressive Caucus, told reporters on Thursday.

But Sinema’s position is leading Democrats to dust off older ideas in search for back-ups. Chief among them is a “Billionaire’s Income Tax” that’s being authored by Wyden, which targets unrealized gains on assets. Importantly, it means assets that haven’t been sold – but whose value still went up – would be taxed annually. It’s based on an earlier proposal from 2019 and an updated version still hasn’t been released.

For the wealthy, assets are a much more sizable part of income compared to the typical worker. If you work a salaried job, you probably pay an income tax. Meanwhile, if you’re a billionaire holding profitable stocks, you’re paying a preferential tax rate if you decide to sell and won’t pay a dime until you do.

An analysis from the left-leaning Americans for Tax Fairness finds that Wyden’s proposal would apply to just .0005% of households – amounting to the wealthiest slice of Americans. Importantly, Wyden’s proposal has Biden’s blessing.

Gleckman projected the plan could raise between $500 billion to a $1 trillion in revenue depending on details like which tradable assets are taxed. But he said setting up an apparatus to carry it out is easier said than done since it’s never been implemented on a broad scale in the US.

“You would have to create a completely new structure to do this,” he said. “It’s time-consuming, and it’s complicated.”

Already, at least one Democratic senator says he’s uneasy about implementing a largely untested idea to pay for their spending plans. “I think anytime you get into stuff that’s not proven in the tax code it becomes a bit dangerous,” Sen. Jon Tester of Montana told the Wall Street Journal’s Andy Duehren.

Other measures to make up for lost revenue include stepping up IRS enforcement and an international tax overhaul, a Senate Democratic aide familiar with discussions recently told Insider. They’re also eyeing imposing taxes on companies that buy their own stock to jack up its value, benefiting shareholders.

The ‘great irony’ that Trump’s tax cuts may be here to stay

donald Trump outside trump tower nyc
Former President Donald Trump leaves Trump Tower in Manhattan on May 18, 2021.

Democrats in both the House and Senate are betting that Sinema will ultimately budge in her ongoing negotiations with the White House. The Arizona Democrat has perplexed many in her party, given her 2017 vote against the Trump tax law.

“My hope is that person will change her mind,” Sen. Mazie Hirono of Hawaii, said, referring to Sinema. “Why should billionaires pay less in taxes than you or me?”

“I’m not giving up the possibility of some rate increases,” Sen. Tim Kaine of Virginia told Insider, adding that a deal on the price tag would help settle much of the disputes among Democrats around tax increases.

But the possibility exists that swaths of the Trump tax law – which slashed the corporate tax rate to 21% from 35% and many experts say accelerated inequality – will remain untouched when all is said and done with the safety net bill, which Democrats are trying to approve relying on their first majority in over a decade.

“​​Boy, oh boy, that would be a great irony – if a Democratic president, House and Senate embraced the 2017 tax cuts,” Sen. Mark Warner of Virginia told Insider.

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Some wealth managers are helping clients take advantage of a loophole to use crypto losses to offset taxes on other assets

Bitcoin and USD
Bitcoin and USD. NurPhoto

  • About 14% of financial advisors are recommending their clients invest in cryptocurrencies.
  • Cryptocurrency investments can take advantage of a tax loophole legislators are working to close.
  • Even more wealth managers are planning to recommend investing in crypto, a report found.
  • See more stories on Insider’s business page.

Wealth managers are helping ease their clients into the cryptocurrency market by helping them tap into a loophole that uses losses to offset taxes elsewhere in their portfolios, The Wall Street Journal reported.

Rules against “wash sales” prevent investors from using the loophole with their stock holdings, but because cryptocurrencies are considered property by the federal government, the regulation doesn’t apply the same way, the Journal report said.

One financial advisor told the Journal he’s “taking advantage of the volatility in crypto” to increase portfolio returns. Another advisor said his client bought $100,000 worth of bitcoin and ether and will use his $30,000 in losses to offset taxes on profits in his portfolio, and all the while, his crypto investment has jumped 10%.

A June report from the Financial Planning Association showed more and more advisors are recommending cryptocurrencies to their clients. Now, 14% of wealth managers are endorsing digital assets to investors – a jump from 1% in both 2019 and 2020. In the future, even more financial advisors are looking to jump on board, the report said.

The loophole, however, could disappear if legislators pass new tax provisions that would add cryptocurrencies to wash-sale rules, in an effort to raise billions of tax dollars, Bloomberg reported previously. Legislators also wrote a provision requiring crypto firms to provide user information so as to increase tax compliance and raise an estimated $28 billion over the next 10 years. But, Bloomberg reported that crypto advocates said firms can’t collect such information.

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The Oscar Mayer heir who gave away his fortune to fight inequality explains why South Dakota became America’s secret tax haven, and how it exposes the US as the world’s ‘weak link’

South Dakota's state capitol building.
The state capitol building in downtown Pierre in central South Dakota.

  • A trove of nearly 12 million financial documents revealed how some of the world’s wealthiest hide money offshore.
  • The Pandora Papers, uncovered by ICIJ, shows trusts around the world – including South Dakota.
  • One of them is onshore, inside the USA: South Dakota is where the powerful are storing billions in assets.
  • See more stories on Insider’s business page.

A bombshell report from the International Consortium of Investigative Journalists found that some of the world’s wealthiest and most powerful people are socking away billions in offshore accounts – including the onshore, continental state of South Dakota.

Chuck Collins has known that it’s a problem for years. Once an heir to the Oscar Mayer wiener fortune, he learned firsthand how the wealthy hold on to their fortunes and gave his own away. Today, he’s the director of the Program on Inequality and the Common Good at the Institute for Policy Studies, where he delves deep into how the ultrawealthy dodge taxes in America.

In March, he told Insider that Americans largely don’t understand that “we are now the tax haven.” The US is the No. 2 destination for “global kleptocratic capital,” he said, much of which ends up in places like Delaware and Wyoming – and South Dakota.

The ICIJ confirmed Collins’ research, finding that over the past decade, the amount of customer assets in South Dakota has “more than quadrupled” to $360 billion. The ICIJ looked at nearly 12 million financial records that detail over 29,000 offshore accounts, with hundreds of journalists around the world poring over them, in partnership with outlets including the Washington Post and the Guardian The leak is called the Pandora Papers, following similar leaks called the Panama Papers and Paradise Papers.

All told, 17 US states are in the top 20 jurisdictions that “have the most liberal trust laws” worldwide, according to a paper by Hebrew University law professor Adam Hofri-Winogradow, which was cited by the ICIJ. The ICIJ found 81 trusts in South Dakota alone.

The great plains state changed its laws in the 1980s to become more favorable to these kinds of trusts, according to Collins, who recently authored “The Wealth Hoarders,” a deep dive into the growth of what he calls the “wealth defense industry.” That’s the growing system of lawyers, family offices, and more who help wealthy clients wiggle out of taxes and hold onto wealth – and it has ballooned in the past decades.

chuck collins
Chuck Collins.

In 1983, South Dakota got rid of its rule against perpetuities – what Collins calls an “arcane legal thing” that effectively means when you place money in a trust, it has to be dissolved at some point.

“At that point, there’s often a taxable moment,” Collins said. That could be something like the estate tax or gift tax, but “​​South Dakota said that ‘We’re going to attract trusts by eliminating that law, making them anonymous, making it possible that you can open up a trust and not actually have to live in the state.'”

That means if you put money in a trust in South Dakota, “you’re essentially sequestering money beyond the reach of tax authorities in perpetuity,” according to Collins. Perpetuity is another word for forever.

If you live in South Dakota, you might be wondering where all of that money is hiding. Collins said it’s probably not physically in the state. Instead, it may be parked in luxury real estate or art around the world. Only the trust itself has to be legally filed in South Dakota.

“We are emerging from a pandemic where essentially the wealthiest people on the planet have figured out how to sequester their wealth and avoid taxes,” Collins said.

Collins has multiple suggestions for reform, including federal legislation that can override states when they toss rules against perpetuities, as South Dakota did; requiring trusts to be registered and disclosing their owners; a 1% wealth tax on assets’ interest. President Joe Biden has backed a key senator’s tax proposal about the wealthiest’s assets, but in other respects, Democrats so far are leaving many tax loopholes untouched.

One thing is overwhelmingly clear to Collins, and it should scare every American. “The world is going to be looking at us differently after the Pandora Papers. They’re going to see that the United States is the weak link now in the system of global financial transparency.”

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GOP senators wrote Schumer a letter claiming reconciliation bill will ‘effectively discourage marriage’ by raising taxes on couples

High angle shot of a couple calculating their finances together at home
  • Sens. Mitt Romney, Susan Collins, and Marco Rubio were part of the group who signed the letter.
  • The Earned Income Tax Credit helps low- to moderate-income families get a tax break.
  • Spouses without children filing taxes together must earn less than $27,380 to qualify for the credit.
  • See more stories on Insider’s business page.

A cohort of Congressional Republicans led by Arkansas Sen. John Boozman wrote a letter Thursday to Majority Leader Chuck Schumer and Senate Finance Committee Chairman Ron Wyden in opposition to a measure included in the House of Representatives’ reconciliation bill that they said would “effectively discourage marriage.”

The group criticized a “marriage penalty” in the current draft of the bill that may disqualify some low- and moderate-income families from receiving an Earned Income Tax Credit (EITC).

Couples incur marriage penalties when the taxes they pay jointly exceed what they would have paid if they remained single and filed as individuals, according to the Tax Policy Center.

“Discouraging marriage is not in our country’s best interest and sends the wrong message to our families,” the letter said. “Federal policy should be designed to foster strong marriages, which are the foundation of strong families and strong communities.”

EITC helps low- to moderate-income workers and families get a tax break, which could increase based on the number of eligible dependents, according to the Internal Revenue Service.

Under the American Rescue Plan, a $1.9 trillion package that aided the United States’ recovery amidst the COVID-19 pandemic, the tax break was boosted through 2021 to cover more taxpayers without kids, CNBC reported.

However, a sharp income phaseout, a gradual reduction of a tax credit as a taxpayer’s income approaches the upper limit to qualify for that credit, may cause some couples to incur a marriage penalty.

Single filers are eligible for the credit if they have no children and their earned income is below $21,430, while spouses without children filing together must earn less than $27,380, according to CNBC. Additionally, a single worker with no children may marry someone with a kid, eliminating the benefit altogether or reducing what the spouse with a child could have received if they stayed single, CNBC said.

33 Republican senators, including Mitt Romney, Susan Collins, Tom Cotton, and Marco Rubio, co-signed the letter, which stated that the provision would “build bigger barriers for couples to marry.”

Despite barriers to qualify for EITC, President Joe Biden enhanced the 2021 child tax credit, which has a high-income phaseout – $150,000 for married couples filing jointly – that could offset penalties marriage penalties for some families, Eugene Steuerle, co-founder of the Urban-Brookings Tax Policy Center, told CNBC.

To see if you qualify for EITC, use this tool provided by the IRS.

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America’s wealthiest 0.1% will pay $1 million more a year under Biden’s tax plan. Lower-income parents will see big cuts.

tax the rich protest US billionaires
  • An analysis from the Tax Policy Center finds the richest Americans would see big hikes under the Democrats’ tax plan.
  • The top 0.1% of Americans would pay over $1 million more in federal taxes under the new provisions.
  • Low and middle income parents would benefit the most from the new plan.
  • See more stories on Insider’s business page.

House Democrats have floated a suite of tax hikes and changes to pay for the $3.5 trillion reconciliation bill and, by design, America’s highest earners will pony up the most.

A new analysis from the Tax Policy Center finds that the top 1% and top 0.1% would see particularly hefty hikes under the latest proposal, while lower-earning parents would benefit from tax cuts.

Democrats are using a few methods to target high earners. They propose increasing the income tax rate to 39.6% for individuals who earn over $400,000. In addition, the plan hikes up the rate on capital gains – profits from selling assets like stocks and bonds – to 25%. Many of the wealthiest Americans derive a sizeable chunk of their incomes from assets, rather than straightforward wages, and the capital gains tax targets the profits from selling off those assets. The proposal would also bring the corporate tax rate up to 26.5% for companies that bring in over $5 million.

All told, according to the Tax Policy Center, the top 1% would see their taxes go up by about $160,000. For the top .01% – who earn at least $4 million, per the Tax Policy Center – taxes would increase by $1.1 million. Both rates would come in a bit lower if the corporate tax increase is filtered out.

On the other hand, the analysis finds that low- and middle-income parents stand to see significant cuts under the new measures. That’s due to an extension of the Child Tax Credits, which provides direct payments to parents every month. According to the Tax Policy Center, the lowest earning parents would see taxes slashed by about $3,700, which could come in the form of a direct payment. For middle-income families that cut would come to around $3,000.

The big benefits to lower-income Americans that the Tax Policy Center found are consistent with an analysis from the congressional Joint Committee on Taxation. That analysis found a drop in tax rates for all Americans making under $200,000, and for Americans making less than $50,000, the current proposals would lower taxes more than the 2017 Republican-backed Tax Cuts and Jobs Act:

The Biden administration has repeatedly emphasized more equitable taxes

The tax gap – and who is and isn’t paying taxes – has emerged as one flashpoint for inequality. Earlier this month, Treasury Department researchers found that the top 1% of earners evade $163 billion in taxes annually. President Joe Biden has continually said he’s “sick and tired” of the inequality in the tax system.

“Millionaires and billionaires are paying a lower tax rate than teachers and firefighters. We’re going to restore fairness to the tax code, give working people a much-needed tax cut, and make the investments that will grow our economy for years to come,” Biden wrote in one tweet.

Indeed, White House economists released an analysis earlier this month showing that America’s highest earners pay just above 8% in income taxes. And on Wednesday, Heather Boushey, a member of the president’s Council of Economic Advisers, released a New York Times opinion essay saying that Congress is facing a choice between investing in the middle class or to keep “giving billions in tax handouts to the wealthiest Americans and multinational corporations.”

But the bill containing those potential tax increases is currently facing its own uphill battle. Currently, House Speaker Nancy Pelosi is working to get the bipartisan infrastructure bill passed this week. Progressives have said they’d only vote on that bill if it comes in conjunction with the larger reconciliation package that contains social spending and tax hikes. Now, as moderate Democrats emerge as roadblocks to that larger package, there’s just a bipartisan vote set for this week – and progressives are warning they’ll torpedo the standalone bill.

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A Biden adviser blasts politicians rewarding ‘wealth over work,’ and says Congress has to choose between the middle class and the wealthy

Joe Biden
President Joe Biden delivers a speech on voting rights at the National Constitution Center in Philadelphia on July 13, 2021.

  • Biden economic adviser Heather Boushey wrote in the NYT that the US government has rewarded wealth over work.
  • She says the Biden administration is seeking to change this, an implicit break with decades of policy.
  • Biden’s proposals to increase taxes on the wealthy and corporations are in peril in Congress.
  • See more stories on Insider’s business page.

Heather Boushey, a member of President Joe Biden’s Council of Economic Advisers, sounded off in a New York Times opinion essay on who the government should work for – and who it’s left behind in recent decades.

“Millions of Americans don’t trust the government or its ability to improve their lives, and it’s not hard to see why,” Boushey writes. Instead, she says, politicians from both sides of the aisle have done everything from allowing monopolies to grow to slashing taxes for the wealthiest Americans.

It’s an argument in favor of Democrats’ sweeping reconciliation bill that would unwind some Trump-era tax cuts and funnel money towards social services and lower and middle-income Americans. That bill is currently in jeopardy as progressives and moderates seem unable to agree on shifting from the system Boushey decries to the one she wants.

Boushey writes that it is “now abundantly clear that the problem lies with a government that rewards wealth over work, that serves big corporate interests over working families.” Such a statement from a presidential economic adviser would have been unthinkable in the Obama administration, let alone the Trump one, but the identification of the widening chasm between wealth and work has gone mainstream in recent years, led by groundbreaking work from economists such as Thomas Piketty. Boushey is further confirming Biden’s radical shift on wealth and inequality.

Biden’s White House has been focused on taxes and inequality

Biden’s economic team has repeatedly used the press to hammer home the importance of Democrats’ proposed tax hikes to offset infrastructure as a move to address inequality and close tax gaps.

“The president has put forth a robust tax agenda that rewards work, not wealth, one that will ensure companies pay their fair share and encourage them to keep jobs in America,” Boushey writes.

Last week, White House economists released their own analysis of how much the wealthiest Americans pay in taxes. They found the 400 wealthiest families in America pay about 8.2% in income taxes annually; significantly, they included assets like stocks as part of those incomes.

Under House Democrats’ proposed tax plan, capital gains – the profits from selling assets like stocks – would be taxed at 25% instead of 20%. The wealthiest Americans often derive more of their income from assets, while many Americans rely on wages for income. That means that while lower-earning Americans pay higher income taxes on their wages, wealthy Americans are often taxed at the preferential rate for capital gains. Democrats also want to impose a 3% “surtax” on people earning over $5 million, although that still wouldn’t be an outright wealth tax, since it targets income and not assets.

Democrats also want to hike the corporate rate to 26.5% for companies that earn over $5 million. Both the corporate rate and capital gains increases are lower than Biden’s original proposals.

Boushey writes that Biden’s “vision for the economy” has resulted in the two bills currently going through Congress: a bipartisan infrastructure bill and Democrats’ party-line reconciliation bill. However, both are currently in jeopardy.

Progressives have repeatedly warned that the two bills must move forward together. But moderates have been reluctant to commit to moving the massive reconciliation bill forward, and Pelosi has moved to decouple them. Now, progressives are making noises about torpedoing the bipartisan bill in retaliation.

“Congress has a choice to make,” Boushey writes. “Does it want to grow our economy by investing in the middle class and the public sector, and fundamentally recalibrating the relationship between government and the people it represents, or continue giving billions in tax handouts to the wealthiest Americans and multinational corporations?”

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5 battles to watch as Democrats gear up for the biggest week of Biden’s presidency

Biden Schumer Pelosi Harris Democrats
Vice President Kamala Harris, President Joe Biden, Senate Majority Leader Sen. Chuck Schumer (D-NY) and Speaker of the House Rep. Nancy Pelosi (D-CA) host a press conference on the stimulus law in the White House.

  • Democrats face several battles this week that will shape the Biden presidency and the US economy.
  • The party aims to approve a $1 trillion infrastructure plan, an even larger families plan, and measures to tax the wealthy.
  • Congress also faces deadlines to avoid a government shutdown and a debt-default recession.

Forget infrastructure week. It’s economy week in America.

As September comes to a close, Democrats have an extraordinary policy agenda to get through. It includes roughly $4.5 trillion in fresh spending, new measures to tax the wealthy, and a last-minute effort to dodge a recession. Democrats aim to approve the measures before the week is out, setting Congress up for one of the busiest legislative weeks in recent memory.

Opposition is fierce. Democrats hold fragile majorities in both the House and Senate, and Republican leadership has vowed not to support most of their spending plans, assuring that Democrats will use budget reconciliation to pass most of President Joe Biden’s agenda.

The week’s legislative agenda includes much of the policy championed by Biden during his campaign and first nine months in office. With Democrats controlling Congress and the White House, failure to enact any of the proposals could be ruinous for the party, setting it up for failure in the 2022 midterm elections.

Included in legislative fights this week is funding the government, which has a concrete deadline requiring immediate action. Others, like Democrats’ spending packages, have deadlines set by party leadership. While those cutoffs are looser, delaying votes any longer could endanger weeks of delicate negotiations within the party.

Here are the battles Democrats face as Congress enters a critical legislative week.

(1) A massive upgrade to America’s roads and bridges

Of Biden’s spending proposals, his infrastructure plan is the most likely to reach the Resolute desk for his signature. In June, a bipartisan group of lawmakers agreed on a $1 trillion infrastructure package that includes improvements to roads and bridges, clean water projects, broadband access, and electric-vehicle infrastructure.

But progressive Democrats are adamant they won’t back the plan unless it’s bundled with Biden’s larger social spending plan. If the Democratic left wing can’t convince moderates to spend big on revolutionary measures like expanded childcare, universal pre-K and paid family leave, those roads and bridges will continue to decay without fresh investment.

(2) A historic investment in climate change and family care

The bulk of the White House’s proposals are in a $3.5 trillion social spending package, set to be passed via reconciliation. The plan includes funding for childcare, paid family leave, universal pre-K, expansions to Medicare, and investments in affordable housing projects.

Using the reconciliation process means that every single Democratic party member must vote yes. That threatens to shrink the entire plan, as moderate Democratic Sens. Joe Manchin and Kyrsten Sinema have balked at the current price tag. Leadership has already hinted at a smaller proposal, with Pelosi saying Sunday that the final package will cost less than the initial $3.5 trillion figure.

Failing to pass the package would doom the US economy to substandard growth for several years, Oxford Economics said in a September note, while approving it would help the economy grow faster than its pre-pandemic trend. Fumbling the plan would also scar Democrats in the midterms, as they’d have little to show for themselves when campaigning ramps up next year.

(3) Raising taxes on the wealthy and corporations

Democrats are also split over how they should pay for the ambitious social-safety-net programs.

House Democrats revealed the first details of their pay-fors on September 13, confirming sweeping plans to tax the country’s richest people and corporations. Proposals include higher income tax rates for top earners, a higher corporate tax rate, and a 3% surtax on people making $5 million or more.

To be sure, the House framework is less ambitious than the White House’s. It leaves intact the step-up basis loophole that allows wealthy Americans to pass on assets without any tax liabilities. It also fails to close the gap between the top income tax rate and capital gains tax rate, meaning rich Americans can pay less in taxes by living off their investment gains.

Pelosi and Schumer said Thursday they have a framework for covering the costs of the reconciliation bill, but didn’t disclose details.

(4) A last-minute sprint to avoid government shutdown

The government is set to run out of money by September 30, giving lawmakers just days to approve new funding.

The Senate is scheduled to vote Monday on a short-term bill already approved in the House that would fund the government through December 3. Senate Minority Leader Mitch McConnell has said his caucus won’t allow it to pass, balking at a rule that raises the debt limit and arguing Democrats can do it on their own.

At the same time, McConnell has warned the Democrats against playing “Russian roulette” with the economy, as he effectively does the same thing.

(5) Democrats’ effort to avoid a self-inflicted recession

A government shutdown would be very bad, as Insider’s Juliana Kaplan and Ayelet Sheffey reported, and a default on the national debt would be even worse. Janet Yellen said this month it would be a “catastrophe.”

The US defaulting would lead funding for key support programs to freeze. The country would slide into a self-imposed recession. Millions would lose their jobs and trillions of dollars would be wiped out as stocks tumble.

The stakes are high. This week is go-time for Democrats. The game of Russian Roulette has already begun.

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Democrats may leave a tax loophole billionaires love untouched. Closing it would dent the fortunes of Jeff Bezos and Elon Musk.

TAX
SpaceX founder and Tesla CEO Elon Musk/President Joe Biden/Amazon founder and CEO Jeff Bezos

  • Democrats can’t decide whether to close a tax loophole that’s popular with the wealthiest Americans.
  • The “step-up basis” loophole lets billionaires pass down investment gains without paying any taxes.
  • Here’s how the loophole works, and why Democrats are split on whether to close it.
  • See more stories on Insider’s business page.

Democrats face a looming deadline to pass an infrastructure package before the end of September – and they’re still squabbling over how to pay for it.

Many of the solutions are simple. House Democrats and the Biden administration both support higher taxes on rich Americans and corporations. But one particular tax issue – the “step-up basis” – sits at the center of their hemming and hawing.

It has to do with how, when Americans sell assets like stocks or bonds, they pay a capital gains tax on their earnings. If someone bought a stock for $100 and sold it for $250, they’d pay taxes on the $150 profit.

Through the step-up loophole, however, those charges can be dodged entirely. If an investor transfers assets when they die, the inheritor receives them without a capital-gains tax burden. It’s also an easy way to dodge the estate tax. While estates are taxed when they’re transferred after the owner’s death, gifts – like unrealized gains from assets -aren’t.

Understanding the loophole of a ‘step up’ in value

The term “step-up” refers to the difference in value and tax liability that an asset has when it is acquired and when it is transferred to an inheritor.

The proverbial billionaire Jerry, for example, could buy a home for $250,000 and sell it for $1 million, after which he’d pay taxes on the $750,000 gain. But if Jerry passes the home onto his daughter Ella, and she has it appraised at $1 million, its value has taken a “step up” in value to $1 million. If Ella sells the home for $1 million or less, she wouldn’t owe anything in taxes.

For billionaires like Jeff Bezos and Elon Musk who earn far more through their investments than their salaries, this loophole is a perfect way to shield their wealth. Intergenerational wealth has contributed to surging inequality in America, which grew wider during the pandemic. Since 2019, the wealth of the top 400 richest people in the US increased by $1.4 trillion, per research from Gabriel Zucman and Emmanuel Saez, a pair of left-leaning economists at the University of California, Berkeley.

“Often, for these people, wealth accumulates tax-free their entire lives,” Frank Clemente, executive director at the left-leaning advocacy group Americans for Tax Fairness, told Insider. President Joe Biden proposed ending this loophole and making billionaires “pay their fair share,” so why does it look like his party won’t touch it?

Democrats split on hitting the rich where it hurts

Biden wants inheritors to pay taxes on gains larger than $1 million for single filers and $2.5 million for couples. Coupling that with a higher capital gains tax rate could raise more than $320 billion over the next decade, the White House said.

This week, the House Ways and Means Committee released tax proposals that would tax the rich more, including raising the top income tax rate to 39.6% and boosting the top capital gains tax rate to 25%. Left out of this framework, though, was an end to the step-up basis.

“The [Ways and Means] proposal fails to end the ability of the wealthiest filers to go through life without paying any taxes on the vast bulk of their incomes from assets, and this should be revisited as the reconciliation process continues,” Chye Chin Huang, executive director of the Tax Law Center at New York University, wrote on Twitter,

The Senate hasn’t released its own tax framework, but it is considering eliminating the loophole. “I feel very strongly that yearly, billionaires who did extraordinarily well in the pandemic should make tax payments like nurses or firefighters,” Sen. Ron Wyden of Oregon, chair of the Senate Finance Committee, told Insider.

Wyden will probably have to contend with moderates in the Senate, namely Joe Manchin and Kyrsten Sinema, just as moderates in the House have balked at closing the step-up loophole. If the moderates’ proposals prevail, the wealthy will likely continue to park their cash in assets with little financial consequence.

Closing step-up “is the one thing in the Biden plan that does get at wealth accumulation,” Clemente said. “For the really wealthy folks, they’re not going to have to cash out, so they won’t pay the tax anyway.”

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