Corporate tax hikes might now be off the table as a way of funding the Democrats’ multi-trillion dollar social spending bill, President Joe Biden said.
At a CNN town hall, Biden conceded he didn’t have all the Democratic votes needed to increase the corporate tax rate to 28%, up from 21% currently.
“I don’t think we’re going to be able to get the—look, when you’re in the United States Senate and you’re president of the United States and you have 50 Democrats, every one is a president,” he said, according to a transcript provided by the network. “Every single one. So you’ve got to work things out.”
Biden has been negotiating with Democrats for weeks to hammer down the details of his cornerstone economic agenda, a sweeping bill that would spend trillions of dollars on education, medicare expansion, child care and climate-change provisions, among other initiatives. The bill also would raise corporate tax rates and personal income taxes for the wealthy.
Progressive members of the party increasingly have asked for a higher topline, whereas moderates like Sen. Joe Manchin (D.-W.V.) and Sen. Kyrsten Sinema (D-Ariz.) have pushed to lower the price tag. Democrats need all 50 Senate votes to pass the social spending bill through a process called reconciliation, which bypasses the 60-vote filibuster and lets the majority party pass legislation through a simple vote.
But to secure Sinema’s vote for some of the bill’s key initiatives, Biden may have to back down on the tax rate increase.
“She says she will not raise a single penny in taxes on the corporate side and/or on wealthy people, period,” Biden said. “So that’s where it sort of breaks down.”
A White House official told Bloomberg that Biden was referring only to corporate tax rate increases, not other taxation provisions. Democrats are still mulling over other options for raising revenue, including a 15% minimum tax on GAAP earnings.
House Majority Leader Steny Hoyer (D-Maryland) said he aimed to finalize a deal before Monday. Speaking on CNBC on Friday, the No. 2 Democrat also said the party was looking at other tax provisions to fund the spending bill, such as closing tax loopholes and increasing payment enforcement.
“You don’t have to change the rates, you may have to change what’s covered, how you assess taxes that are due without raising rates,” Hoyer said.
“It is unlikely a complex change to the tax code could be agreed to in a short time period and that an increase in the corporate tax rate to ~26.5% is more likely,” wrote
(C) analysts in a note.
Biden’s statement on Thursday may go a long way toward assuaging the markets. While an influx of government spending may be stimulative for markets, corporate tax hikes could eat into profits and cause stocks to tumble.
Raising corporate tax rates to 25% from 21% and increasing the foreign income tax rate to 15% could spark volatility, David Giroux, manager of the $52 billion T. Rowe Price Capital Appreciation fund (PRWCX), told Barron’s earlier this month. He calculates that the tax increase, mitigated by benefits from the spending, would cause an overall 3% hit to earnings-per-share expectations for the
Goldman Sachs analysts estimated that a corporate tax rate of 25% and a 16% foreign tax rate would reduce S&P earnings per share by 5% next year, MarketWatch reported.
Write to Sabrina Escobar at [email protected]