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Bipartisan deal muddles tax increase outlook

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Tax Hot Topics newsletter The tentative agreement between a bipartisan group of senators on a $579 billion infrastructure plan without tax increases complicates the outlook for President Joe Biden’s ambitious tax agenda.

The group — comprised of 11 Republicans, 10 Democrats, and 1 Independent — released a statement on June 16 stating they support “this bipartisan framework that provides an historic investment in our nation’s core infrastructure needs without raising taxes.”

The support of key Republican and Democratic moderates in the Senate gives the plan significant momentum, but major hurdles remain. The plan could run into opposition from more liberal Democrats, and major aspects of the plan have been characterized as “fluid,” including the proposal to index the federal gasoline tax to inflation.

Democratic senators met with White House officials last week in an effort to move forward the compromise, with White House officials indicating the president may put forth proposals to replace the $30 billion in revenue from indexing the gas tax and to remove the plan’s fees for electric vehicles. The plan does not otherwise include any of the Democratic proposals to raise taxes, but if it succeeds, that does not necessarily mean Democratic tax increase proposals are dead.

If a compromise with Republicans is reached, Democrats are expected to pursue a two-track approach in which a separate Democratic-only bill would use their tax increases to cover the priorities Republicans could not accept on the smaller bipartisan bill. Senate Majority Leader Schumer met with Budget Committee Democrats, urging them to produce a “fast-track” plan incorporating Biden’s economic agenda that can gain the support of all 50 members of the Democratic caucus to pass the Senate via reconciliation. Republicans appear to be betting that support for a separate Democratic tax increase package will collapse if a smaller bipartisan package carries the most popular provisions.

Contact:
Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

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