Democrats scramble for money to cover Biden’s $ 3.5 million plan
The architects of the package argue that, in many ways, the bill will eventually pay for itself by increasing tax revenue. This “dynamic scoring” strategy will help justify some of the high price tag, although this method of paying for the legislation has drawn criticism from Democrats and Republicans in the past.
However, investments like the free community college, assisted child care, and universal preschool would pay no more than a decade. So, for the most part of the bill, Major Democrats will have to come up with more concrete ideas for offsetting their spending – through tax hikes and a host of policy changes that are expected to save money in the future. short term.
Here’s what’s on the table:
Remove Medicare Reimbursement Rule – Democrats believe they can raise up to $ 180 billion by canceling a drug policy that Donald Trump finalized at the end of his presidency. If they succeed in abolishing Trump’s rule entirely, drugmakers could continue to donate money to pharmacies to ensure their drugs get premium placement in medicare plans.
These discounts can represent up to half the price of the drug sticker. And while not passed directly to consumers, insurers claim they are using savings to keep premiums low.
Some Republicans in Congress are also looking forward to abandoning the former president’s reimbursement policy and allowing statute of limitations benefits to continue.
Press “Mega IRA” – Democrats say they are dismayed that hundreds of Americans have IRAs worth over $ 25 million, and nearly 30,000 have accounts with balances over $ 5 million, while many others have little or no retirement savings. Tackling large retirement savings accounts like this could generate substantial income for the $ 3.5 trillion plan, Democrats say, although an exact figure is unclear.
Reduce the corporate rate – It is inevitable that the Democrats will propose to reverse the reduction in the corporate tax rate of the Republicans – the question is how much. It’s a quick and easy way to raise a lot of money: every percentage point increase generates around $ 100 billion.
Biden wants to raise it to 28%, down from 21% currently, but that’s probably too high for most Democrats. A more likely outcome would be a rate hike in the mid-twenties, which even Sen. Joe Manchin (DW.V.) said he supported.
Punish the crooks – Forcing businesses to reimburse consumers for fraud and deception compensation is expected to generate $ 29 million in savings over a decade.
A bill has already been passed in the House this summer to empower the Federal Trade Commission to crack down, after the Supreme Court voted to overturn the agency’s power to return billions of dollars to people who have been defrauded in the over the past 40 years. When the FTC cannot return that relief to aggrieved consumers, the money would go to the treasury, and the Congressional Budget Office predicts that millions of dollars would flow to the federal government this way every year.
In the Senate, the leaders in charge of consumer protection policy are still working on their own bipartite plan. Senator Maria Cantwell (D-Wash.) – who chairs the Trade, Science and Transportation Committee – said she hoped a final “FTC fix” could be passed by Congress before the 3 , $ 5 trillion does not start. But if not, granting that executive power as part of the larger plan could help offset the cost of the giant package.
Exploit foreign profits – Many Democrats want to raise hundreds of billions of dollars by also tightening taxes on foreign profits of large companies. Some want to strengthen the so-called GILTI rules governing “intangible” income from things like patents and other intellectual property. They also want to rewrite – or blow up completely – another tax known as the base erosion and anti-abuse tax. Depending on what they do, Democrats could end up raising even more money here than they do with a corporate rate hike.
Siphon off drug savings –Senate Budget Chairman Bernie Sanders (I-Vt.) Estimated they could leverage up to $ 600 billion from various policies to lower the cost of prescription drugs, allowing Medicare to negotiate prices with pharmaceutical companies and helping to offset the cost of the expansion program to cover dental, hearing and vision benefits.
But more moderate Democrats and those whose districts are home to prescription drug companies, like Senator Bob Menendez of New Jersey, have raised concerns about the potential effects on drug research, development and innovation, which complicates the caucus consensus on the issue.
Hiked the highest tax rate – Many Democrats also want to reverse the drop in the marginal income tax rate for Republicans. As part of their tax cuts in 2017, Republicans cut it to 37% from 39.6%. Democrats want to go back to 39.6%. That would be a relatively easy lift for majority party leaders, who previously hiked the rate to 39.6% as part of a 2012 budget deal.
Reduce the Medicare benefit – Lawmakers and outside groups have flagged some form of cuts to the Medicare Advantage system as a potential source of savings in the reconciliation bill. This could take the form of a reduction in the benchmark rate the government pays private insurance plans to cover some Medicare registrants.
Increase capital gains – Some Democrats want to raise capital gains taxes, although this is more controversial, especially when it comes to a proposal to end a long-standing provision in the code that allows people to pass on assets to their heirs without capital gains tax on their death. Democrats are already hearing it from farmers, small businesses and others.
Separately, Biden also wants to require people earning over $ 1 million to pay ordinary income taxes on their capital gains. The highest rate is now around 24 percent.
Strengthening IRS Enforcement – Spend money to earn money. That’s pretty much the approach Democrats want to take in cracking down on tax evasion. The majority party wants to inject tens of billions of dollars into the IRS budget, in hopes of raising more revenue by attacking tax evaders.
President Joe Biden proposed an increase of $ 80 billion for the tax collection agency, estimating that the increase would translate to $ 700 billion in new revenue.
The increase in funding for the IRS application was initiated as a way to pay for the bipartisan infrastructure plan. But Republicans pushed back on the idea last month, leaving any planned savings in place to be used in the $ 3.5 trillion plan the Democrats will try to push through on their own.
A major problem Democrats will face in claiming these savings: A two-decade-old rule prevents lawmakers from paying for legislation with money raised through efforts such as strengthening IRS audits.
Caitlin Emma, Rachel Roubein, Sarah Owermohle, Natalie Fertig, Alice Miranda Ollstein and Emily Birnbaum contributed to this report.