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Lawmakers brace for bitter fight over Biden tax plan

Lawmakers are bracing for a bitter fight over tax increases President BidenJoe BidenJapan to possibly ease COVID-19 restrictions before Olympics 14 Republicans vote against making Juneteenth a federal holiday China supplies millions of vaccine doses to developing nations in Asia MORE is expected to propose in the coming days, which he says are necessary to pay for trillions in infrastructure and family support bills.

Biden’s proposals, which largely hew to his campaign promises, would raise the corporate tax rate from 21 percent to 28 percent, implement a minimum corporate tax, nearly double taxes on investment gains for the wealthiest and tweak inheritance laws.

The announced plans for corporate taxes would cover the $2.3 trillion infrastructure plan dealing with transport, broadband, water and electricity. Capital gains and other proposals are being finalized ahead of next week’s rollout of a so-called family infrastructure plan focusing on early education and home care that could run as high as $1.5 trillion. 

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Republicans, whose signature achievement under the Trump administration was a 2017 tax reform that cut taxes significantly, have excoriated the proposals.

“This is another economic blunder by the Biden Administration,” said Rep. Kevin BradyKevin Patrick BradyMcConnell presses for 'actual consequences' in disclosure of tax data On The Money: House Democrats line up .5T in spending without budget | GOP takes aim at IRS | House Democrat mulls wealth tax Republicans open new line of attack on IRS MORE (Texas), the top Republican on the House Ways and Means Committee, which deals with taxation. 

“It punishes investment in local businesses and their expansion, as well as in technology and the economy," he added. "The result will be slower growth and investment in the U.S., sabotaging not only our economic recovery but also future growth.”

But the brewing fight over taxes is not limited to partisan fighting. 

Factional pressures have created a cacophony of mixed messages during a key period of negotiations. 

Biden is confronting blowback from progressives such as Sen. Bernie SandersBernie SandersSanders opposes Biden Interior nominee in procedural vote Briahna Joy Gray on how Sanders changed the healthcare conversation Sanders 'delighted' DeSantis asked White House to import Canadian prescription drugs MORE (I-Vt.), who are pushing for the corporate tax rate to return to its 2017 level of 35 percent. 

"We need a progressive tax system based on the ability to pay, not a regressive tax system that rewards the wealthy and the well connected," Sanders said in late March. Progressives want Biden to use the extra cash to pay for expanded health coverage.

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Republicans are also torn between sacrificing their most recent crowning legislative achievement and proving that they are not obstructionists to popular proposals from a popular president.

A recent survey conducted by The New York Times and Survey Monkey found that two out of three American voters support Biden's American Jobs Plan. 

The White House has portrayed itself as open to negotiations on pay-fors, though Republicans remain skeptical after the president dismissed their COVID-19 offers and passed his last $1.9 trillion plan with only Democratic support.

"It’s the beginning of a discussion," White House press secretary Jen PsakiJen PsakiBiden, Putin begin high-stakes summit in Geneva Bishops to debate banning communion for president Lawmakers urge Biden to be tough on cybersecurity during summit with Putin MORE said Thursday, adding that Biden’s red line was his campaign promise to not raise taxes for people making under $400,000 a year. 

The forthcoming proposals on capital gains, she noted, would only affect that top 0.3 percent of taxpayers.

Moderate Democratic Sen. Joe ManchinJoe ManchinSen. Manchin paves way for a telehealth revolution Manchin meets with Texas lawmakers on voting rights Schumer tees up sweeping election bill for vote next week MORE (W.Va.) has said he prefers a negotiated bipartisan solution, but has drawn a line in the sand, arguing that corporate tax increase should not go beyond 25 percent.

Republicans presented their $568 billion infrastructure counter-offer Thursday, and ruled out any corporate tax increases, stating the bill should be funded through user fees and already-appropriated funds from the last COVID-19 relief measure.

Sen. Shelly Moore Capito (R-W.V.), who led the effort for the GOP response, said that increasing corporate rates was out of the question.

“I think that’s a non-negotiable red line,” she said. “For me personally, that’s a non-starter.”

But Republicans face an uphill battle with that approach. 

Democrats not only want to pay for big investments, but insist that corporations have to pay their "fair share" of the price tag rather than foisting the bills onto the general population through various fees.

“It definitely should be raised, because the break that they got from the Republicans was totally untoward and these corporations should be paying their fair share of taxes,” Sen. Mazie HironoMazie Keiko HironoSenate on collision course over Trump DOJ subpoenas Democrats mull overhaul of sweeping election bill White House gets back to pre-COVID-19 normality MORE (D-Hawaii) said Tuesday.

Senate Finance Committee Chairman Ron WydenRonald (Ron) Lee WydenDemocrats shift tone on unemployment benefits Grassley meets with moderate House Democrats on lowering drug prices Four states emerge as test case for cutting off jobless benefits MORE (D-Ore.) said Democrats couldn’t accept Capito’s red line.

“Their idea is that the biggest of the big corporations should not pay one penny in taxes,” he said Thursday.

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“It’s pretty hard to get to a bipartisan approach from that. You know, I always try to find common ground, but that's gonna be a stretch.”

Republicans backing Capito’s counterproposal agreed with Biden on one thing: They don’t want to raise the gas tax, despite a push by big business groups hoping to stave off a corporate tax hike. 

But the 58-member Problem Solvers Caucus, which helped bridge divides over COVID-19 relief in December, proposed the idea of an increased gas tax as an option to fund an infrastructure bill Friday. 

Complicating things further, a group of House Democrats have insisted that they will vote down any proposal that doesn’t roll back limits on the state and local tax deduction, known as SALT. 

The GOP tax law limited the deduction to $10,000, a move that largely affected the wealthy in blue states such as California and New York.

"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," a group of New York lawmakers wrote last week to Democratic House leaders, who can only afford to lose a handful of votes to pass legislation without GOP support.

But eliminating the deduction would raise the price of legislation by $130 billion, half of which would accrue to millionaires. Progressive Reps. Alexandria Ocasio-CortezAlexandria Ocasio-CortezHillary Clinton backs Shontel Brown in Ohio congressional race Ocasio-Cortez, Gillibrand and Moulton call for more high-speed rail funding in infrastructure package Pelosi picks Democrats for special panel tackling inequality MORE and Kathleen RiceKathleen Maura RiceHouse moderates signal concerns with Pelosi drug pricing bill House GOP campaign arm adds to target list Lawmakers brace for bitter fight over Biden tax plan MORE were the only New York Democrats not to sign onto the SALT letter.

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Market watchers believe that ultimately Democrats will moderate their asks in order to secure support for passing their bills, whether that requires simply satisfying moderates such as Manchin for a budget reconciliation bill, or persuading 10 Republican Senators to join them in passing legislation through regular order.

“The Democrats are likely starting high and there will be some back and forth as the sausage is made,” said Ryan Detrick, chief market strategist for LPL Financial.

A Thursday analysis from Goldman Sachs predicted that Biden’s plans to raise capital gains from 20 percent to 39.6 percent on high earners would likely end up closer to 28 percent.

“While it is possible that Congress might pass the proposal in its entirety, we think a moderated version is more likely in light of the razor-thin majorities in the House and Senate,” analyst Jan Hatzius noted.