Democrats ran on undoing Trump's tax cuts for the rich. But they're here to stay.
- Democrats pledged to unwind the Trump tax law, but it's bound to survive.
- Sinema tanked the effort, but other Dems were squeamish about hitting the super-rich with new taxes.
Democrats picked up the pieces of their once-shattered agenda and assembled them into a climate, health and tax package that passed the Senate. However, they left one big part behind.
The 2017 Republican tax cuts survived a Democratic-controlled House, Senate, and White House largely intact — and they're likely here to stay.
Most Democrats, including President Joe Biden, campaigned in 2020 on undoing swaths of the tax law. Liberals and many economists argued the GOP tax cuts contained outsized benefits for the wealthiest Americans and large firms, which used much of the windfall on stock buybacks.
Biden and Democrats envisioned rolling back large parts of the law to finance an expanded safety net under the original Build Back Better plan last year. They employed a maneuver called reconciliation to approve it on their own without needing GOP support. It left them with little wiggle room since they needed to marshal unanimous support in the Senate and had few votes to spare in the House.
They crashed into resistance from Sen. Kyrsten Sinema of Arizona, who slammed the brakes against raising individual and corporate tax rates last fall.
Raising taxes is politically hard
Top Democrats conceded they fell short of their original ambitions, citing the need to muster unanimity in a caucus that spanned the ideological spectrum from progressives to fiscal moderates.
"In these kinds of debates, you always kind of set out where you want to go," Sen. Ron Wyden, chair of the Finance Committee, told Insider. "When you're looking for 50 votes, you don't get everything you want."
Wyden put many other tax increases on the table, such as a billionaires' tax and an attempt to eliminate a provision allowing the rich to transfer their assets at death without taxation. However, those tended to be the first plans to get scrapped since some Democrats remained anxious about hitting the richest sliver of Americans with tax increases.
"Obviously there is some lesson that raising taxes on the rich and corporations can only be done by the Democratic Party," David Kamin, a former White House economic aide to Biden and New York University law professor, recently told Insider. "There's no ability to do that on a bipartisan basis and a razor-thin majority makes it very hard. But there was a lot of consensus within the caucus on a number of measures that aren't in the bill."
Sinema was an outlier among Democrats for her steadfast opposition to unwinding the tax cuts. Most backed stepping up taxes on the rich and large companies. Manchin repeatedly pressed to roll back the Trump tax cuts as well, until he took most tax increases off the table in mid-July.
The next big fight could come in 2025
When Republicans approved their tax bill, they made the corporate tax cuts permanent but didn't do so for individual tax cuts. Republicans gambled that a future Congress wouldn't permit a tax increase to hit Americans, so those are bound to expire in 2025.
In addition, Democrats extended a measure providing financial assistance for Americans to purchase cheaper health insurance under the Affordable Care Act through 2025. It establishes a potential arrangement for a bipartisan deal between both parties, given the tax-pile up at that juncture.
"Obviously 2025 will be another key moment, given the large expiration of the individual side of the 2017 tax cuts and will provide another opportunity to revisit the tax system," Kamin said.
"Up to now, it's been about preserving the tax cuts that worked to get the economy going again," Sen. Rob Portman of Ohio, a retiring Senate Republican, told Insider. "Going forward, it's going to be that plus dealing with the expiring provisions strictly on the pass-through individual side. Just like the R&D credit, there's a lot to be done."
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