Sinema blows up Dems' plans to tax high earners, corporations

Democrats have a Kyrsten Sinema problem when it comes to raising taxes.

As they seek to finalize President Joe Biden’s social spending plan by the end of the week, Sinema (D-Ariz.) remains opposed to one of the party’s chief goals of raising tax rates on high-income earners and corporations, a long-sought objective since former President Donald Trump signed his 2017 tax cut law.

Now, party leaders are working behind the scenes to target the wealthy and corporate America without crossing what increasingly appears like a red line to Sinema, according to Democratic lawmakers and aides following the bill.

Though Sen. Joe Manchin (D-W.Va.) has advocated raising rates on high-income earners, corporations and capital gains, Sinema has landed to the right of Manchin on tax policy. And Democrats need to choose, quickly, to keep trying to convince Sinema or to craft workarounds that she can accept.

“That’s not worked out in our caucus,” said Sen. Ben Cardin (D-Md.). “There is strong support in our caucus to raise the corporate rate. And it depends how you do it for high earners … I don’t think she’s opposed to some of the issues for high-income [taxpayers].”

The decision on taxes represents a fork in the road on one of Democrats’ primary political goals. Many lawmakers who now make up the front lines of the party’s thin majorities campaigned on raising the rates from where Trump left them, at 37 percent for high-earners and 21 percent for corporations.

And many Democrats have grown frustrated with how much control Sinema is exerting, and the secretive way she wields it.

“This is a guessing game with Senator Sinema. Yeah, we’re all supposed to be on the same team. And that means transparency, communication and collaboration. Without it, it makes this significantly more challenging,” said Rep. Veronica Escobar (D-Texas). “I don’t know what the red lines are for one U.S. senator who has an amazing amount of power.”

Sinema’s office declined to comment. Sinema has said she’s shared detailed proposals with the White House even as she stays mum publicly on her positions.

The issue was also discussed on a call Wednesday morning between Senate Majority Leader Chuck Schumer, Speaker Nancy Pelosi, Treasury Secretary Janet Yellen, leaders of Congress’ tax-writing panels and White House staff.

Democrats would raise nearly $600 billion in revenues for their social spending plan by lifting the corporate rate to 25 percent and the top income tax bracket to 39.6 percent, as Manchin has proposed. They could make up for that lost funding elsewhere if they booted those cash sources, but that would cause both a policy headache and a political one: Many liberals would view acceding to Sinema’s demands as a major climbdown from the party’s long-standing position.

Sen. Mark Kelly (D-Ariz.), who is up for reelection next year, said in an interview he was relatively comfortable with raising those tax rates targeting corporations and high-income Americans. Sinema is up for reelection in 2024 in their home state.

“Some corporations have paid little to no income tax for a long time now, and I was not in favor of the 2017 tax cuts that gave a windfall to the wealthiest Americans and biggest corporations,” Kelly said in an interview.

For Sinema, it’s not just tax rates that could change Democrats’ money-raising plans. She’s also, as of now, not directly on board with Democrats’ plan to reduce pharmaceutical prices through Medicare drug negotiation, which would bring in additional money for the party’s spending plans.

“On PhRMA and on revenue, I’m struggling to really grasp what her endgame is. But she insists: ‘I will get there, I’m not going to tank this. I will work out something,’” said one Democratic senator, addressing Sinema on condition of anonymity. “She has insisted repeatedly that she will come to an agreement that is going to work, that is within the rough scale currently under discussion with the president.”

Senators and aides said their goal is to at least have a workaround for Sinema’s tax position when they present a framework for the bigger bill as soon as this week. They are likely to leave the specifics of revenue-raising undecided until later this year, once they’ve mapped out the climate, education, child care and paid leave policies they want in the bill, according to an aide familiar with party strategy. But they need the broad contours of what Sinema will accept to move forward in the interim.

Among the options under discussion to satisfy Sinema include targeting hundreds of billionaires who don’t pay taxes on their unrealized gains — a move that’s known as “mark to market.” Party leaders are also discussing taxing stock buybacks, installing a minimum corporate tax and focusing more on international corporate tax reform. They also believe they can raise significant revenue through increased IRS enforcement and closing tax loopholes.

Many Democrats would rather not dance around their goals by enacting more complicated proposals than those Sinema has rejected. But they may have no other choice: Democrats said she’s the primary, and in some cases sole, impediment to raising the rates they’ve been campaigning against for years.

“There’s a lot of different policy ways to raise revenue on high-income people. And that’s what we’re discussing with her,” said a second Democratic senator who talked Sinema on condition of anonymity. For corporations, this senator added, “it’s similar.”

The Senate’s effort to work around Sinema’s opposition isn’t sitting well with House Democrats. Members of the panel’s tax-writing committee left a lunch meeting Wednesday fuming after being informed that many priorities they fought for would likely be cut from the final spending deal, including the push to raise tax rates on corporations and the wealthy.

“If we talk about people paying their fair share of taxes — which they’re whittling down in order to get two people’s vote — I don’t blame Manchin or Kyrsten. I blame Schumer,” Rep. Bill Pascrell (D-N.J.) yelled in anger after the Ways and Means lunch.

Schumer did emphasize on Thursday morning that he aims to “cut taxes for working and middle-class Americans while asking the wealthy to pay their fair share.” Pascrell said Schumer has left many of the tough conversations to the last minute despite knowing for months about the red lines both Sinema and Manchin were communicating behind the scenes, on both spending and revenue.

“He’s the leader over there. Pelosi has carried the total burden and the other guy has picked up the pieces. That’s it,” Pascrell added.

Senior House Democrats said it’s unclear if a bill that doesn’t raise tax rates could even win the votes to clear the chamber, where Speaker Nancy Pelosi can only lose three members on any given bill. The issue makes a handful of the most vulnerable House Democrats queasy but is otherwise widely embraced by the caucus, especially influential progressives who say “taxing the rich” should be a no-brainer for the party.

House Ways and Means Committee Chair Richard Neal (D-Mass.) said Wednesday afternoon he would continue to fight for the “reasonable policy” despite Sinema’s entrenched opposition.

“I know it falls on deaf ears in some instances [but] the process that we undertook here was to do a markup. We didn’t have a new tax plan every half hour — we laid out a plan that was fully paid for, and we set our priorities.”

Bernie Becker, Nicholas Wu and Sarah Ferris contributed to this report.

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