Proactive Swing-District Democrats Reach Out on Tax Hikes (1)

(Adds quote in 18th paragraph; removes reference to capital gains tax in second to last paragraph.)

Democrats likely to face some of the most challenging re-elections in 2022 are preparing for a potentially tough sell back home on how to pay for President Joe Biden’s ambitious spending plans.

Before any details are finalized or bill text has been released, some vulnerable House Democrats are attempting to help shape the infrastructure and social safety net packages Biden proposed over the past few months. And, with tax hikes on corporations and high-income earners included to pay for them, the incumbents have also begun engaging businesses in their districts on the benefits of the legislation and the effects of the new taxes.

The outreach comes as Republicans, needing only a handful of seats to win the House next year, have already begun launching attacks over the proposal to increase taxes to finance what they see as runaway spending. It’s a line of attack the GOP thinks will help it capitalize on a favorable midterm cycle.

“It’s a sensitive issue in my district,” said Rep. Elissa Slotkin (D-Mich.), whose district voted for Donald Trump in 2016 and 2020. “I’ve certainly heard from my business owners on the cooperate tax rate and the concern we are arbitrarily picking a number.”

Biden proposed various business tax hikes, including raising the corporate tax rate to 28% from the 21% Republicans lowered it to in 2017, as a means of paying for his bill focused on physical infrastructure. To pay for his other plan, which includes reducing the cost of child care and expanding paid leave, Biden wants to nearly double the top capital gains rate to 39.6% and make other changes to the way wealthy individuals are taxed.

In a district neighboring Slotkin’s, Rep. Haley Stevens (D-Mich.) said she hasn’t heard much from businesses in her district on the proposed tax plan yet, but she’s reaching out to them. While better roads are a major need in her metro-Detroit district, she said, the proposed bill would also bring some major tax changes — and she’s “slightly hesitant about big shockwaves to very small business owners.”

“I told the White House I want to be really careful here with where we’re going to be with this, in terms of what we’re putting down and the costs we’re going to put on,” she said.

Mind the Gap

While increasing taxes on corporations and the wealthiest Americans is broadly popular, there’s a wide partisan divide that’s particularly notable for Democrats likely to run in swing districts.

A recent Pew Research poll found it bothered 76% of Democrats a lot that corporations don’t pay their fair share, while only 38% of Republicans agreed. The gap was similar on whether the wealthiest Americans pay their fair share: 78% of Democrats were bothered by it, compared to only 36% of Republicans.

The Washington Post reported that Democratic Congressional Campaign Committee Chair Sean Patrick Maloney (D-N.Y.) warned the White House the tax plans could hurt vulnerable incumbents. Though when asked about it last week, Maloney told Bloomberg Government he supports the president’s plans and it’s “great he’s taking seriously the need to pay for his proposals.”

Behind the scenes there’s more concern about how taxes will factor into a midterm election already stacked against Democrats due to history of the party in power in the White House losing seats in midterms and the GOP’s redistricting advantage. A senior Democratic aide in the moderate wing of the party, who asked to speak anonymously to discuss internal conversations, said Maloney is right to be concerned.

“The thing that is missing in the conversation about these pay-fors is where Democrats won the House,” the aide said. “We won by primarily winning in the suburbs, which tend to be tax-sensitive areas of the country.”

Early Attacks

The House Republican campaign arm has already begun targeting members on Biden’s proposed taxes, even as some GOP lawmakers have met with Biden about a possible bipartisan infrastructure bill. In some of the press releases sent in March to the districts of 18 Democrats, the National Republican Congressional Committee sought to paint Biden’s plans as a tax hike on the middle class. Democrats insist taxes will only go up for individuals earning more than $400,000.

Slotkin and Stevens were targeted by the messages, as was Rep. Carolyn Bourdeaux (D-Ga.), the only Democrat to flip a non-redistricted House seat in the 2020 election.

Bourdeaux said businesses in her district were OK with the proposed user fees or a modest tax increase as long as they’re assured it would fund infrastructure in the district. That connection, she said, needs to be a part of the messaging.

“There needs to be a clear linkage between what people are getting for their money,” she said. “I think that will help sell the infrastructure package overall.”

Other swing-district Democrats are making more specific asks for the plan. Rep. Cindy Axne (D-Iowa) and 12 other lawmakers signed a letter asking that family farms not be subject to a proposed change to the taxation of inherited assets.

“Really, the thing is making sure we’re able to pass on family farms and small businesses,” Axne said.

More than 20 Democrats have said they won’t support legislation unless the 2017 tax law’s $10,000 deduction cap on state and local tax payments, known as the SALT cap, is eliminated or raised.

Rep. Tom Malinowski (D-N.J.) said while the SALT cap is critical for his constituents, raising the corporate tax rate will be an easy sell since “those are not provisions that affect a single individual taxpayer who I represent.”

“I’m not going to have the slightest problem convincing my constituents that Amazon should pay taxes,” he said.

To contact the reporter on this story: Emily Wilkins in Washington at ewilkins@bgov.com

To contact the editors responsible for this story: Kyle Trygstad at ktrygstad@bgov.com; Patrick Ambrosio at pambrosio@bloombergtax.com