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Democrats' constituents would bear the brunt of Biden's taxes

Peter Cohn, CQ-Roll Call on

Published in News & Features

“You have all these ups and downs as a business owner, and the payoff at the end, your exit strategy basically, is when you go to finally retire and pass it on, or sell it to somebody else,” Ferree said at a recent NFIB panel discussion. “And by having additional death taxes or capital gains … you take away all that, where that payback finally comes, from all those years of reinvesting in your business.”

NFIB has traditionally been a GOP-leaning group. Silicon Valley, which contributes plenty to Democratic campaigns, is concerned as well.

Under Biden’s plan, startup founders who put in years of “sweat equity” before the big payoff would be rewarded with the same tax rates as those who didn’t take such risks. Venture capitalists argue that’s a recipe for less risk-taking, and therefore less innovation of the kind that led to lifesaving drugs like Moderna’s COVID-19 vaccine.

But in the pandemic era, the sweat equity argument may be wearing thin with otherwise sympathetic lawmakers as the income gap widens between front-line workers and wealthy investors cashing in stock market gains from the comforts of home.

Arshi Siddiqui, a former top aide to Speaker Nancy Pelosi, now a lobbyist with Akin Gump Strauss Hauer & Feld, said at a National Venture Capital Association briefing that stakeholders need to “come out swinging” to head off a steep capital gains rate hike.

The House districts most affected by Biden’s proposals — those at the very top in terms of average income, capital gains and state and local taxes — are mostly safe Democratic seats representing places like Manhattan; Silicon Valley; posh Los Angeles ZIP codes like Bel Air and Beverly Hills; San Francisco; and Greenwich, Conn., and its environs, playfully known as “Hedgefundistan.”

 

Of the 32 “Frontline” House Democrats designated for special help in the midterm campaign, eight want to repeal the $10,000 limit on state and local tax deductions Republicans imposed in 2017, which would disproportionately help the richest households. Others, representing less well-off districts or states without an income tax, have less interest. Still, Democratic insiders say some relief from the “SALT” cap will likely be included.

But anything short of full repeal may not keep the uber-rich from fleeing states like California and New York, a factor of which Pelosi and Senate Majority Leader Charles E. Schumer are undoubtedly aware. At the same time, Schumer has to cultivate West Virginia’s Joe Manchin III, representing the fewest millionaires per capita in a state where residents on average deducted less than $10,000 in state and local taxes to begin with.

The early betting line among Democratic insiders is on a smaller package of infrastructure and other spending, paid for with smaller tax increases. But public polling shows a large appetite for taxing the rich to pay for Biden’s programs.

“This is a big test of the power of entrepreneurs and business owners,” said veteran Democratic aide Russ Sullivan, now head of tax policy at Brownstein Hyatt Farber Schreck. “It’s a test of capitalism.”

(c)2021 CQ Roll Call Distributed by Tribune Content Agency, LLC