What full Democratic control of Washington could mean in 2021
The incoming administration and Democratic leaders would have to move fast and pick their spots
ANALYSIS — It’s far too early for Democrats to measure the drapes. But with coronavirus cases spiking, former Vice President Joe Biden surging and at-risk Senate GOP incumbents faltering, it’s worth considering the implications of a Democratic sweep on Nov. 3.
The incoming administration and Democratic leaders would have to move fast and pick their spots: The president’s party almost always loses seats in midterm elections. They’d have less than 18 months to put points on the board before lawmakers go into self-preservation mode.
They won’t have a big margin for error. Inside Elections with Nathan L. Gonzales sees the House breakdown staying about where it is, give or take five Democratic seats. So Speaker Nancy Pelosi may only be able to lose 10 to 20 votes and still pass bills without GOP support. Meanwhile, a massive Senate wave, extending to states like Kansas where no Democratic senator has won since 1932, probably has a ceiling of around 55 Democratic votes.
Progressives pine for the “nuclear option,” or eliminating the 60-vote filibuster threshold. But institutionalists, including left-wing icon Bernie Sanders of Vermont, know the shoe eventually ends up on the other foot. After Democratic leader Harry Reid went nuclear for most of President Barack Obama’s nominees, Senate Majority Leader Mitch McConnell did the same for President Donald Trump’s Supreme Court picks.
Sanders, who’s in line to become Budget Committee chairman, instead wants to expand the use of budget reconciliation, which allows bills to pass with simple majorities but is generally limited to fiscal policy actions.
Climate policy still divides Democrats, though to a lesser degree than when Rust Belt senators helped kill Obama’s “cap and trade” plan a decade ago. The party is more unified around health care, which could also fit more snugly inside reconciliation.
But party leaders will need to tread carefully since it will be purple-to-red-state Democrats that wrest control back from Republicans. Just ask former Arkansas Sen. Blanche Lincoln, who lost in 2010 after voting for the health care law.
“I got hit from the left in my primary, and then I got hit from the right in the general,” Lincoln said. “Raising money in Arkansas is not easy; you’ve got to go outside [the state]. And then you get hit for that.”
It may not be “Medicare for All,” but Biden wants big changes like lowering the Medicare eligibility age by five years and a “public option” for the Obamacare exchanges to compete with private insurers, along with bigger coverage subsidies. Total costs could be north of $2 trillion over a decade, based on estimates from the Committee for a Responsible Federal Budget and others.
A chunk of offsets could come from prescription drug savings, as Biden has proposed. But the appetite among Senate Democrats, where the pharmaceutical industry has more sway, may not be what it is in the House, where Democrats have proposed more than $600 billion in 10-year savings.
Last year, the Senate Finance Committee wrung less than $100 billion in savings from their drug pricing bill. Pharmaceutical-state Democrats Bob Menendez of New Jersey and Thomas R. Carper of Delaware backed the measure, but sided with Republicans on key amendments. Democrats would have more panel members next year if they win, but may not be able to woo GOP votes for tougher price controls if any Democrats defect.
“I think the Senate was designed for a reason, to allow the cooling off of the passions of the House; the saucer to the teacup,” said Lincoln, who now lobbies for business interests including drugmaker Pfizer and the National Association of Chain Drug Stores.
Democrats have a deep bench of tax increases to call on if they need more money. The Finance panel’s top Democrat, Ron Wyden of Oregon, wants to generate $1.5 trillion by taxing paper gains on unsold assets held by the wealthiest households each year. But the proposal has venture capital and real estate interests, which have poured cash into Democratic campaigns this cycle, at DEFCON 4.
Biden’s plan to raise the effective marginal tax rate on millionaires’ investment income to 44.6 percent, from 23.8 percent today, while eliminating tax-free transfers to heirs at death, seems vanilla by comparison. But it still faces a steep climb.
Finance Democrats Menendez, Maria Cantwell of Washington, Mark Warner of Virginia and Bob Casey of Pennsylvania had reservations in 2010 when party leaders tried to tax investment fund managers’ “carried interest” at ordinary income rates. They thought investors needed a preferential tax rate to compensate for the opportunity cost and risk-taking associated with locking up cash for years in businesses that might go south. They tried a variety of compromises to protect venture capital and real estate, but the broader tax bill faded anyway as the midterms loomed.
In 2016, Democratic presidential candidate Hillary Clinton addressed such fears by proposing preferential rates for assets held for longer periods. That would be complex and raise less money, but would shield venture investment in places like Pennsylvania, a biotech and life sciences hub. Nonetheless, Congress should “seriously consider” Biden’s plan, Casey said in a statement, adding: “It’s far past time to make sure our tax code works for everyone, and not just those at the top.”
Other top Democrats, including Pelosi, a friend to Silicon Valley, and House Ways and Means Chairman Richard E. Neal of Massachusetts didn’t jump to defend Biden’s investment tax plan. Their aides instead voiced general support for a more progressive tax code. Other Finance panel Democrats contacted by CQ Roll Call either didn’t respond or didn’t have a position.
Biden has more arrows in his tax increase quiver, mainly hitting households earning more than $400,000 annually and big corporations. But his nearly $1 trillion in payroll tax increases wouldn’t fly under budget reconciliation since that would affect Social Security, said Bill Dauster, a longtime Senate Democratic aide.
Biden would raise the corporate tax rate from 21 percent to 28 percent. Combined with investment tax increases, federal taxes taken out of each dollar of corporate income for millionaire shareholders would go from 39.8 cents to 60.1 cents. But as former Obama Treasury official David Kamin points out, about three-quarters of shareholders in U.S. equities aren’t taxed, since they’re foreigners or other tax-exempt investors like pensions and retirement accounts.
The American Enterprise Institute’s Kyle Pomerleau estimates Biden’s plans would raise the effective tax rate on business investment by nearly 5 percentage points. Thus, the tax advantage the U.S. has enjoyed over Canada, for instance, since the 2017 tax overhaul could be lost. But he said the impact on saving and investment is unlikely to be large, in part because such a small slice is taxable and foreigners would likely move in to fill any void.
If Democrats sweep, however, it’ll likely be in part because the economy is still mired in a slump. That might give moderates pause about going full steam ahead on tax increases.
Take Mark Kelly, an Arizona Democrat who’s running to unseat GOP Sen. Martha McSally. Kelly would be up for reelection again in 2022 if he wins, since this year’s race is a special election to fill out the late John McCain’s term.
Kelly has raked in contributions from big New York real estate developers and venture capitalists. He’s gotten money from Hollywood producers like James L. Brooks and Steven Spielberg, who might pay a 60 percent or higher marginal rate, including California income tax, under Biden’s plan. It’s enough to make other wealthy Californians flee over the border to lower-tax Arizona — and blame Democrats like Kelly for it.
Peter Cohn edits CQ Roll Call’s budget and appropriations coverage.