The Infrastructure Bill Widens a Rift Within the Democratic Party

TL;DR (4-minute read)

  • House Democrats proposed new tax rates to offset their $3.5 trillion infrastructure plan that was passed earlier this month. The plan hopes to raise taxes on those who make over $400,000 for 39.6%, up from the previous 37%, and on corporations for 26.5%, up from the previous 21%.
  • If Democrats and Republicans fail to reach a compromise, it could cause the US to default on their Treasury bonds, which could have massive repercussions on our economy – a collapse of Social Security altogether, as well as the termination of tax returns for dependents.
  • There are many clashing opinions in the Democratic Party on the new bill. Senators have weighed in as well, and it will be important to see how Democrats respond to the growing rift as the deadline before a default on the debt ceiling approaches.
  • At this point, the possibility of a government shutdown to avoid defaulting on the debt seems almost certain.

Elise Swain/The Intercept

Earlier this month, House Democrats established a proposal for a tax increase to finance their new infrastructure deal totaling $3.5 trillion. These tax rates, at corporate rates of 26.5% and individual rates of 39.6%, are massive jumps from the previous rates of 21% and 37%  to compensate for the large deal, which has been labeled as one of the most progressive proposals by Democrats in the House in decades. Republicans are adamantly opposed to this as well as lifting the debt ceiling, the spending limit established by the previous plan. This is a historically unusual response considering that raising the debt ceiling, as is stated in this plan, is typically a bipartisan effort. Here, Republicans have left Democrats to pass it through budget reconciliation, a process that speeds up the passing of economic legislation. 

The Content of the New Tax Plan

The new plan is supposed to cover spending for the next 10 years as a result of the projected deadline for government spending coming up in just a few days, which could start a default and usher in a tremendous economic calamity for the United States. The only way to prevent this is with another government shutdown, and either way, the results are detrimental to the country. This bill comes on the heels of the bipartisan infrastructure deal of $1 trillion, which passed in the Senate and now sits in the House in need of Pelosi’s approval for a vote, as she waits for the outcome of the $3.5 trillion bill. The $3.5 trillion infrastructure bill plans to expand the dwindling Social Security program as well as put a fresh emphasis on greener policies in response to the climate crisis, not to mention the sweeping expansions in healthcare programs as well as aid in response to the pandemic. The reason for this bill is to help offset a majority of those costs to stabilize government spending in the coming years. Specifically, we will focus on the rift this is forming amongst House Democrats as well as the feasibility of such a crucial bill in such a short timeframe.

Dem. Party Senate Majority Leader Chuck Schumer (D-N.Y.) and Senator Bernie Sanders (I-Vt.) discuss the tax increase. Tom Williams/Getty Images

The Intra-Party Tax Reform Dilemma

Firstly, House Democrats are not unanimously backing the new plan. Especially considering the dramatic hike in taxes, more moderate-leaning Democrats are uncertain about the general consensus surrounding the plan, while progressive Democrats are attempting to run with the plan all the way. The divide has been extremely significant in that there has been input from outside of the House Chamber as well. In fact, more moderate Senate Democrats, such as Joe Manchin of West Virginia, have expressed support for a lower corporate rate, specifically 25%. However, on the other side, President Biden expressed support for an even higher corporate rate of 28%, emphasizing the differences in opinion of various leaders in the party. Ultimately, the vote will come down to being able to gather a near-unanimous Democratic vote in the House in order to offset the Republican votes which will prove to test the unity of the party in the legislative branch as they fight the October deadline.

With the deadline approaching fast, the feasibility of the $3.5 trillion bill is in question. Fox Business Staff/Fox Business

The Feasibility of the Passage of the Tax Reform

Speaking of the October deadline, such a short timeframe beckons to the feasibility of legislators and party leaders to reach a final consensus and get the ball rolling on this proposal. A government shutdown is almost certain at this point, and the looming deadline of the default on October 18th will only get closer from here. This means the already-established debt ceiling, will be crossed by then due to enacted spending laws that have accumulated as a result of the coronavirus pandemic. Now, what effect would this have? The effects are uncertain一the United States has never once defaulted on its debt ceiling. However, there are some events that can be predicted. The dried-out Social Security program would effectively be wiped out after this crisis as checks and payments would be delayed, as would the newly initiated tax credits for children and dependents in the pandemic. This bill is extremely large, much larger than the bipartisan infrastructure bill from earlier this year, and would be enough to cover spending for the next 10 years. The feasibility of this bill is the problem. With divided opinions within the Democratic Party and the need for new revisions, combined with the imminent deadline and need for action, either the party will have to acquiesce and make compromises across the aisle to quickly gain Republican support or cause the current intra-party crisis to expand into an extremely consequential economic crisis that could dictate the future of America’s free market.


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