September 15, 2021

Here's How Democrats Would Pay for Their New Spending Proposals

Democratic leaders this week for the first time revealed specific details for how they intend to pay for, or offset, the approximately $3.5 trillion of spending in their reconciliation bill. On Monday, the House Ways and Means committee released a set of proposed tax increases that would largely offset the bill’s cost. Read more for the specific changes to the tax code that have been proposed — and how it all adds up.

What Is Reconciliation? And How Do Lawmakers Plan To Pay For It?

A bill considered under the reconciliation process enjoys special rules that allow for expedited consideration in the Senate; specifically, it cannot be filibustered, and only needs 50 votes instead of the usual 60 to move forward.

To their credit, leaders in the House and Senate, as well as the White House, have pledged to fully offset the cost of their reconciliation bill. While details will continue to evolve as the package advances, the Ways and Means committee has put forward a set of options that would provide about $2.1 trillion in offsets, according to the Joint Committee on Taxation — largely by raising taxes on high-income Americans and on corporations. The table below summarizes the effects of those revenue provisions.

Lawmakers have proposed options to offset $2.1 trillion of the reconciliation bill's cost

Offset options for FY2022 - FY2031, by source

Increased Revenue Collections From... Amount
Taxes on High-Income Americans $1,000
Corporate and International Tax Reform $964
Tobacco Sales Taxes and Other Provisions $91
Reinstatement of Superfund $38
Improved Taxpayer Compliance $14
Modifications to Retirement Plan Rules $4
Total Offsets $2,111

SOURCE: The Joint Committee on Taxation, Estimated Budgetary Effects Of An Amendment In The Nature Of A Subtitute To The Revenue Provisions Of Subtitles F, G, H, I, And J Of The Budget Reconciliation Legislative Recommendations Relating To Infrastructure Financing And Community Development, Green Energy, Social Safety Net, Responsibly Fund, September 2021.
NOTE: Amounts are total for FY2022-FY2031.

© 2021 Peter G. Peterson Foundation

Below are more specifics about the proposals summarized above:

Individual Income Taxes ($1 Trillion)

Corporate Income Tax ($964 Billion)

  • Raise the top corporate tax rate from 21.0 percent to 26.5 percent for those earning more than $5 million annually (other tax rates would apply to smaller corporations)
  • Set a 16.5 percent minimum tax on global income, up from 10.5 percent
  • Reduce certain tax expenditures, including incentives for maintaining intellectual property in the U.S. and subsidies for the depreciation of physical assets in foreign countries

Other Sources ($147 Billion)

Other revenues would stem from taxes on tobacco products like e-cigarettes, limiting contributions to IRAs with large balances, and certain other proposals.

All told, the revenue provisions specified by the Ways and Means Committee would offset $2.1 trillion, or roughly two-thirds, of the bill’s costs between 2022 and 2031. In addition, proposals to close the tax gap and other tax-related provisions would also increase revenues. Furthermore, some sources indicate that reform related to prescription drug prices would generate an estimated savings of $700 billion over the next decade. Moreover, lawmakers claim that resulting economic growth from the policies under consideration would save another $600 billion over 10 years. Official cost estimates should soon provide a clearer picture of the total net budgetary effect of the legislation.

Uncertain Weeks Ahead

As the bill advances and its details evolve, there will no doubt be changes to this developing legislation. Lawmakers should remain committed to including credible options to offset the full cost of the package.

Looking ahead and beyond this bill, lawmakers will need to go beyond simply paying for new spending, and look to address our structural fiscal imbalance, as we are already on a path that projects our nation’s debt to its highest level ever recorded.

Related: What’s the Price Tag on Reconciliation – and Will It Be Paid For?

Image credit: Kevin Dietsh/Getty Images

Bipartisan Policymaking under Divided Government

We asked experts with diverse views from across the political spectrum to share their perspectives.

National Debt Clock

See the latest numbers and learn more about the causes of our high and rising debt.