The Daily Update: Battle Lines Drawn

The battle lines are being drawn between Republican Senate Minority Leader Mitch McConnell and President Biden over the proposed tax increases on corporations and the wealthy to pay for Biden’s ambitious spending plans. Speaking at an event in Kentucky, McConnell said ‘We're open to doing a roughly $600 billion package, which deals with what all of us agree is infrastructure and to talk about how to pay for that in any way other than reopening the 2017 tax reform bill’. McConnell had been clear before the event that Senate Republicans would not go along with Biden's initial USD2.3tn infrastructure proposal, however, his remarks are the strongest signal yet that a smaller deal is possible.

McConnell also alluded to concerns about the federal debt, even though deficits grew substantially every year of Trump's presidency, when the GOP was also in control of the Senate. ‘I think it's time to take a look at our national debt, which is now as large as our economy for the first time since World War II’ he said.

McConnell's reservations come as analysis from the Tax Foundation states that wealthy families could face combined tax rates of as much as 61% on inherited wealth under President Joe Biden's tax plans. Combining the estate tax, the new higher capital gains rate and the repeal of step-up in basis could bring total effective marginal rates to over 60%, according to an assessment by the Foundation. The rate would be the highest such rate in nearly a century, according to the tax policy research group.