While all eyes are on the November 2026 midterm elections, attention is also focusing on the positions that may be taken in the 2028 presidential and congressional elections, as Democrats weigh what steps they can take to improve affordability without further swelling the federal budget. Democratic Senators have now introduced three income-based tax bills to either impose a wealth tax on billionaires to fund middle-class priorities or exempt a greater share of lower-income Americans from paying tax, funded by tax increases on higher-income individuals and corporations.

Senator Cory Booker (D-NJ) March 9 introduced the Keep Your Pay Act (S. 4042), under which the first $75,000 in income would be tax-free for households filing jointly, with proportional tax relief for single filers and heads of household. Senator Chris Van Hollen (D-MD) and other Democratic Senators, including Booker and Senator Mark Kelly (D-AZ), on March 12 introduced the Working Americans' Tax Cut Act to exempt those under a $46,000 living-wage income threshold from income taxes, paid for with a surtax on millionaires. These are in addition to a bill (S. 3956) by Senator Bernie Sanders (I-VT) to establish a 5% annual wealth tax on billionaires to fund direct payments and policies beneficial to the middle class.

Booker's bill is intended to be paid for with proposals like raising the corporate tax rate, "strengthening corporate tax rules," increasing taxes on stock buybacks, tightening limits on executive compensation deductions, and other measures.

The Van Hollen bill is paid for through a tiered surtax on millionaires, applying an additional:

• 5% tax to the first dollar an individual makes over $1 million, and the first dollar a married couple earns over $1.5 million annually
• 10% tax to the first dollar an individual makes over $2 million, and a married couple makes over $3 million annually
• 12% tax to the first dollar an individual makes over $5 million, and a married couple makes over $7.5 million annually

Senator Sanders is a member of the Senate Finance Committee and a former presidential candidate, and Senators Booker, Van Hollen and Kelly are viewed as potential Democratic candidates in the next presidential election. Similar tax increases were proposed during the prior Administration, including a 5% high-income surcharge in former President Biden's Build Back Better Act that passed the House in 2021 but stalled in the Senate. Such discussions subsided after President Trump took office and Republicans used the reconciliation process to enact the "One Big Beautiful Bill Act" (OBBBA) but are now resurfacing.

"Democrats are trying to flip the 2024 script after playing catch-up on tax policy … " said a story in the March 12 Wall Street Journal. "But the Van Hollen proposal and the significantly larger Booker plan are stirring consternation inside the party, particularly among fiscal-policy experts who warn of a thinned-out tax base, diminished capacity to fund crucial programs and the dangers of trying to outdo Republican tax-cutters."

The Washington Post reported last week that Senator Van Hollen has described his new proposal as something of an alternative to the no tax on tips and no tax on overtime OBBBA provisions, and just one plank of a potential Democratic platform on tax issues.

Budget — The fact that Democrats didn't fundamentally increase taxes when they controlled both chambers of Congress under President Biden was a topic of discussion during a March 11 Senate Finance subcommittee hearing on the budget outlook. A WCEY Alert has details.

The hearing followed February Congressional Budget Office (CBO) projections of federal debt held by the public at 100% of GDP and rising, and a deficit of $1.9 trillion in fiscal year 2026, growing to $3.1 trillion in 2036. The high deficits reflect a mismatch between spending outlays and revenues coming in. "Increases in spending for Social Security and Medicare and rising net interest costs push outlays to $11.4 trillion, or 24.4% of GDP, in 2036," CBO Director Phillip Swagel said in testimony. "Revenues in 2036 total $8.3 trillion, or 17.8% of GDP, up from 17.5% in 2026."

Maya MacGuineas of the Committee for a Responsible Federal Budget said it was "surprising and disappointing" that Democrats didn't raise taxes when they had full control in Washington, adding that in trying to control the nation's fiscal trajectory, revenues must be examined, including tax expenditures and "massively broadening the tax base there, and doing the fundamental reforms."

Martha Gimbel of The Budget Lab at Yale said that while the 2017 Tax Cuts & Jobs Act (TCJA) had some positive effect on the economy, the OBBBA would not over the long run due to the drag from higher interest rates. In her testimony, MacGuineas said, "Interest payments on the debt — which already cost us $1 trillion a year or $7,800 per household — will more than double to above $2 trillion by 2036; in that year, interest will be the second largest line item in the budget, consuming 26% of revenue and 4.6% of GDP."

Subcommittee on Fiscal Responsibility and Economic Growth Chairman Ron Johnson (R-WI) said the OBBBA prevented a "massive automatic tax increase" from TCJA provisions expiring, and, like MacGuineas, noted that "when they had two chambers and the presidency," Democrats did not change the TCJA. Still, he said he had wanted the OBBBA to be used for "simplifying and rationalizing" the tax system and that he opposed the no tax on tips proposal aside from cash tips. (In the lead-up to the OBBBA, Senator Johnson said he was doubtful of the growth prospects of the tips and overtime provisions and concerned that the bill was not really "addressing the major problem here in terms of massive growing deficits and debt.")

Agenda — Budget pressures not only affect the long-run legislative outlook but also the short-term agenda, with Republicans continuing to mull whether to pursue a second reconciliation bill amid some perceived uncertainty over whether the OBBBA and its tax benefits will sufficiently resonate with voters ahead of the midterms. The House was out this week as Republican members held a policy retreat at President Trump's Doral resort in Florida, where he addressed members and Committee leaders made presentations related to a second bill. Notably, both House Ways and Means Committee Chairman Jason Smith (R-MO) and Appropriations Committee Chairman Tom Cole (R-OK) have doubts over whether a second bill can pass.

One complicating factor is that is that conservatives will certainly demand revenue offsets, especially given the nation's fiscal outlook, and, for some members, spending cuts seem to be the main impetus for a second party-line bill. In a March 12 Washington Post story, "House Republicans struggle to craft legislative agenda ahead of midterms," Freedom Caucus Chairman Andy Harris (R-MD) called for targeting fraud in social services programs. "I firmly believe that we should do a reconciliation bill targeting fraud, waste and abuse," Harris said, adding that $100 billion to $200 billion in savings is possible. House Budget Committee Chairman Jodey Arrington (R-TX), who has been vocal in his support for a second party-line bill, was cited in the story as saying such a bill could bring down prices through policies on health care and housing and targeting "massive fraud" in the federal government.

Senate Majority Leader John Thune (R-SD) has announced that the chamber will next week debate the SAVE America Act voter ID bill that President Trump has demanded be enacted before he will sign any other legislation. Some members have argued that the proposal could be a candidate for reconciliation, while acknowledging that it would have to be crafted to meet reconciliation rules. Leader Thune was quoted this week as saying passing the bill under reconciliation would be "very, very difficult."

Housing — By a vote of 89-10, the Senate on Thursday (March 12) overwhelmingly passed the 21st Century ROAD to Housing Act (HR 6644), aimed at increasing the supply of housing. While Senate sponsors Tim Scott (R-SC) and Elizabeth Warren (D-MA) brought over a number of provisions from the House-passed housing bill into their manager's amendment, two items that were not in either bill's original text — a ban on large institutional investors owning more than 350 single-family homes, inserted at the White House's request, and a temporary ban on the Federal Reserve issuing a central bank digital currency (CBDC) — have prompted blowback from House Republicans. The dispute has thrown into question whether a popular package aimed at affordability issues, which many assumed would sail through Congress, will become entangled in a House-Senate conference or otherwise delayed.

A number of House Republicans have complained that the bill's language restricting large investors such as private equity funds and corporations, a priority for President Trump, could choke off a source of affordable housing despite the bill's many deregulatory changes. The CBDC provision, which was added to the bill on the Senate side as a "sweetener" to attract support from conservative House members, has instead further inflamed debate over the bill as a number of Republicans seek a permanent CBDC ban rather than the bill's delay to the end of 2030. Some House Republicans have also criticized the fact that the Senate's substitute amendment did not include a group of community banking deregulation measures the House had passed in its version.

President Trump also threw the bill's prospects for speedy passage into uncertainty when he said over the weekend that he would not sign any other bills until Congress had sent him the SAVE Act. The Senate is scheduled to devote next week to the voting bill. Analysts have said the focus on the voting bill and the lack of pressure from the president to pass the housing bill could give the House time to process changes to what the Senate passed today, or insist upon a bicameral conference.

Trade — On Tuesday, March 17 at 10 a.m., the House Ways and Means Trade Subcommittee is holding a "Hearing on Advancing America's Interests at the World Trade Organization's 14th Ministerial Conference."

IRS — An EY Tax Alert, "Proposed regulations would allow digital asset brokers to require customers to consent to electronically furnished payee statements," is available here.

Another EY Tax Alert, "Treasury moves to eliminate final regulations designating certain partnership basis-adjustment transactions as transactions of interest," is available here.