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As OniBait says, I think (I've given up trying to figure out the details of what they're doing) they are using the threat of removing 230 as a stick to stop social media companies from any moderation at all. Withou 230, the user-generated-content business model is untenable.

I think it is more that they see selectively removing content as equivalent to moderation and thus they shouldn't have safe harbor. So maybe they want them to only remove illegal content or something?

Fascists want to use laws against their detractors whenever possible, but also want none of the law apply to them.

The USA could be a dictatorship if Trump were just slightly smarter.