PAYING FOR INFRASTRUCTURE: THE COMING TAX FIGHT – WHO PAYS?

President Biden’s infrastructure plan comes with a hefty price tag -- about $2 trillion over

eight years. Biden calls it a “once in a lifetime investment in America.” The plan requires new tax revenue. When he rolled it out, the 27-page fact sheet the White House presented listed not just rebuilding roads, bridges, schools, upgrading housing, installing electric charging stations, developing mass transit, and providing redress for usually non-white neighborhoods divided by highways, it also included detailed tax proposals. Biden suggests paying primarily with higher corporate taxes.  

Battle lines formed quickly. Most Congressional Republicans voiced opposition, offering the usual argument that increasing taxes kills jobs. Some Democrats, like West Virginia Senator Joe Manchin, support smaller tax increases than Biden

wants. So, where does that put the president?

Bumping Up Corporate Taxes

So far, Biden has proposed only corporate tax changes, something to which most Americans

don’t object. Many didn’t get much benefit from the 2017 Trump tax cuts which favored corporations and the wealthy. Rolling them back seems popular. One survey showed support for the infrastructure plan increased when pollsters told respondents increasing corporate taxes was part of the plan.  

Trump’s cuts reduced the corporate tax rate from

35% to 21%. Few corporations, especially those with international operations, pay 21%.  Loopholes and incentive provisions allow many companies to whittle

what they actually pay to about eight

per cent. According to the White House, a “recent independent study found that 91 Fortune 500 companies paid $0 in federal corporate taxes in 2018.”  Biden would change that by, among other things:

*Setting the corporate rate at 28%;

*strengthening the Global Minimum Tax for U.S. Multinational Corporations, stopping American companies from claiming tax haven countries as their residence, though they have management and operations in the U.S., a process called “inversion;”

*eliminating intellectual property loopholes that

encourage U.S. companies to locate jobs abroad, a problem the Trump tax bill made worse by giving tax breaks for shifting assets offshore; and

*enacting a minimum tax on “book income,” profits large companies report to shareholders, while avoiding reporting those profits for tax purposes.

The Poor and the Middle Class

Biden apparently does not plan on taxing middle class and poor taxpayers. The poor

have been saddled with a federal minimum wage of $7.25 per hour since 2009, a major factor in America’s income inequality. Since the 1980s the gap between the rich and everyone else has expanded significantly. As Thomas Piketty reported in Capital and

Ideology, between 1960 and 1980, the bottom 50% of earners claimed 20% of national income. Between 1980 and 2015, however, the bottom 50% dropped from 20% to 12%.  Meantime, the top 10% went from a little more than 10% of income earned to more than 20%. The public intuitively understands this, so Biden’s choice not to tax lower income groups to pay for infrastructure should remain popular.    

Public opinion, however, hasn’t translated into GOP support in Congress. Biden keeps talking with Republicans in the hope of peeling off a few of their votes. He still thinks the country needs a bipartisan approach to problems like infrastructure and the funding needed for paying for it. He says he would welcome input from Republicans on specific proposals. If one of them has a better idea, he’d like to hear it.

The GOP response has included tepid support

for a much smaller program. Republicans object to making climate change measures and such things as home care part of the package, saying that’s not really infrastructure. They’d focus only on roads, bridges, and other “traditional” infrastructure items. They contend paring the proposal down, maybe to $600-900 billion, would reduce or eliminate the need for most, if not all, the tax increases. That’s a dubious proposition but, so far, it’s all they’re suggesting.

Republicans likely will accuse Biden of fighting 

a class war on tax issues. We think he should argue it’s past time someone fought for poor and middle class taxpayers (those in the lower 50%) and that corporate America should pay its fair share. Many Americans believe they elected a president who would champion the poor and the middle class. The infrastructure plan offers Biden a good opportunity for proving he’s that president. 

2009 All Over?

To date, Biden’s team has resisted the Republican track, apparently having learned a lesson from the Obama-Biden experience in

2009. That new administration kept making concessions on the size of the recession rescue package, hoping that would garner Republican support.  Cut this or don’t do that, they said, and we might support you. ‘Might’ was the key word. No concessions satisfied Republicans and the plan passed with only Democratic votes.  Some warned the package was too small and

wouldn’t extricate the economy from the ditch it found itself in. Many economists blame the slow growth that followed on the failure of the administration to “Go Big.”  Biden’s people say they won’t make that mistake this time.

Americans, of course, generally don’t like tax increases. Will the current polling showing support for the infrastructure plan and the tax increases hold, especially after the fear campaign the GOP will likely run  when the

real debate begins? Who knows?  We hope Biden, while continuing his dedication to bipartisanship as a governing principle, will remember the lessons of 2009.  This country faces important issues at a perilous moment. Timidity does not seem in order.