Biden has choices past a company tax hike to pay for the infrastructure
Wind turbines and power transmission lines at a wind farm near Highway 12 in Rio Vista, Calif. On Tuesday, March 30, 2021.
David Paul Morris | Bloomberg | Getty Images
While President Joe Biden tries to distort favor for his proposed corporate tax hike, the government has other options to fund and fund its $ 2 trillion infrastructure legislation.
For example, Biden might decide to revert to an election pledge to ask the country’s richest households to contribute more to income tax, or to campaign for a federal gasoline tax hike.
Other financing ideas are a so-called kilometer tax and better monetization of the US electricity grid. Democrats could ultimately rely on a special class of bonds to fund their spending plans, despite GOP objections and concerns about growing national debt.
While both parties agree that the US urgently needs infrastructure repair, the GOP has so far opposed the Biden plan to fund too many projects beyond what they consider critical infrastructure.
Senate Minority Chairman Mitch McConnell, R-Ky., Has called the American employment plan a “Trojan horse” for liberal politics while others earmarked hundreds of billions of dollars for things other than improvements to roads, bridges, airports, and others are, have declined public transport.
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These agenda items, along with the government’s $ 1.9 trillion Covid-19 aid package signed in March, have convinced Republicans and some moderate Democrats that the White House should look for ways to advance the plan with new ones Pay taxes.
In part to address funding problems, Biden has offered a “Made In America” tax plan that includes increasing the corporate tax rate to 28% and removing incentives for businesses to move factories and profits offshore. Treasury Secretary Janet Yellen announced on Wednesday that the tax plan would generate around $ 2.5 trillion in 15 years.
However, this proposal represents a partial reversal of former President Donald Trump’s 2017 tax cuts and is already being rejected by Republicans and Democratic Senator Joe Manchin of West Virginia.
Those concerned about corporate tax hikes say a tax rate hike could hamper fragile economic recovery and make the US a less attractive place for businesses to build factories and hire.
In a speech to Infrastructure on Wednesday, Biden denied these concerns but said he was open to negotiating the corporate tax rate. He will meet with Republican and Democratic lawmakers on Monday to begin serious infrastructure negotiations.
“We have to pay for it,” said Biden on Wednesday, noting that there are “many other ways we can do it”.
For Tony Fratto, rejecting an infrastructure plan for reasons of cost makes little sense.
Infrastructure “generates an economic return, so why do we limit ourselves exactly to the concept of burdening certain segments of the economy?” Fratto, a finance official in the George W. Bush administration, said Friday.
Given the historically low US interest rates, Fratto argued that it wouldn’t be long before the economic benefits of faster, more efficient transit were paid for on the government’s initial expenses.
“They can be very advocate for borrowing the money and paying it back over time at the expected returns,” he added. “We haven’t managed to invest in all of the infrastructure needs this country has through this fictional argument that it has to be paid to do it.”
A study published this week by the Wharton School found that Biden’s infrastructure plan would actually reduce U.S. debt by 6.4% in 2050 over the law.
Eventually, if lawmakers develop an appetite for debt, the White House could attempt to revive a class of specialty municipal bonds known as Build America Bonds that would allow states and counties to pay off debt at federal-subsidized interest costs.
A possible alternative to a corporation tax hike would be adjustments to individual income taxes, as suggested by Biden in his 2020 campaign.
Then-candidate Biden proposed raising the highest individual income tax rate from the current 37% to 39.6%. He also called for the capital gain rate for taxpayers with incomes over $ 1 million to be increased to 39.6%. Currently, wealthy investors are faced with long-term capital gain rates of up to 20%.
Despite calling during the campaign that the richest Americans pay more than a percentage of their income, Biden has yet to say when he will raise income tax rates.
However, in his speech on Wednesday, the president doubled on a red line.
“I will not impose tax increases on anyone who earns less than $ 400,000 a year,” Biden said. “If others have ideas on how to pay for this investment without breaking this rule, they should get in touch. There are all kinds of options.”
Another possible source of income could be an increase in the federal government’s gas tax. This tax was last levied in late 1993 and is not linked to inflation, which means that its effective value has decreased over the past 27+ years.
The federal government currently collects 18.4 cents per gallon of gasoline sold in the U.S. and 24.4 cents per gallon of diesel fuel. These revenues, which totaled $ 36.4 billion in fiscal 2016, will be used by the Federal Highway Trust Fund, which funds road construction and other land transportation projects.
Transportation Secretary Pete Buttigieg told CNBC last month that the gasoline tax could soon be an obsolete mechanism for generating significant revenue as more Americans switch to electric vehicles and fuel efficient cars.
Missouri Republican Senator Roy Blunt, a proponent of a much smaller infrastructure bill, told Fox News Sunday that funding for repairs to the country’s roads and bridges must evolve over time.
“As we have more electric vehicles, we need to find out how these electric vehicles pay their fair share,” he said on Sunday. “We may even need to figure out another way of how driverless vehicles pay for the increased level of surveillance that has to be done with the highway system itself that you have with it.”
For years, states have also levied their own taxes on gasoline sales.
In 2019, Ohio, Alabama, and Arkansas Republican governors signed tax increases to fund road repairs, and in 2018, Michigan’s Democratic Governor Gretchen Whitmer won the election after campaigning for the slogan “Fix the Damn Roads.”
However, several Republican senators spoke out against an increase in the gas tax when former President Donald Trump tried to push infrastructure forward.
According to the US Energy Information Administration, state taxes and fees on gasoline averaged 30.06 cents per gallon as of Jan. 1.
Buttigieg said a mileage tax was a more attractive option than a gas tax for lawmakers who support the idea that consumers should pay for the infrastructure based on the frequency of use.
“I hear a lot of appetite that there are sustainable flows of funding,” said the transport minister in March. A mileage tax “is promising if we believe in what is known as the user pays principle: the idea that you pay part of our road costs depends on how much you drive.”
The mileage tax is a relatively new idea and so there are some barriers to its becoming a reality in the short term. The question remains how distances are to be recorded, how and where fees are charged, and whether the introduction of such a tax would have a disproportionate impact on low-income or rural communities that rely on cars to get to work.
Even so, a vehicle mileage tax (VMT) is supported by two parties in the house’s most important committee for transport and infrastructure. Both the chairman Peter DeFazio, D-Ore., And the ranking member Sam Graves, R-Mo., Have spoken out in favor of VMT measures in the past.
“It has become perfectly clear that we need to move away from gas and diesel taxes as the primary means of building infrastructure,” Graves wrote in March. “While critics will say we’re not ready for VMT, we’ve heard the same argument for too long. The Highway Trust Fund is losing more and more revenue because not all users pay their fair share when fuel efficiency increases in EV.”
Monetization of the power grid
Fratto suggested that the federal government could try to tax Americans’ electricity usage as a larger percentage of the US population switch to electric vehicles.
This can take the form of home network use or charges levied at charging stations that are similar to a gas tax on petroleum-powered cars. This could be an attractive option in the future, Fratto said, as utility companies have already set up and installed ways to track and calculate the energy usage of each household.
“There are many other usage fees for all of these systems that we could use, including the electricity sector,” said the former tax official. “We can relieve the use of the network somewhat in order to repay the federal government for its investments in these areas.”
“You could easily charge a fee that utility companies would have to pay, and so would the availability of electricity,” he added.
Minor corporate tax hike
How Biden funds his plan, and how much he relies on a corporate tax hike, ultimately depends on how much he wants the support of a bipartisan party from a Republican party that is telling him to reduce his ambitions and focus on a package that closer to $ 600 billion.
The president and the democratic leadership in Congress could choose to use the reconciliation process, as they did for the Covid Relief Act, which would allow them to pass the laws by a simple majority in the equally divided Senate.
In that case, Biden could bypass Republican objections and he would mostly play in front of a Senate audience – Senator Joe Manchin.
Though the conservative West Virginia Democrat is opposed to a 28% increase in the corporate rate, he might be ready to hit Biden in the middle.
“Since the bill exists today, it needs to be changed,” Manchin told Hoppy Kercheval, host of West Virginia Metro News’ Talkline program. “In my opinion [the corporate rate] should never have been below 25%, that’s the global average. And basically any company would have said that it was fair. “