President Joe Biden wants to pay for a new infrastructure plan by taxing corporations, but Republicans would prefer to use gasoline tax revenues — a stance that some say sits uneasily with their pitch as a working-class party.
Biden’s original proposal was to raise the corporate tax rate from 21% to 28%, but Republicans have said that is a nonstarter. GOP lawmakers have instead floated indexing the federal gas tax to inflation, which would raise it over time.
Sen. Mitt Romney, a Utah Republican who is taking part in the bipartisan infrastructure negotiations, emphasized that the plan did not contain any new taxes or immediate tax increases. “There are no user fees that are part of the package,” Romney told reporters at the Capitol on Wednesday. “Other than the fact that we have an ongoing gas tax, for instance, and the package does propose that we index the gas tax to inflation.”
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A preference for consumption taxes over levies on corporations that could potentially hurt competitiveness, job creation, or wage growth reflects mainstream conservative economics. But Republicans have become increasingly reliant on blue-collar and non-college voters in recent election cycles, which has made the party competitive in the Rust Belt at the presidential level for the first time since the 1980s.
If inflation were to raise the gas tax, it could displease some of those voters. Biden is said to oppose gas tax indexing as a way of paying for infrastructure, having pledged not to raise taxes on households making less than $400,000 a year. The liberal group Americans for Tax Fairness said in a statement that the GOP wants to “make working families pay as opposed to wealthy corporations,” a line of attack that is likely to intensify if the plan moves forward.
The federal gas tax is 18.4 cents per gallon for unleaded and 24.4 cents for diesel. It was raised to its current level in 1993 as part of a bigger tax increase President Bill Clinton signed into law. Congressional Republicans slammed the gas tax hike, which was included after a broader energy tax was scuttled, as a violation of Clinton’s promise not to raise taxes on the middle class.
“Increasing the gas tax is not an optimal look for a working-class party, but the specific increase in the package, indexing the levy to inflation, is probably small enough to pass muster,” said Henry Olsen, senior fellow at the conservative Ethics and Public Policy Center and author of The Working Class Republican. “If the package includes first-time-ever levies on electric cars, which currently pay nothing for the roads they use and are largely driven by the well-off, then working-class voters could easily see this package as something they win by.”
“They will also likely see the lion’s share of job increases from the hiked infrastructure spending, so the small cost to them is offset by the large gains they will reap,” he added.
Some allies of former President Donald Trump, including his former White House chief strategist Steve Bannon, believe that Republicans should have led with an infrastructure plan in 2017 rather than a failed attempt at repealing and replacing Obamacare. Trump and Bannon had discussed such a proposal as part of a strategy for turning the GOP into a “workers’ party.”
But a final plan for Congress to act upon never materialized, despite many an Infrastructure Week. The 2017 Trump tax cuts, including the reduction of the corporate tax rate to 21%, were passed and signed into law instead. Biden is hoping to win back many of the blue-collar voters who abandoned the Democrats for Trump, though much of his growth last year compared to 2016 nominee Hillary Clinton came in formerly GOP suburban areas.
Biden has been negotiating with congressional Republicans on a possible infrastructure compromise while also preparing for a Democrats-only bill that could be passed through reconciliation in the Senate. “I mean, the point is it’s moving on several paths,” White House press secretary Jen Psaki told reporters. “So, even as we negotiate an infrastructure bill — right? — or portions of the ‘American Jobs Plan,’ it’s already moving forward on several fronts.”
Talks with Sen. Shelley Moore Capito, a West Virginia Republican, broke down when the two sides could not get close enough on spending levels or how to pay for the plan. Capito said the White House kept “moving the goalposts,” and Biden “expressed his disappointment that, while he was willing to reduce his plan by more than $1 trillion, the Republican group had increased their proposed new investments by only $150 billion,” according to a statement from Psaki.
Negotiations then shifted to a group of centrist senators in both parties as Biden departed for his trip to Europe. “He urged them to continue their work with other Democrats and Republicans to develop a bipartisan proposal that he hopes will be more responsive to the country’s pressing infrastructure needs,” Psaki said.
“Look, there is a real hunger in this country for ‘actual infrastructure’ (bridges, roads, dams, etc.), so what congressional Republicans should do is take a page out of Harry Reid’s playbook and go behind closed doors, settle on a plan and funding, and hold to it no matter what, because Democrats simply don’t have the numbers in the Senate,” said Republican strategist Ford O’Connell.
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Still, many Republicans think gas tax tinkering should be a nonstarter.
“Any talk of a new gas tax or gas-tax indexing needs to be scuttled immediately,” O’Connell said. “The reason is simple: By canceling the Keystone XL pipeline, closing ANWR, and refusing new permits for drilling of fossil fuels on federal lands, the Biden administration has already imposed an onerous gas tax on the working class of this nation, which has resulted in higher prices at the pump. Congressional Republicans would do well to remember who it is they are fighting for.”
