The Biden administration is planning to fund its massive $2 trillion infrastructure spending package with increased corporate taxes, an approach that puts it at odds with businesses eager for funding for roads and bridges.
The “American Jobs Plan,” as the spending package has been dubbed, is the first of a two-part spending strategy that may end up costing up to $4 trillion. The first part, which targets infrastructure, will be announced by President Joe Biden on Wednesday afternoon during a visit to Pittsburgh, Pennsylvania.
Biden’s plan would hike the corporate tax rate by 7 percentage points (from 21% to 28%). The rate was previously lowered from 35% as part of former President Donald Trump’s 2017 Tax Cuts and Jobs Act.
Biden’s tax plan also increases the global minimum tax applied to U.S. corporations by raising it from 13% to 21% and eliminates an exemption that the administration says allows profits on foreign investments to avoid the tax.
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The tax portion of the spending package is facing criticism. Joshua Bolten, the president and CEO of Business Roundtable, released a statement on Tuesday evening expressing support for infrastructure investment but opposition for a hike of the corporate tax rate.
“Business Roundtable strongly opposes corporate tax increases as a pay-for for infrastructure investment,” Bolten said. “Policymakers should avoid creating new barriers to job creation and economic growth, particularly during the recovery.”
Passage of major legislation would be much more difficult without the backing of business groups.
Biden’s eight-year spending plan includes some $620 billion that targets the country’s transportation infrastructure, including plans to modernize 20,000 miles of highways, roads, and streets. That $620 billion figure alone is already more than double that of the country’s last long-term infrastructure package, which was a $305 billion highway and transit bill back in 2015.
The Biden plan includes a $650 billion investment to improve broadband, clean water, the electric grid, and affordable housing; $400 billion to support caregiving jobs and access to community-based and home-based care for people with disabilities and the elderly; and $580 billion in research and development, manufacturing, training, and support for rebuilding supply chains.
The White House calculated that the changes in taxes will add about 0.5% of GDP per year in corporate revenue, enough to pay for the $2 trillion spending package over a period of 15 years.
Of note, the president’s first phase of spending does not include plans increase in the top marginal income tax rate on wealthy individuals and does not include an increase in the capital gains tax rate. An administration official said during a Tuesday evening phone call that the reason why an increase on capital gains wasn’t included was because this spending package is offset by corporate taxes.
The second spending package may include proposals that would increase income taxes on the wealthy, the New York Times reported. If the second element of the spending strategy is also offset by taxes, taken together, it would represent the biggest tax hikes since President Bill Clinton’s overhaul of the tax code in 1993.
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The new infrastructure plan follows the $1.9 trillion spending package that Democrats pushed through with no Republican support. That bill was not offset by taxes but rather financed by borrowing.
