Biden Wants Corporate America to Pick Up the Tab On His Infrastructure Plan

President Joe Biden is unveiling an ambitious $2 trillion infrastructure, jobs and environment plan that seeks to rebuild the nation's crumbling transportation facilities, expand high-speed internet, modernize America's schools and invest in and protect vulnerable communities.

And he is counting on corporate America to pick up the tab.

The American Jobs Plan, which follows quickly after Biden's $1.9 trillion American Rescue Plan, includes his Made in America Tax Plan, which seeks to raise the corporate income tax while closing loopholes and discouraging U.S. companies from investing in and relocating to foreign locales as a way to avoid paying taxes.

The tax component takes direct aim at a key portion of Donald Trump's 2017 tax cuts, which lowered the corporate income tax from 35%, where it had been since 1986, to 21%. Biden now wants that rate to be 28%. He also wants to strengthen a global minimum tax, doubling that rate to 21%, while working with other countries to "stop the race to the bottom on corporate taxes" in the words of a senior administration official.

While Biden is proposing spending the money on the infrastructure investments over eight years, the tax increases would take 15 years to cover the cost.

In recent years, there have been widespread reports of major American companies paying little or no federal income taxes. Although the nominal rate is 21%, companies use a variety of exemptions and other allowances to pay less.

"Today, we have a broken tax system that was made worse by the 2017 tax law," the official said ahead of Biden's announcement. "We've seen the average tax rate for U.S. multinationals, in the wake of that law, fall from 16% to 8%. The average U.S. multinational pays a tax rate of 8%. And that law aggravated incentives that were already embedded in our tax code to encourage production and profits to move overseas."

The 2017 changes had a noticeable impact on federal revenue. According to the Tax Policy Center, the corporate income tax raised $230.2 billion in 2019, accounting for 6.6% of total federal revenue. That was a drop from 9% in 2017. Measured as a share of the nation's economy, corporate income taxes were 1.1% of gross domestic product in 2019. Five years earlier, they were almost double that amount.

Moreover, a study by the Institute on Taxation and Economic Policy of the effects of the 2017 tax cuts found that 379 companies with combined profits of nearly $766 billion paid effective corporate tax rates on average of 11.3%. Some 91 companies, including household names like Delta Airlines, FedEx, Amazon and Eli Lilly, paid no tax or received refunds. Many of the companies paying little or no taxes were clustered in the industrial, energy or related industries.

Biden's tax proposal includes elements designed to change this, including enacting a minimum 15% tax on the "book" income of large companies. This is the profit that companies report to their shareholders and on which their stock price values often depend, which can be quite different from the income reported to the Internal Revenue Service. The plan also includes the elimination of tax incentives for the fossil fuel industry.

The composition of tax revenue has changed noticeably over time. Before 1941, excise taxes such as levies on gasoline and tobacco, were the largest source of revenue for the government, notes Erica York, an economist with the Tax Foundation. Payroll taxes and corporate taxes followed. Now, individual income taxes are a mainstay of federal revenues and corporate income and excise taxes have declined in importance.

One reason for this, York says, is that "the majority of companies in the United States are pass-through businesses and are not subject to the corporate income tax" and instead pay individual income taxes.

Notably, the proposal does not address individual tax rates, which are expected to be included in another proposal to come later.

Biden's plan faces a rocky road in Congress. Republicans will not likely support increasing the corporate tax rate. The U.S. Chamber of Commerce was quick to praise Biden's tackling of the infrastructure issue, which the group has long argued for, but equally as quick to attack his proposed tax increases.

"Properly done, a major investment in infrastructure today is an investment in the future, and like a new home, should be paid for over time – say 30 years – by the users who benefit from the investment," said Neil Bradley, executive vice president and chief policy officer. "We strongly oppose the general tax increases proposed by the administration which will slow the economic recovery and make the U.S. less competitive globally – the exact opposite of the goals of the infrastructure plan."

As happened with the coronavirus relief plan, Democrats may try to pass the package with only the votes of their own party using a budget process known as reconciliation. But that still requires most, if not all, Democrats to be on board – which isn't a given.

"While an infrastructure plan could have bipartisan support, funding it with tax hikes likely won't, indicating that it would need to pass through budget reconciliation," said Alejandra Grindal, senior international economist at Ned Davis Research. "This probably won't do much to ease tensions between Democrats and Republicans."

Brian Gardner, Stifel's chief Washington policy strategist, noted that some progressive Democrats want the corporate rate returned to 35% while some centrists who have considerable leverage given the narrow majorities in both houses have discussed a 25% rate.

Some Democrats from states in the Northeast have said they would only support a plan that does away with a rule that limits state and local tax deductions to $10,000, which was included in the 2017 tax law to help offset the cost of some of the other tax cuts.

"Infrastructure is something everyone in both parties talks about spending money on, but neither party is willing to spend the money," said Joel Naroff, president and CEO of Naroff Economics.