Biden has options beyond a corporate tax hike to pay for infrastructure

While President Joe Biden is trying to favor his proposed corporate tax increase, the administration still has other ways to try to fund and fund its $ 2 trillion infrastructure legislation.

Biden could decide, for example, to return to the campaign promise to ask the richest families in the country to contribute more to personal income taxes or to push for an increase in the federal gas tax.

Other funding ideas include the so-called mileage tax and better monetization of the U.S. power grid. Democrats can rely on a special class of bonds to fund their spending plans despite Republican Party objections and concerns about national debt growth.

While both sides agree that the United States needs infrastructure repairs, so far the Republican Party has opposed the Biden plan to fund too many projects beyond what they consider critical infrastructure.

Senate Minority Leader Mitch McConnell, R-Ky., Has dubbed the American Occupation Plan a “Trojan horse” for liberal policies, while others have rejected hundreds of billions of dollars. intended for items other than road, bridge, airport and public transportation improvements.

These agenda items, along with the administration’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 pay the plan with new taxes.

Partly to eliminate funding concerns, Biden has offered a “Made In America” tax plan that includes raising the corporate tax rate to 28% and eliminating incentives for companies to factories and profits offshore. Treasury Secretary Janet Yellen announced Wednesday that the tax plan would generate about $ 2.5 trillion in 15 years.

This proposal, however, amounts to a partial recovery from former President Donald Trump’s tax cuts in 2017 and is already opposed by Republicans and Democratic Sen. Joe Manchin of West Virginia.

Those interested in a corporate tax hike say raising the rate could hinder a fragile economic recovery and make the U.S. a less attractive place for companies to build factories and hire workers.

Biden, in a speech Wednesday on infrastructure, dismissed those concerns, but said he was open to negotiating the corporate tax rate. He will meet Monday with Republican and Democratic lawmakers to begin real-world infrastructure negotiations.

“We have to pay for it,” Biden said Wednesday, noting that there are “many other ways to do it.”

For Tony Fratto, opposition to an infrastructure plan based on cost issues doesn’t make much sense.

Infrastructure “generates an economic return and, therefore, why do we limit ourselves exactly to the concept of making certain segments of the economy suffer?” Fratto, a Treasury official in the George W. Bush administration, said Friday.

With US interest rates still historically low, Fratto argued that it would not take long for the economic benefits generated by faster and more efficient traffic to pay for the government’s initial spending.

“You can present a very strong case to borrow the money and return it over time in the expected returns,” he added. “We have not been able to invest in all the infrastructure needs that this country has for this fictitious argument that it has to pay to do so.”

A study published by Wharton School this week found that Biden’s infrastructure plan would reduce U.S. debt by 6.4% by 2050 relative to current legislation.

If lawmakers ultimately develop a hunger for debt, the White House could try to resurrect a class of special municipal bonds known as Build America Bonds that allow states and counties to float debt with government-subsidized interest costs. federal.

A possible alternative to a corporate tax hike would be individual income tax adjustments, as proposed by Biden during its 2020 campaign.

Then-candidate Biden proposed raising the upper individual income tax rate to 39.6% from its current level of 37%. He also called for the capital gains rate to be increased to 39.6% for taxpayers with incomes in excess of $ 1 million. Currently, wealthy investors face long-term capital gains rates of up to 20%.

Despite demanding during the campaign that wealthier Americans pay more as a percentage of their income, Biden has yet to say so when he plans to raise income rates.

However, the president doubled the red line in his speech on Wednesday.

“I will not impose any tax increases on people who earn less than $ 400,000 a year,” Biden said. “If others have ideas on how to pay for that investment without violating that rule, they should come forward. There are all kinds of opportunities.”

Another possible revenue generator could be an increase in the federal government’s gas tax. This tax was last increased in 1993 and is not indexed to inflation, meaning that its effective value has eroded over the past 27 years.

Currently, the federal government collects 18.4 cents per gallon of gasoline sold in the U.S. and 24.4 cents per gallon of diesel. This revenue, which amounted to $ 36.4 billion in 2016, is used by the Federal Highway Trust Fund, which finances road construction and other surface transportation projects.

Transportation Secretary Pete Buttigieg told CNBC last month that the gasoline tax could soon be an outdated mechanism to increase revenue significantly as more Americans switch to electric vehicles and fuel-consuming cars.

Republican Sen. Roy Blunt, a supporter of a much smaller infrastructure law, told Fox News Sunday that funding for repairs to the nation’s roads and bridges must evolve over time.

“As we have more electric vehicles, we will have to figure out some way for these electric vehicles to pay their fair share,” he said Sunday. “We may even have to figure out a different way to pay for driverless vehicles by increasing the kind of control that has to happen with the toll road system itself that you have with this.”

States have also imposed for years their own taxes on the sale of gasoline.

In 2019, Republican governors of Ohio, Alabama and Arkansas signed fuel tax hikes in an effort to help fund road repairs, while Democratic Gov. Michigan Governor Gretchen Whitmer won the election on 2018 after campaigning for the slogan “Fix the Damn Roads”.

Still, several Republican senators opposed raising the gas tax when former President Donald Trump tried to boost the infrastructure.

As of January 1, 2021, total state taxes and fees on gasoline averaged 30.06 cents per gallon, according to the U.S. Energy Information Administration.

Instead, Buttigieg said a mileage tax could be a more attractive option for lawmakers who support the idea that consumers should pay for infrastructure based on how often they use it.

“I am very hungry to make sure there are sustainable funding streams,” the Transport Secretary said in March. A mileage tax “demonstrates a lot of promise if we believe in the so-called principle that the user pays: the idea that part of the way we pay by road is that you pay based on how much you drive.”

Mileage tax is a relatively new idea and as such, there are still some barriers left for them to become a reality in the short term. Questions remain about how to record the distances people travel, how and where fees would be charged and whether the introduction of this tax would disproportionately affect rural or rural communities that depend on cars to get to work.

Still, a vehicle mile tax or VMT enjoys the bipartisan support of the house’s key transportation and infrastructure committee. Both committee chairman Peter DeFazio, D-Ore, and ranking member Sam Graves, R-Mo., Have expressed support for VMT measures in the past.

“It has become clear that we need to move from the tax on petrol and diesel as the main means to build infrastructure,” Graves wrote in March. “While critics will say we are not ready for VMT, we have heard this same argument for too long. The Highway Trust Fund continues to lose more and more revenue because not all users pay their fair share given an increase in fuel efficiency and electric vehicle technology “.

Fratto suggested that the federal government could try to tax Americans’ electricity consumption, as a larger percentage of the American population switches to electric vehicles.

This could take the form of using the home network or charging fees at gas stations similar to a gas tax for oil-powered cars. This could be an attractive option in the future, Fratto said, as utility companies have already established and installed ways to track the energy consumed by each household and charge the fee.

“There are many other user fees we can use on all of these systems that we could use, including the electricity sector,” the former Treasury official said. “We can get some out of using the network to pay the federal government for its investment in these areas.”

“One could easily add a fee that electricity companies would have to pay and the same goes for the availability of electricity,” he added.

Ultimately, how Biden finances his plan and the degree to which it is based on a corporate tax hike will depend on how much he wants the bipartisan support of a Republican party calling for him to reduce his ambitions and focus on a closer package. up to $ 600 billion.

The president and the Democratic leadership in Congress could choose to use the reconciliation process, as they did for Covid’s relief bill, which would allow them to pass legislation with a simple majority in the divided Senate.

In this case, Biden could avoid Republican objections and would largely play in an audience of one in the Senate: Joe Manchin.

While the West Virginia Conservative Democrat opposes raising the corporate rate to 28%, he might be willing to meet Biden in the middle.

“Because the bill exists today, it needs to be changed,” Manchin told Hoppy Kercheval, host of West Virginia Metro News ’“ Talkline ”program. “I think [the corporate rate] it should never have been less than 25%, this is the world average. And that’s what basically every corporation would have told you was fair. “