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Pros, cons and pragmatism: Biden’s plan to finance infrastructure | Business and economic news

Two years ago, candidate Joe Biden began his election campaign in Pittsburgh with the promise of rebuilding the backbone of the United States. Last week, he returned to Steel City as President of the United States, carrying a simple message about who will foot the bill.

The big enterprises.

“Wall Street did not build this country. You, the upper middle class, built this country, ”Biden said.

Biden said the bulk of his proposal US $ 2.25 Trillion Jobs Plan would be funded by partially reversing the 2017 corporate tax cut under former President Donald Trump, which cut the rate from 35% to 21%.

Biden wants to lower the corporate tax rate to 28% – and revise other parts of the tax code to reduce incentives for large companies to shift production, jobs and profits overseas.

The U.S. Treasury Department estimates these changes could generate some $ 2.5 trillion in corporate tax revenue over 15 years – enough to fund the national infrastructure upgrade Biden is initiating.

Tax evasion strategies have allowed some large US companies to significantly reduce their federal corporate tax bills – even to zero in some cases.

To prevent companies from shifting profits overseas to low-tax jurisdictions, Biden’s plan is to get other major economies to agree an overall minimum tax rate – an idea launched by US Treasury Secretary Janet Yellen who wrote in the the Wall Street newspaper Wednesday: “Destructive tax competition will only end when enough large economies stop undercutting themselves and agree to a global minimum tax.”

Republicans in Congress pushed back on the U.S. jobs plan, criticizing it for being too expensive and too broad.

On Wednesday, Biden said he was open to dialogue. “We have to pay for it,” he said. “There are many other ways to do it. I am open to negotiating this. “

Meanwhile, Biden’s plan to raise corporate taxes has attracted surprising supporters. Amazon Founder and CEO Jeff Bezos said in a blog post this week: “We recognize that this investment will require concessions from all sides.”

Amazon Founder and CEO Jeff Bezos Supports Biden’s Plan to Raise Corporate Taxes to Fund Nationwide Infrastructure Upgrade [File: Andrew Harrer/Bloomberg]

Most people across the political spectrum agree that the country’s infrastructure is in dire need of an upgrade. But Biden’s plan – like most policy proposals in the deeply partisan United States landscape – has strong supporters and fierce critics.

Those rallying behind him hope he can not only repair the country’s crumbling bridges and roads, but usher in a new era of global tax reform.

Those who categorically oppose Biden’s plan argue that it is simply the wrong approach. Brian Riedl, of the Manhattan Institute’s conservative think tank, has derided the US jobs plan as a “giant mess” that throws $ 1 trillion on a “broken system” that has left the United States with some highest infrastructure construction costs and heaviest administrative burdens. the world.

But not all economists and political experts fall into one extreme or the other. Some are not categorically opposed to corporations paying more taxes. But they believe there are more effective and fair fiscal policies to generate funds for Biden’s large infrastructure vision.

Better than debt

For some libertarian economists, raising corporate taxes to fix infrastructure is far from ideal, but they consider it better to borrow money and leave future generations even more in debt.

“I think they need to increase revenue for this plan,” said Scott Sumner, a monetary policy expert at the Mercatus Center at George Mason University. But raising corporate taxes “wouldn’t be my first choice,” he told Al Jazeera, adding that 28 percent is not that high and “wouldn’t be a disaster.”

Sumner thinks a tax on polluting carbon emissions would be the optimal way to finance Biden’s plan, but he doesn’t see it as pragmatic because it would be “difficult to go through Congress.”

The second best option, he said, would be to increase the payroll tax on people who earn more than $ 200,000 a year. A congestion tax on drivers entering central business districts is also an approach he likes in theory, but he believes it has no chance of finding ground with lawmakers. “Our system has so many veto points,” he said.

Painter works on steel beams under Manhattan Bridge, part of New York City’s aging infrastructure [file: Mark Lennihan/AP]

Gilles Duranton, an urban economist at the Wharton School of Business at the University of Pennsylvania, sees some advantages in Biden’s plan – such as the incentive for companies to repatriate cash reserves held abroad.

“A lot of American companies were basically accumulating money without doing much of it,” he told Al Jazeera.

But he says economists still don’t have “the right answer” as to who really bears the brunt of rising corporate tax rates – owners, employees or customers.

“Ultimately, the workers will pay part of it, but it is under the assumption that the world is competitive,” he said. “A good part of the profits made by companies is associated with market power, and a good part is paid by shareholders.”

A new era

Some policy experts are not bothered by the prospect of further inflating the country’s debt or deficit, given that the economy is still recovering from lockdowns and restrictions from COVID-19.

“We’re talking about infrastructure here: it almost pays for itself, increases national productivity, causes fewer accidents, and more easily moves goods and services to places,” said Rob Scott of the Institute for Economic Policy ( EPI) with a progressive tendency.

Matthew Gardner, senior researcher at the Institute on Taxation and Economic Policy, agrees.

“The low cost of borrowing and the urgent spending needs that we are currently facing make deficit and debt reduction a lower priority at the moment,” he said.

Gardner sees the once in a century disruption caused by the coronavirus pandemic as a ripe opportunity to usher in a new era of corporate tax reform to make the system more sustainable and profitable.

“I was disappointed when Congress and President Trump chose to lower the corporate rate from 35% to 21% in 2017 without paying significantly for it,” he told Al Jazeera. “Canceling half of Trump’s rate cut is a sensible response to the huge budget deficits we face today.”

Gardner released a report last year that backs up Biden’s claims that big companies use all kinds of accounting shenanigans to avoid paying taxes.

“The ability of these businesses to avoid paying even a penny of federal income tax in years when they were very profitable is particularly important because corporate income tax is the primary tax. United States that is supposed to apply to profitable businesses, ”he said.

“[They] should help finance the cost of vital public investments, ”Gardner added. “If they don’t pay it, they don’t pay their fair share.”

For Scott of EPI, just raising the tax rates of big tech companies like Apple Inc may not solve the problem of properly taxing outsourced production. He proposes using the sales factor allocation method that would require all companies – whether domiciled in the United States or overseas – to pay taxes on their share of global profits made in the United States.

To help pay for the second part of Biden’s Build Back Better program – the US plan for families to be announced in a few weeks – Scott is advocating for a market access fee or a tax on all foreign investment in the US .

“It’s not up to the Americans or the people who vote here,” Scott said. “Wall Street will cry ‘bloody murder’ about reducing demand for US assets, but it’s totally ‘America first’.”

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