President Joe Biden is using his infrastructure plan to take aim at President Donald Trump’s signature economic achievement: His corporate tax cuts.
The administration is calling for $2 trillion in new spending on roads, bridges and a myriad of other projects, and sticking big companies with the bill. To defray its cost, his plan would roll back Trump’s cut in the corporate tax rate — Biden would hike it to 28 percent, from 21 percent — while stiffening a minimum tax on multinational corporations.
That will set the stage for a split-screen debate in Washington in the coming months: Even as Democrats haggle over how to divvy up that $2 trillion, they will simultaneously relitigate — and, they hope, overturn — the centerpiece of Trump’s economic legacy.
While Democrats cast the tax increases as a matter of fairness, they also hope it will make good politics. The coming fight promises to reignite a debate over how much corporate taxes matter for the health of the economy, not to mention the political fortunes of lawmakers.
“This bill is about both highways and highway robbery of our Treasury,” said Rep. Lloyd Doggett of Texas, a senior Democrat on the tax-writing House Ways and Means Committee.
“The plan cracks down on corporate tax dodging — and that will help fuel and fund the roads, jobs, clean energy and broadband that American families have long needed,” he said.
Republicans including Trump — and much of the business community — swiftly denounced the plans.
“Biden’s ludicrous multitrillion-dollar tax hike is a strategy for total economic surrender,” Trump said in a statement Wednesday. “Sacrificing good paying American jobs is the last thing our citizens need as our country recovers from the effects of the global pandemic.”
Republicans didn’t get much traction with their arguments for the tax cuts in the first place — making the U.S. tax system more globally competitive — and Democrats believe they won’t do much better this time around, especially with millions out of work.
At the same time, raising taxes is rarely easy, and increasing rates on corporations should be something Democrats can rally around — no small consideration given their tiny majorities in the House and Senate.
Democrats have complained for years that the 2017 tax cuts gave away too much to big businesses, with its 40 percent reduction in the corporate tax rate and a big new deduction for investing in things like factories and equipment.
Corporate tax bills plummeted in the wake of the law.
The average tax rate on big companies fell by more than half to 7.8 percent in 2018, according to the official Joint Committee on Taxation. And despite a strong economy before the pandemic hit, corporate payments to the Treasury fell to the lowest levels since the Great Recession.
Republicans have long defended the tax cuts, saying they were trying to fix a dysfunctional corporate tax system.
Before their 2017 changes, the U.S. had the highest corporate rate among developed countries, and many companies were stockpiling profits overseas to avoid the tax. A growing number of companies were moving their headquarters abroad in so-called inversions to escape the IRS.
But that argument fell flat with many voters, and Democrats handily won the public relations battle pointing to things like a wave of stock buybacks on Wall Street.
Biden wants to increase the corporate rate to 28 percent, which is actually what the Obama administration had proposed when he was vice president. That would raise about $700 billion.
He would generate even more savings with a flurry of other, more arcane, tax increases with acronyms like QBAI and FDII, that won’t mean much to average voters but will set off alarm bells in corporate tax departments.
Many of those provisions focus on toughening a minimum tax known among experts as “GILTI” that Republicans imposed as part of their 2017 law on U.S. companies operating overseas.
Biden would double its tax rate, eliminate a special deduction against the levy and change how companies go about calculating the tax, among other things.
Democrats contend the targeted provisions encourage companies to move their operations overseas, though the evidence is hardly clear on that score.
Investment and jobs in the U.S. increased in 2018, the first year the Tax Cuts and Jobs Act was in effect, according to JCT.
Republicans say Democrats’ plans will recreate a lot of the problems they were trying to solve because it would leave the U.S. once again with a high corporate tax rate compared to other developed countries.
Under Biden’s plan, businesses would face a combined 32.3 percent corporate tax, including state levies, which would be the highest among developed countries in the Organization for Economic Cooperation and Development. (Excluding the US, the average corporate tax among OECD countries is 23.4 percent).
“Hastily changing the tax system purely for purposes of raising revenues will bring back inversions and foreign takeovers of U.S. companies,” said Sen. Mike Crapo, the top Republican on the Finance committee.
The administration acknowledges the risk of more inversions but says it can address the issue through regulations while also pressing other countries to adopt similar approaches to taxing corporations.