Beyond roads and bridges, President Joe Biden is trying to redefine infrastructure not just as an investment in America the place, but in its workers, families and people.
Beyond roads and bridges, President Joe Biden is trying to redefine infrastructure not just as an investment in America the place, but in its workers, families and people. The first phase of his “Build Back Better” package unveiled in Pittsburgh would unleash $2 trillion in new spending on four main hard infrastructure categories — transportation; public water, health and broadband systems; community care for seniors; and innovation research and development.
Those would be paid for by permanently raising the corporate tax rate from 21% to 28%, the people said, which would unwind the lower corporate rate put in place by the Trump administration.
President Joe Biden and a bipartisan group of lawmakers discussed how to pay for his $2.3 trillion infrastructure package during a meeting at the White House Monday, April 12th according to attendees, during which Republicans said they remain opposed to raising taxes on corporations and pushed for a narrower package. Mr. Biden showed an openness to breaking his proposal into smaller parts and considering different ways to pay for it, according to lawmakers who attended the meeting.
The meeting was the latest in a series the White House has held with lawmakers on Capitol Hill involved in infrastructure funding and policy, though it will be the first since Mr. Biden rolled out his framework. Biden and Democratic leaders have said they hope to secure GOP support for the $2.3 trillion infrastructure package the president unveiled late last month.
“We hope to do this in the most bipartisan way possible,” House Speaker Nancy Pelosi (D., Calif.) told reporters. “If we have to go to reconciliation, that’s a lever, but I hope it’s not something that we need to do.”
Bills using reconciliation in the Senate can advance with just a simple majority, rather than 60 votes. With an evenly divided Senate, liberal lawmakers’ hope of passing gun control and voting rights were dashed last week when a key Democrat, Sen. Joe Manchin of West Virginia, said he would oppose the changes to the filibuster, which creates a 60-vote threshold.
Infrastructure projects can spur economic growth in unforeseen ways and that means they do not have to be paid for directly. Traditional accounting-based viability assessments fall short when you cannot take into account the collateral benefits of your project, simply because they are known unknowns.
It is an open secret that many of these large-scale Chinese projects incur bad debt in an accounting sense, as own-account P&L cannot justify billions spent on them. That said, the economy as a whole ends up stronger, and improved fundamentals make it very logical to ignore these bad debts. For example, the High-Speed Rail network expenses were indirectly paid for by increased efficiency from reduced dependence on freight corridors. Airports, roads and rail lines bring far-flung places within reach, helping factories spread out, reducing poverty in hinterlands, and reducing pollution in coastal cities. New cities bring factories and the other way around, creating a symbiotic cycle of virtue. Chronicling China’s rise, Thomas J. Campanella of Cornell University sums up as follows “We need a bit of China to be stirred into our game. We’re over-privileging the immediately affected residents. What we don’t do is give requisite weight to the larger society”.
During World War II, the US-financed three-quarters of US Government spending in 1941-45 with War Bonds (over USD 5 Trillion today). In practice that is what China does too – except that parties across from each other on a negotiating table represent different line items on the same ledger. Ours brings more accountability and transparency if rightly structured.
Highway and rail proposals must go through the House Transportation and Infrastructure Committee, where Rep. Dina Titus, D-Nev., wields power as the chairwoman of a subcommittee that will shape the Biden bill. “President Biden put forward a framework that would update and improve our infrastructure while creating millions of new jobs,” Titus said. “Now it’s up to us to work out the details over the next few months.”
House Speaker Nancy Pelosi, D-Calif., has called on committee chairs to reach across party lines for input from Republicans on the infrastructure bill. But Republicans have panned the legislation as giveaway and handout to unions and Democratic special interest groups. GOP leaders also said the plan would be paid for with a rollback on Trump-era tax cuts that benefited most Americans.
Funding Biden’s infrastructure initiative with tax hikes has been controversial. Raising the corporate tax rate to 28% from 21% would generate some $700 billion over 10 years, one of the people said. The administration is also eyeing a new global minimum tax. Biden promised on the campaign trail not to raise individual taxes on those earning less than $400,000 but new details on the individual tax hikes were scant at Tuesday’s briefing.
Tax hikes on the wealthy, most likely changes to the top rates, are expected to pay for the human capital investments coming in two weeks. “It seems like President Biden has an insatiable appetite to spend more money and raise people’s taxes,” said Rep. Steve Scalise of Louisiana, the GOP whip, in an interview.
However, Republicans have pushed back on the president’s plan. “And I’m going to fight them every step of the way because I think this is the wrong prescription for America,” Senate Minority Leader Mitch McConnell said. McConnell says the $2-trillion price tag is too high. “We ought to build that which we can afford and not either whack the economy with major tax increases or run up the national debt even more,” McConnell said.
The president is putting the pressure on Congress to pass his $2-trillion infrastructure plan, called the American Jobs Plan. “Congress should debate my plan. Change it or offer alternatives if they think that’s what they need to do. But Congress should act,” he said.
Key Takeaways – The Substance of the Plan
- The new investment in basic infrastructure will draw bipartisan support, but the focus on “green” energy and related infrastructure will turn off many Republicans. A key question in the Senate will be whether Senator Joe Manchin (D-WV) will support a bill that will very likely be disadvantageous to the coal industry, which is important in his state. In order to pass in the Senate, changes likely will be needed to accommodate Senator Manchin.
- House and Senate members will try to add their own “pet” infrastructure projects to the bill to benefit their districts or states, which could negatively impact the effort’s reputation in the public as the debate evolves.
- The tax provisions outlined by the President will be expanded as the House and Senate write their own bills. The President’s plan only addresses corporate tax rates and provisions, but the House and Senate will also add tax increases and provisions relating to individuals as well. We have highlighted these potential provisions over the past several months. They include capital gains tax increases, changes to the estate tax, and a return to the 39.6% tax bracket for the top earners, among others. These proposals, which will be subject to significant debate, are likely to be added to a final plan from Congress in the months ahead. We also expect the corporate tax provisions to be expanded as well. Congress doesn’t often get a chance to reform the tax code, and Democratic lawmakers in particular will press hard to get preferred tax policy provisions included in the final bill.
- Notably, the Biden proposal doesn’t contain an increase in the federal gasoline tax. It also doesn’t propose any new “user fees,” such as a tax on miles driven that has been suggested by some lawmakers. It also doesn’t mention any other ideas that have been floated to finance infrastructure in the past, such as the creation of an infrastructure bank, increased privatization of certain infrastructure projects or the reinstatement of “Build America Bonds,” among others.
- While support for the plan will primarily come from Democrats and opposition from Republicans on Capitol Hill, one interesting group to watch will be the business community. They will embrace the general infrastructure improvements but are irked that they have been asked to pay for them through higher taxes. A divided business community would aid Democrats in passing this bill.