Believe it or not, “Infrastructure Week” appears to finally be here. Unfortunately, it carries with it a raft of tax hikes that put the lie to the campaign-trail branding of Joe Biden as a moderate, at least on taxes.
Fresh off the passage of a $1.9 trillion spending bill (which, in truth, will probably end up costing taxpayers well over $3 trillion), President Biden is now proposing a $2 trillion infrastructure package. It may not even take six months for Biden to put American taxpayers on the hook for $5 trillion in spending.
And with this bill, the cost is no abstract cost being kicked down the road to future generations. To pay for spending on infrastructure, Biden plans to undo many of the positive changes made in the 2017 tax reform law.
First, Biden proposes to raise the corporate tax rate back to 28 percent from its current 21 percent rate. Should this happen, Biden would return American businesses to a state of competitive disadvantage with the rest of the world.
Currently, the average corporate tax rate in Organization for Economic Cooperation and Development (OECD) countries is 23.5 percent — meaning that the United States’s is already on the high side when factoring in state and local taxes, which brings the average U.S. corporate tax rate to 25.8 percent. Biden’s proposal would push the combined American rate to 32.8 percent, the highest among OECD nations.
And that’s not all the tax hikes Biden has in store for American businesses. Biden also proposes doubling the minimum tax rate on global intangible low-taxed income (GILTI) from 10.5 percent to 21 percent. Biden would also remove the exemption of the first ten percent of qualified business asset investment (QBAI) from a business’s calculation of GILTI, and enact a 15 percent minimum book tax.
These changes would transform the tax on GILTI from an anti-avoidance measure and instead reduce the power of the tax code to shape corporate decisions. The effect would undoubtedly be to reverse the TCJA’s efforts to encourage multinationals to headquarter their businesses in the United States. Ever-increasing taxes on American multinationals are all fun and games until those multinationals simply shift their headquarters to a more business-friendly environment.
The remaining revenue Biden proposes to raise would come from eliminating tax provisions for fossil fuel companies. This capitalizes on the mistaken public perception that oil and gas companies benefit disproportionately from the tax code. This is false, and in fact the opposite is true — in 2018, despite accounting for 79 percent of energy production, fossil fuel companies received just 17 percent of tax benefits. The remainder went to renewable energy businesses.
And indeed, most of the tax provisions that benefit fossil fuel companies are necessary parts of an equitable tax code, largely concerning cost recovery and prevention of double taxation. Those provisions that do provide special benefits to energy companies and should be eliminated, such as the credit for “energy research” (on top of the R&D tax credit), benefit both fossil fuel and renewable energy companies.
While Biden is at least being upfront with taxpayers about the costs of his massive spending agenda this time around, that shouldn’t make taxpayers feel much better about it. It’s a reminder that Democrats have two modes when it comes to spending bills: either don’t pay for it and leave the cost to future generations, or do pay for it, but with massive, poorly-targeted and structured taxes on the drivers of economic growth.
Thus far in 2021, taxpayers appear to be getting a dose of each from the candidate media outlets assured them was a milquetoast centrist.