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How Do You Pay For a $2 Trillion Infrastructure Plan?

Date: April 12, 2021

Congress was in recess last week but that didn’t stop the institutions of Washington from laying out their objectives for the coming months. One of the biggest issues facing Congress is how to pay for President Biden’s proposed $2 trillion infrastructure plan. Last week Biden laid out his proposals to raise revenue and this week saw Senate Democrats refining the objectives.

Key Takeaways

  • Congress may use budget reconciliation to pass the funding mechanism for an infrastructure package. This will only require a majority of the Senate – not 60 votes.
  • The House plans to consider the legislation by July 4th.
  • One big question – how will we pay for this?

What I Am Watching

  • Who will join Senator Joe Manchin (D-WV) in pushing back on the increase of the corporate tax rate as a way to pay for the infrastructure plan?
  • The House must act first – last week House Democrats vowed to include paid family and medical leave for every worker in President Joe Biden’s infrastructure package. Such a pledge will raise the cost of any legislation.

Really? $2 Trillion?

Yes! President Biden’s infrastructure plan is entitled the American Jobs Plan. It addresses infrastructure – roads, bridges, mass transit – as well as climate change, broadband, electric grid, water systems, workforce training, and dependent care. Then there is the House plan to include paid family and medical leave. The legislation will likely impact our industry for years to come.

Biden’s plan could also massively alter the way state and local governments receive funding. In a preview of Biden’s infrastructure bill, White House press secretary Jen Psaki described a “competitive bidding process,” suggesting that transportation grants will be passed through DOT’s discretionary programs rather than formula funding that is currently used. States and other entities would "have to apply for funding for rebuilding the infrastructure in their states or local communities," she said, adding that it's a principle she believes the American people support.

What Are the Options to Raise Revenue?

In addition to a focus on increasing the corporate rate, the Biden administration is focused on raising revenue from multinational corporations.

While Treasury Secretary Janet Yellen announced she is working with G20 countries to agree on a global corporate minimum tax rate, Democrats in the Senate unveiled their own proposal.

The framework released by Finance Committee Chair Ron Wyden (Ore.) and Senators Sherrod Brown (OH) and Mark Warner (VA) generally agrees with what the administration proposed last week when it called for a host of tax hikes on corporations.  Yet there were important differences.
  • The Senate plan endorses Biden’s call to hike the tax rate on multinationals' income from intangible assets like patents, known as GILTI. The Senators did not propose a specific rate but floated the possibility of increasing it to match the tax rate companies pay in the U.S., which would go further than what Biden proposed.
  • The Senate plan also endorses Biden’s proposal to change how companies calculate the tax so they can’t average their GILTI tax bills across all of their overseas operations, which tends to reduce their tax bills. But while Biden proposed requiring companies to calculate the tax on a country-by-country basis, the senators suggest allowing businesses to divvy up their bills between high-tax and low-tax countries, on the theory that it would be easier to administer.
  • And finally, the Senators would retain both Base Erosion and Anti-Abuse Tax (BEAT), albeit with changes. Biden proposed eliminating both provisions.
The Senators want to rewrite BEAT to restore tax breaks for things like solar power and affordable housing that companies can now lose under the tax. They’re also proposing a second, higher BEAT tax bracket, along with its current 10 percent one.

The lawmakers also want to grant FDII benefits to companies based on how much they invest in items like research and development and worker training in the U.S.


Is Anyone Pushing Back?

Senator Joe Manchin (D-WV) has already challenged a key portion of the Biden plan.
On April 5, Manchin said that he thinks a 28 percent corporate tax rate is too high. The West Virginian wants a 25 percent rate instead, and he says he has a group of other Democrats who are ready to stand with him.

Sen. Roy Blunt (R-MO) said Sunday the Biden White House could score "an easy win" on infrastructure if it would just reduce its new plan to focus solely on infrastructure.  Blunt said that of the $2 trillion plan offered last month by President Joe Biden, only about 30 percent of it was truly dedicated to what has traditionally been called infrastructure.

The Senate should not expect any Republicans to vote for the plan, but it will be necessary to have all the Democrats vote in favor.  Therefore, Senator Manchin’s support is key.

But What About a User Tax?

The White House also cemented a position that’s been outlined by Transportation Secretary Pete Buttigieg and others in opposing paying for the bill with user fees like the gas tax or a mileage tax.  Yet the White House press secretary Psaki pushed back stating: “(o)ur view is that corporations can pay more, not that it should be on the backs of consumers and the American people through user fees, which is exactly what it would be." 


MEMA has long supported an increase in the gas tax to pay for highway construction.  We will join with other business groups in opposing efforts to pass on these significant tax increases to our members.
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