President Joe Biden has proposed a $2 trillion infrastructure investment plan that would strongly seek to raise the U.S. corporate tax rate from 21 percent to 28 percent as a major source of funding, but few in Washington, including White House officials, really think the corporate tax rate will finally rise to that figure.
Biden was asked by a reporter Wednesday if he would be willing to accept a corporate tax lower than 28 percent, and he made it clear that he was not averse to making compromises.
“I’m willing to listen to that, and I’m not at all averse to it,” Biden said.
Reuters interviewed more than 10 top corporate executives and White House officials involved in promoting the infrastructure plan. Most of those interviewed expect the White House and business groups to compromise and accept a 25 percent corporate tax rate, a figure neither side wants but both sides can live with.
“We don’t like it, but we expect it will be 25 percent,” said a lobbyist for a leading U.S. energy company, speaking on condition of anonymity. “If that’s the case, we will consider that a victory.”
The tax cuts advanced by former President Donald Trump and the Republican Party in 2017 lowered the U.S. corporate tax rate from 35 percent to 21 percent, but many large U.S. companies pay much less in taxes. Increasing corporate payments in the more than $4 trillion federal budget is a key part of Biden’s plan to restructure the U.S. economy. The plan is intended to reduce inequality and counteract the rise of China.
Tax and legal experts say U.S. multinationals, including Alphabet Inc’s Google, Facebook Inc and Merck, have been good at reducing their tax burdens.
Amazon Chief Executive Bezos said Tuesday that he supports a corporate tax rate hike as part of an infrastructure reform plan. Biden said last week that Amazon is one of 91 Fortune 500 companies that “use multiple loopholes to avoid federal income taxes,” in contrast to middle-class families who pay more than 20 percent of the tax rate.
Biden’s infrastructure and investment plans include building bridges and paving roads, financing affordable housing and senior care workers.
In addition to raising the corporate tax rate, the White House is pushing to implement a corporate minimum tax burden in the U.S. and around the world and to strengthen enforcement of the tax code, U.S. Treasury Secretary John Yellen said Wednesday.
Trade groups, including the U.S. Chamber of Commerce, and Sen. Joe Manchin, a Democrat, have said the 28 percent tax rate is too high; Manchin, who is from West Virginia, has taken moderate positions on certain issues. Manchin, however, has indicated that he may support a 25 percent tax rate. The Senate currently has 50 seats each for Democrats and Republicans, so Manchin’s support is crucial to the bill’s passage.
The White House knows the tax rate increase to 28 percent will face opposition, including from some Democrats. Three administration officials familiar with the discussion told Reuters that the White House is now preparing to discuss alternatives, including setting the tax rate at 25 percent.
Unlike the epidemic assistance bill, which has generated a sense of urgency because of the impending expiration of unemployment benefits, the White House believes the infrastructure plan can be debated and expects Congress to play a more critical role. The epidemic assistance bill was passed by Congress and signed into law by President Biden in mid-March.
In 2013, then-Vice President Biden and President Obama proposed lowering the corporate tax rate from 35 percent to 28 percent, and the tax rate for manufacturers to 25 percent, but were blocked by Republican lawmakers. So far, Republican lawmakers have not expressed support for raising the corporate tax rate and have criticized the plan as too large.
“The debate is welcome. Compromise is inevitable. Change is certain,” Biden said in a speech at the White House on Wednesday. He said he would soon invite Republican lawmakers to the White House to confer and that the administration is “open to good ideas and good faith consultations.”
According to the Committee for a Responsible Federal Budget, a nonprofit public policy organization, raising the corporate tax from 21 percent to 28 percent is expected to generate $850 billion in tax revenue, which would account for a large portion of the money needed for Biden’s base-building plan.
If the corporate tax were raised to 25 percent, the committee said, it would bring in slightly less than $500 billion in tax revenue, and Democrats would have to seek additional sources of tax revenue or cut spending.
Given Biden’s campaign promise not to raise taxes on Americans earning less than $400,000, that makes raising the gas tax or introducing taxes such as the drive-through tax politically unfeasible.
“It’s a very difficult tax commitment,” said Maya MacGuineas, the committee’s chairwoman.