Weeks of negotiations over President Joe Biden’s infrastructure plan, so far hallmarked by over $1 trillion in concessions by the Democrats and much more paltry counter-concessions by the Republicans, hit a new phase this week when Biden reportedly offered to give up the tax hike that would have produced the lion’s share of revenue to pay for the plan.
The Washington Post first reported on Thursday that Biden had offered to take a proposed increase in the corporate tax rate to 28 percent off the table if Republicans agreed to a 15 percent floor on the corporate tax rate. In Biden’s plan, that minimum rate only applies to companies with an income exceeding $2 billion.
There’s little sign that any Republican will budge in light of that proposed concession, which would toss out the package’s largest revenue generator. The debate over how to pay for the President’s signature infrastructure proposals comes after the GOP has spent years demanding that Democrats pay for their proposals, only to reject every offer they make.
White House Press Secretary Jen Psaki stopped short of confirming that Biden had offered to drop the corporate tax hike, and reiterated that it remains on the table. In response to a question about the 15 percent floor, Psaki replied that “this should be completely acceptable to a number of Republicans who said … their bottom line is they want to leave the 2017 [Trump tax cuts] untouched.”
A GOP-Created Bind
Biden is making such contortions — whether they be real, or in service of demonstrating for Sen. Joe Manchin’s (D-WV) benefit that he’s earnestly trying to win Republicans over — because GOP negotiators have demanded that the package be paid for, and then taken most options off the table for how to do it.
They refuse to allow any deficit spending as part of a conveniently reemergent passion for austerity that lay dormant during the Trump administration. At the same time, they refuse to allow any changes to the tax code established by former President Donald Trump’s 2017 cuts, taking huge swaths of potential revenue sources off the table.
Their specific opposition to the corporate tax hike, Matt Gardner, corporate tax expert at the left-leaning Institute on Taxation and Economic Policy, told TPM, is part of their “hidebound refusal to contemplate anything that reverses any element of the Tax Cuts and Jobs Act.”
“Where is the tax increase that Republican leaders in Congress haven’t expressed opposition to? I can’t find it,” he added.
So far, Republicans have only offered up the vague notion of a tax on usage of the infrastructure along with redistributed COVID-19 aid, and Sen. Roy Blunt (R-MO) tossed out the idea of a tax on electric vehicles at a recent press conference.
The potential concession — feint or real — would be massive.
A green book released by the Treasury shows that hiking the corporate tax rate to 28 percent would raise $857 billion in new revenue. Imposing a 15 percent floor on corporate tax rates would raise $147 billion in new revenue — an estimated $710 billion less.
“The revenue that you raise is not very large,” Steve Rosenthal, a tax expert at Urban-Brookings, told TPM, describing the 15 percent floor as “symbolic.”
He added that the attraction of the floor over the 28 percent corporate rate hike lies in the idea that it would prevent corporations from paying zero in tax, while also potentially constraining the size of the infrastructure bill.
“Both sides will declare victory,” Rosenthal said. “Biden can say that 45 corporations now have to pay taxes, and the Republicans can say, you got us bro. So they both declare victory, but you don’t get any new money.”
So far, in spite of the size of the potential concession, no Republican senators have publicly said that it would sway them.
And for Biden, the size of the concession risks constraining the amount of spending in the infrastructure bill, assuming Democrats continue to play by fiscal rules set by the GOP.
“Without question, the 15 percent minimum tax as outlined so far would be completely insufficient,” Gardner told TPM. “It’d be nowhere near enough money to pay for what we need and it would be nowhere near enough to offset the huge corporate tax cuts that have been enacted in the last couple years, which we really need to do.”
Gardner said that the 15 percent minimum could be made less toothless if it was crafted to be more universal and applicable to all Fortune 500 companies — not just those with income of more than $2 billion. The Biden administration could also announce that it would also aggressively and systematically close corporate tax loopholes, Gardner suggested.
But barring those additions — if the bare 15 percent minimum is “the only game in town,” as Gardner put it — it simply wouldn’t generate enough revenue to cover the infrastructure work Biden has laid out in his plan.
A Global Game
The potential concession comes as the Biden administration seeks to set a global minimum tax rate, making it less tempting for American companies to register in lower-tax jurisdictions.
“We’re in a global game,” Brian Galle, a professor of tax law at the Georgetown University Law Center, told TPM. “We are trying to get other global economies to agree that we’ll have a global minimum that we won’t go below.”
It would be difficult to achieve, but the proposal would see the global corporate minimum tax rate be set at 15 percent. The Treasury Department said on Thursday that it expects the G7 to endorse the plan.
Galle argued that setting the U.S. corporate floor at 15 percent would mark a bigger step forward over the long run to bringing more tax revenue back home. He added that setting a global floor could make further tax increases easier.
“Once you do that, it takes a lot of the downward pressure away from that headline tax rate,” Galle said. “So in some ways, I agree it’s a concession to take the 28 percent off the table for now, but in other ways it’s savvy, if having the 15 percent minimum is the way to negotiate a global tax floor.”