The schisms center on the White House’s decision to try to raise rates on major U.S. corporations and unwind some of the core tax cuts adopted under then-president Donald Trump in 2017, in keeping with Democrats’ campaign promises in the past election.
Democratic lawmakers heralded the White House for delivering on these commitments as part of Biden’s new infrastructure plan, arguing corporations can afford to pay more each year. But Republicans decried Biden’s proposal as a nonstarter that threatened to sully negotiations even before they truly can begin.
“This is the biggest economic blunder of our lifetime,” said Rep. Kevin Brady (Tex.), the top Republican on the tax-focused House Ways and Means Committee. “As you’re trying to rebuild the economy from the biggest hit we’ve had in 90 years, why would you impose a massive tax hike on the very Americans businesses [that] you want to rehire workers?”
Adding to the criticism, an advocacy organization representing major companies including AT&T, FedEx, Kimberly-Clark, Home Depot, Toyota and UPS blasted Biden’s tax plan. Powerful business groups led by the U.S. Chamber of Commerce prepared to take similar aim at the revenue raisers included in the president’s infrastructure proposal. Hours after its release, the group said the prospect of corporate tax increases threatened to undermine their support for the very sort of infrastructure spending they have sought in Washington for years.
“The way [he’s] proposed to pay for it is misguided,” said Neil Bradley, executive vice president of the Chamber, promising a lobbying blitz to come. “It will actually obviate all the economic gains we could possibly gain in infrastructure.”
The early jockeying underscores the difficult political terrain the White House must traverse as it seeks to advance the centerpiece of Biden’s economic agenda. Even Biden himself recognized the potential pitfalls as he debuted his infrastructure plan in Pittsburgh on Wednesday and touted its prospects for giving the economy a much-needed jolt.
“Everybody’s for doing something on infrastructure. Why haven’t we done it? Well, no one wants to pay for it,” the president said.
But the disagreements also raise the possibility that Democrats may have little choice but to use special legislative maneuvering to advance their economic policy priorities. The process known as reconciliation helped party lawmakers adopt the $1.9 trillion coronavirus stimulus over GOP objections only weeks earlier, though Democratic leaders say they are trying once again to work with Republicans toward brokering a deal.
“We’re going to try for a bipartisan” deal, said Rep. Rosa L. DeLauro (Conn.), the Democratic chairwoman of the House Appropriations Committee. But, she added, Democrats’ tolerance for long-stalled negotiations is low.
“You can’t sit around and not do anything,” she said.
The White House declined to comment. Senior administration officials, speaking on the condition of anonymity this week before the proposal was announced, said the tax proposal is “centered on making our corporate tax system more competitive and encouraging domestic investment.”
Under his proposal, known as the American Jobs Act, Biden chiefly seeks to pay for his infrastructure spending by raising the corporate tax rate to 28 percent from 21 percent. The White House also proposes other tax increases and policy tweaks to ensure companies do not dodge their bills domestically by shifting their profits around abroad.
Additional changes endorsed by the president aim to ramp up U.S. enforcement against foreign tax havens and eliminate federal tax breaks for fossil fuel companies, part of an effort to invest billions of dollars toward combating climate change. The Biden administration is expected to unveil another round of tax hikes targeting high-wealth Americans as part of a second proposal, largely focused on social safety net programs, that it plans to release in April.
The tax increases together mark a reversal from some of the cuts imposed under Trump, which lowered the corporate rate from 35 percent — the highest among major nations in the Group of 20 — to 21 percent. Trump said at the time that the change, along with major tweaks to the way the U.S. handles profits made and kept abroad, might encourage companies to repatriate their dollars, hire more workers and invest more heavily in their domestic operations.
But the legacy of the tax cuts proved more complicated, with few analysts attributing the overall strength of the economy in the years before the pandemic to the law’s impact.
“The whole theory of the Trump tax cuts were they were going to increase investment by corporations,” said Steven Rosenthal, a senior fellow at the nonpartisan Urban-Brookings Tax Policy Center. “That increased investment by corporations would result in increased productivity by workers. And when workers are more productive, they in theory can negotiate higher wages. We saw none of that.”
Many Democratic lawmakers have pointed to a slew of reports since 2017, including an analysis two years ago from the nonpartisan Congressional Research Service that found lowered corporate rates had only a “relatively small” effect on the economy. The report soon joined a growing body of evidence illustrating that the tax cuts did not pay for themselves, as Trump contended at the time, because they failed to generate enough economic activity to make up for billions of dollars in lost corporate tax revenue.
Sen. Ron Wyden (D-Ore.), chairman of the tax-focused Senate Finance Committee, said his panel’s own work illustrated many companies also saw their yearly taxes fall by 50 percent as a result of domestic and international changes under Trump.
“Everybody ought to pay their fair share, and certainly that applies to mega corporations,” said Wyden, who plans to put forward proposals for reform in coming weeks.
Republicans, however, have sought to defend the legacy of the Trump tax cuts — which they said had helped produce a robust economy, lower unemployment and a surging stock market in the months before the coronavirus pandemic precipitated the worst economic crisis since the Great Depression.
Brady, the top Republican tax policymaker, said the rates Biden seeks to impose would reverse some of those gains as the economy teeters back to full strength — while putting the U.S. closer to the top of the list of the world’s highest-taxing countries, with business rates he described as “worse than China.”
“Raising taxes in the middle of an economic crisis is incredibly misguided,” Sen. Mike Crapo (Idaho), the top Republican on the Senate Finance Committee, added in a statement after Biden release his blueprint.
Garrett Watson, a senior policy analyst at the right-leaning Tax Foundation, said Biden’s plan could have the added effects of making the country “less competitive.” Pointing to the increase in the corporate rate, he said “across-the-board incomes would decline” under the White House’s proposal as companies passed off the costs to their workers — perhaps in the form of slower-than-anticipated wage growth or other changes such as a reduction in benefits. The bottom 20 percent of earners could over the long term see their income roughly “fall by 1.5 percent” on average, Watson estimated based on the Biden plan.
On Thursday, a White House official contested the claim, stressing infrastructure reform would result in higher wages and more well-paying jobs, which in turn would put more money in workers’ pockets compared with the 2017 tax cuts that failed to deliver their promised benefits.
Facing the prospect of higher tax bills, some of the largest companies in the United States already have signaled a tough political fight ahead. The RATE Coalition, a Washington advocacy group that counts AT&T, FedEx, Kimberly-Clark, Home Depot, Toyota and UPS as members, blasted Biden’s infrastructure proposal for trying to pay for much-needed improvements in a way that would undermine the heightened federal investment.
“This increase would undercut our country’s capacity to compete, shift domestic jobs and headquarters overseas, threaten key infrastructure investments proven to be essential during the pandemic, and reduce worker income,” said Blanche Lincoln, a former Democratic senator from Arkansas who now advises the group.
In recent days, the U.S. Chamber of Commerce has sought to emphasize other ways to pay for infrastructure, including a “user-base model,” Bradley said, that could perhaps impose fees on electric vehicles in addition to the existing gas tax that funds highways.
“We’re going to spend a lot of time educating about the importance of getting infrastructure done, educating about the importance of getting the pay-fors right, and why these tax increases on employers are not the right pay-fors,” he said.
The White House has so far resisted such user fees, expressing concerns about their cost to lower-income Americans.
Four years ago, Trump’s tax cut similarly sparked a lobbying frenzy: More than 7,000 lobbyists sought to influence the policymaking process in 2017, a report from the watchdog Public Citizen found at the time, in a sign of the onslaught that could soon face lawmakers again on infrastructure reform.
Acknowledging the potential opposition on the horizon, Biden on Wednesday stressed he is still open to compromise on how to pay for the package, provided that it kept consistent with one of his key 2020 campaign pledges. “I’m open to other ideas so long as they do not impose any tax increase on people making less than $400,000,” he said.
Democrats say they plan to seek their own changes through the legislative process, looking to smooth over tensions with Republicans and others in the business community. Rep. Richard E. Neal (D-Mass.), chairman of the House Ways and Means Committee, said the panel soon plans to hold hearings in an attempt to find compromise. He also said he is in talks with the White House about additional funding mechanisms, including bonds and “deficit spending.”
But GOP lawmakers also have opposed financing infrastructure spending through more borrowing, rankling Democrats who say it has left little room for negotiation.
“We do not want this to go into the August recess,” Neal said in an interview, acknowledging the goal by House Speaker Nancy Pelosi (D-Calif.) to try to move the package in July. “We need to send a message of confidence to the American people that after a series of false starts on infrastructure for a long time, we’re prepared to accept the nature of the challenge.”
The Problem Solvers Caucus, a group of more than 50 House Democrats and Republicans who seek to forge bipartisan compromise, similarly is working on some potential proposals to help pay for infrastructure reform. The group played a similar role in the months before Congress adopted a $908 billion coronavirus aid package in December, helping to end a protracted standoff over the stimulus.
Rep. Josh Gottheimer (D-N.J.), a co-chair of the caucus, said he still believes there is a “very big opportunity for bipartisanship,” citing the fact that many districts are like his — in need of federal cash to fix long-stalled road and bridge repairs.
“If the Republicans refuse to engage, we’ll have to have a different conversation,” he said. “Based on my conversations, there’s a real desire to have a bipartisan path here.”