President Biden’s Infrastructure Plan Brings Suspect Benefits at High Costs
Last week, Senator Kristen Gillibrand was mocked for tweeting a laundry list of progressive priorities that she claimed were infrastructure and deserved to be included in President Biden’s proposed $2.3 trillion infrastructure package. Despite the ridicule on social media, her statement was in the spirit of President Biden’s ideas. Out of $2 trillion, only $135 billion – less than 7% – will go to roads, bridges and tunnels according to President Biden’s outline.
Rather than trimming waste to reduce the proposal’s cost, President Biden has drafted a plan to fund infrastructure through corporate tax increases, including raising the federal corporate income tax rate from 21% to 28%. While specific legislation has not yet been proposed, the proposed corporate tax rate increases are bad news for businesses and workers, especially as the U.S. economy claws its way out of the pandemic.
Making matter worse, current projections reveal that the corporate tax rate increase is estimated to generate only $640 billion on a dynamic basis over 10 years, roughly $1.4 trillion short of the tax revenue needed to fully fund the American Jobs Plan.
In 2021 thus far, the federal government has spent $2 trillion on the American Rescue Plan Act, and President Biden recently unveiled a $1.5 trillion discretionary spending budget for the 2022 fiscal year (FY). If Congress enacts President Biden’s proposed infrastructure plan and budget, discretionary spending for FY 2021-2022 will approach $6 trillion. To give a sense of scale, that is 140% more spending than FY 2018 and 2019 combined.
President Biden’s proposed tax hikes will also negatively impact the livelihood of many Americans, present and future. The economic literature reviewed by the Tax Foundation finds workers bear anywhere from 50% to 100% of the costs arising from corporate tax increases. The National Association of Manufacturers (NAM) found that 1 million workers would lose their jobs under President Biden’s corporate tax plan.
According to the Tax Foundation, increasing the federal corporate income tax rate to 28% would raise the average combined state and federal corporate income tax rate to 32.34% – the highest of any OECD country. Additionally, the US would fall from 21st to 30th in international tax competitiveness and from 19th to 33rd in corporate tax competitiveness.
This has serious implications for long term economic growth, as businesses will have fewer resources to reinvest in capital. NAM estimates capital investment will decrease by $83 billion in 2023, or a 2.1% decline against the baseline according to Tax Foundation. This decrease in capital stock will set American economic growth on a much slower pace and cost Americans greatly in the long run.
The massive increase in spending included in the American Jobs Plan will cost future generations of Americans dearly as spendthrift practices in the federal government only appear to be increasing. America does need revamped infrastructure, but ideas like the American Jobs Plan come with dubious infrastructure benefits and a steep price tag.