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Analysis: Taxes will have to go up (for someone)

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Now, like a family with a calculator at the kitchen table going over its bills, American policymakers and business leaders are slowly coming around to the most obvious mathematical truth: Companies will need to shell out funds if they want the government to invest in President Joe Biden’s goal of bringing the nation’s infrastructure up to scratch.
Here's what's in Biden's infrastructure proposalHere's what's in Biden's infrastructure proposal
On this, even Amazon CEO Jeff Bezos agrees. At least, parenthetically, he seems to. Here’s what he said: “We recognize this investment will require concessions from all sides — both on the specifics of what’s included as well as how it gets paid for (we’re supportive of a rise in the corporate tax rate).”
Wait. What did Jeff Bezos say? Before you give Bezos a gold star for his benevolence in offering to pay more taxes, note that his company has been feuding with progessives like Sens. Bernie Sanders and Elizabeth Warren about its relatively small tax bill — it claims to pay billions but admits to exploiting loopholes — and labor practices that could be affected by any tax package driven by Democrats.
Infrastructure spending would help Amazon. Also note that government spending on US roads, rails and other bits of infrastructure will theoretically help Amazon more than just about any other company.
Nothing specific here. Finally, Bezos endorses Biden’s focus on infrastructure spending, but does not endorse Biden’s infrastructure plan. It’s a bold statement in favor of nothing specific. And yet it’s still quite interesting, almost like a plea for Republicans to take part in the process. Read the whole thing here. It’s 91 words.
The banker’s view. Compare the brevity of Bezos with the big banker Jamie Dimon of JP Morgan. In a 66-page letter to shareholders, he both predicts the possible end of American advantage in the world economy and a boom in the US into 2023. It’s a “Goldilocks” scenario that will keep the economy humming and give policymakers chance to use infrastructure spending to address the inequality that makes it easier for some Americans to benefit than other.
He also told the Wall Street Journal the obvious thing: we’re going to have to pay for it.
“(Taxes) are going to have to go up; you can’t run a 10% to 15% deficit forever,” he said. “If people thought their taxes were going toward helping the poor and disadvantaged, they would much prefer to pay a higher amount.”
Feed it more. Continued prosperity, he seems to say, requires the gusher of government money is not turned off and that Biden can successfully pivot from squeezing trillions out of Democrats in Congress to pay for emergency stimulus spending to squeezing trillions out of Democrats in Congress to update the country’s infrastructure for a new, post-fossil fuel economy.
I say he’ll need to squeeze the money out of Democrats since Republicans were united against the Covid relief bill and all signs indicate they’ll now unite against the infrastructure proposal by labeling it as a tax hike.
Tax hikes after tax cuts? The big GOP accomplishment of the Trump years was a massive and permanent corporate tax cut. The tax cut, however, wasn’t offset by cuts in spending, and even before the pandemic hit, the government was on course for massive and growing budget deficits.
The pandemic did hit, however, and the deficits got much bigger than massive.
Now Biden wants to spend even more and leave a New Deal-sized mark on the country.
Infrastructure spending, in theory, has bipartisan appeal, since red states and blue states will benefit, even if Republicans are loathe to give Biden a victory.
Tax hikes, unless they’re aimed at someone else, rarely have any kind of appeal at all.
Biden’s pitch. Treasury Secretary Janet Yellen laid out the balance sheet, blaming the GOP tax plan for the red ink as she pitched the president’s plan to raise the corporate tax rate.
Noting that corporate tax collections have fallen to their lowest level since World War II, Yellen said Wednesday that Republicans’ 2017 Tax Cut and Jobs Act did not lure new production or investment to the US. Instead, it gave companies incentives to send workers and profits abroad.
And: The Republicans’ 2017 tax cuts, which slashed the corporate tax rate to 21% from 35%, meant that the share of tax revenues collected as a share of the economy fell to 1%, the White House said. Historically, corporate taxes have raised about 2% of GDP.
And: The report points to the fact that the share of federal revenue raised by the corporate tax has fallen steadily since 1950 and now sits at below 10%. Meanwhile, the share of federal revenue raised by individuals now exceeds 80%.
What would Biden’s plan do? This is straight from Luhby and Lobosco:
Corporate tax hike: Biden would raise the corporate income tax rate to 28%, up from 21%. The rate had been as high as 35% before former President Donald Trump and congressional Republicans cut taxes in 2017.
Global minimum tax: The proposal (read about it here, along with US negotiations with other G20 nations) would increase the minimum tax on US corporations to 21% and calculate it on a country-by-country basis to deter companies from sheltering profits in international tax havens.
Tax on book income: The President would levy a 15% minimum tax on the income the largest corporations report to investors, known as book income, as opposed to the income reported to the Internal Revenue Service.
Corporate inversions: Biden would make it harder for US companies to acquire or merge with a foreign business to avoid paying US taxes by claiming to be a foreign company. And he wants to encourage other countries to adopt strong minimum taxes on corporations, including by denying certain deductions to foreign companies based in countries without such a tax.
Clean energy incentives: The plan seeks to advance clean electricity production by providing a 10-year extension of the tax credits for clean energy generation and storage, and making those credits direct pay. It would also create and expand other incentives. The administration would remove subsidies for the oil and gas industry.
Enforcement: The President also wants to provide more funding to the IRS to better pursue companies that don’t meet their tax obligations.
All of this is an opening bid. The Chamber of Commerce has raised the alarm about the tax hike.
What’s actually possible? West Virginia Democratic Sen. Joe Manchin, the Goldilocks of the Senate, has said he won’t endorse a corporate tax rate over 25%. So that’s the highest Democrats can go unless they find a Republican to vote with them and break a GOP filibuster. (Ahem. that’s an unlikely scenario.)
The bottom line. The individual pain felt by Americans still out of work and the difficulty experienced in sectors like entertainment and restaurants is still very real, but the government’s commitment to spending untold trillions to float the US economy through the pandemic appears to have worked from a macro perspective. But there’s momentum, at least among Democrats, to use this moment to do something big on everything from bridges to broadband. How to pay for it is going to be the trickiest part.
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