Biden explained his proposition as “the largest American jobs investment since World War II” in a speech in Pittsburgh on March 31.
By spending on infrastructure, Biden promises to create millions of well-paying jobs, expand the economy, and make the United States more competitive vis-a-vis China.
The eight-year infrastructure plan will be entirely paid for by tax increases on U.S. companies spread over 15 years. Raising the federal corporate tax rate to 28 percent from 21 percent is one of the several ways offered in Biden’s infrastructure plan.
Research, including ones led by the Congressional Budget Office (CBO), though, shows that increasing taxes would lead to less investment, less productivity, fewer jobs, and lower wages.
The administration has to make the case for tax increases as “the benefits of the Biden infrastructure plan won’t outweigh the cost to the economy of the tax increases,” Scott Hodge, president of the conservative-leaning think tank Tax Foundation, said in a report.
“Federal investment financed by debt or taxes could do more economic harm than good because federal borrowing and taxes crowd out private investment,” Hodge wrote.
To evade damaging the economy, he said federal investments should be funded through cutting spending in other discretionary programs.
The CBO models, for instance, show that federal investment backed by an increase in taxes would lead to lower economic output and personal consumption.
Increasing the corporate tax rate to 28 percent would raise the U.S. federal-state combined tax rate to 32.34 percent, according to the Tax Foundation. This increase will make the U.S. corporate tax rate the highest in the OECD, reducing U.S. competitiveness. The average corporate tax rate among the OECD countries, excluding the United States, is 23.4 percent.
“What we’re talking about is just raising it to a rate that is lower than it has been through the vast majority of the time—over the last 70 years,” White House press secretary Jen Psaki said at a press briefing on April 1. She defended the corporate tax hikes saying that 91 of the Fortune 500 companies paid no federal taxes in 2018.
“That is not something that the American people believe is fair, that we believe is fair, and what we’re talking about here is making adjustments to the tax code to make it more fair,” Psaki said.