It finally appears that serious discussion is imminent in Washington about infrastructure investments in the United States. This is good news and, done correctly, can pay huge dividends in economic growth for decades. The burdens of the tax plan that President Biden has proposed to pay for his infrastructure bill would fall disproportionately on American workers and consumers at a time when they can least afford it.
When the coronavirus first hit, many dire predictions were being made of the country falling into the greatest economic depression of all time. Indeed, when over 30 million people were unemployed last spring, some of these predictions seemed possible, or even likely. Now, hopefully, we may be on the cusp of getting the pandemic under control and, wonder of all wonders, our economy is not mired in a great depression.
Rather, it has recovered in many (although, importantly, not all) sectors, led by business employment and investment. Many believe our economy would not have fared as well had it not been so strong going into the pandemic. Now, we must be careful not to cut off the legs that can carry us forward as we embark (hopefully) on our post-pandemic journey.
Infrastructure investment is an excellent step in that journey. But funding it with increases in the corporate income tax will be counterproductive and is a mistake. The corporate income tax is one of, if not the, most destructive taxes to economic growth. Even multilateral institutions have concluded this. Raising corporate income taxes, through rate increases or other measures, has a direct adverse impact on jobs. The National Association of Manufacturers released a study projecting that the most common corporate and individual tax increases proposed by Biden, many of which are included in his infrastructure plan, would cost us the equivalent of a million jobs in its first two years and nearly six million over the next ten years.
Indeed, studies have shown that between 25 percent and 100 percent of the corporate income tax is actually borne by employees, with 70 percent or higher the most likely number. And who bears the remainder of the tax? Other regular people, such as customers (all of us). And shareholders. Since now more than 50 percent of Americans hold stock in companies, that means most of us again, which includes retirees and pension funds holding money for millions of Americans. Politicians like to talk about the desirability of even more “progressive” taxes, often citing corporate income taxes as an example. But this is a shallow perspective, and when you look through to who ultimately bears the tax, it is often, instead, an example of regressivity.
Similarly shallow are some of the reasons being cited for increasing the corporate income tax now, such as companies that are profitable but are alleged to have not paid their “fair share” of taxes recently. Like it or not, sometimes things cannot be dismissed with simple sound bites. Some companies reduced their tax burdens because they made new investments in plants and equipment, as specifically intended under the Tax Cuts and Jobs Act.
Think back a few months when this was of utmost importance to all of us during the height of the pandemic. Other companies used a loss provision in the Cares Act to offset income in profitable years. Congress created this provision of the law, which passed the Senate unanimously, because it wanted to encourage businesses to stay open and employ people and invest capital during the pandemic. Remember that? Again, not long ago at all.
There are much better alternatives to fund infrastructure than economically damaging business tax increases. These include user fees, public private partnerships, and sales of underused government assets. Let us embrace infrastructure investment wholeheartedly, but in an economically effective and efficient manner.
Michael Fryt is treasurer and member of the board of directors at National Taxpayers Union and Pete Sepp is president for National Taxpayers Union.