What you need to know about options to pay for infrastructure

President Biden and lawmakers on both sides of the aisle are interested in enacting infrastructure legislation this year, but face challenges in figuring out how to pay for it.

Biden in late March released a $2.25 trillion infrastructure proposal, called the American Jobs Plan, that he mainly proposes to pay for through higher taxes on corporations. Republicans are interested in a smaller bill, and are strongly opposed to Biden’s proposed corporate tax increases.

The ultimate offsets in an infrastructure bill depend on a number of factors, including the amount of spending and whether legislation is bipartisan or is expected to only get Democratic votes.

The administration has been having discussions with a group of Republican senators, led by Sen. Shelley Moore Capito (R-W.Va.), to see if they can reach a deal on a bipartisan package. GOP senators last month proposed spending $568 billion on infrastructure. The White House on Friday proposed a counteroffer of about $1.7 trillion. 

The White House’s counterproposal did not focus in detail on pay-fors, but it emphasized that the administration thinks that raising corporate taxes is an ideal way to pay for infrastructure.

“Our approach should ensure that corporations are paying their fair share,” the administration wrote in a memo obtained by The Hill.

Here’s what you need to know about various proposed options to pay for infrastructure spending.

Corporate tax increases: Biden has proposed to pay for the majority of his plan primarily through corporate tax increases.

The president’s proposal would increase corporate tax revenue in several ways, including increasing the corporate tax rate from 21 percent to 28 percent, increasing the rate of a U.S. minimum tax on corporations’ foreign earnings, and creating a 15-percent minimum tax on large corporations’ income as it’s reported on financial statements.

Many congressional Democrats also back paying for infrastructure through corporate tax increases. Biden and Democratic lawmakers argue that Republicans’ 2017 tax law, which cut the corporate rate from 35 percent to 21 percent, was too generous to corporations. They also argue that corporations should pay for infrastructure investments because they benefit from them.

But congressional Republicans view raising corporate taxes and revisiting their 2017 tax law as a non-starter, and they argue that increasing corporate taxes will hurt the economy.

Some congressional Democrats are wary of corporate tax increases that are as large as what Biden proposed. Sen. Joe Manchin (D-W.Va.) said he would prefer to raise the corporate tax rate to 25 percent, rather than 28 percent.

Strengthening IRS enforcement: Biden has proposed paying for his infrastructure plan in part through increased tax enforcement against corporations.

The president has also released a $1.8 trillion proposal focused on child care and education called the American Families Plan that he proposes to pay for through increased tax enforcement as well as tax increases for high-income individuals.

The administration estimates that providing an additional $80 billion in funds to the IRS over a decade and increasing the amount of information that financial institutions have to report to the agency would raise about $700 billion over 10 years.

Strengthening tax enforcement could be an appealing way for policymakers to pay for infrastructure spending because both Democrats and Republicans want to reduce the amount of unpaid taxes that individuals and businesses already owe. The topic came up at a recent meeting between Biden and congressional leaders in both parties.

The Treasury Department estimated in a report released Thursday that the “tax gap” between taxes owed and taxes paid was about $600 billion in 2019. IRS Commissioner Charles Rettig has suggested it could be even higher, hitting $1 trillion annually.

While Republicans and Democrats are both concerned about the tax gap, they lack consensus about exactly what should be done to reduce the amount of unpaid taxes. Democrats are supportive of Biden’s approach, but Republicans are skeptical of giving the IRS as much money as Biden has proposed. Republicans are also concerned that Biden’s proposals could result in the IRS infringing on taxpayers’ rights.

Congressional Budget Office scoring rules also pose a challenge to using increased IRS funding as a revenue raiser.

Gas tax: The Problem Solvers Caucus, a bipartisan group of centrist lawmakers, has suggested that increasing the federal gas tax could be an option to pay for infrastructure. The U.S. Chamber of Commerce has also long backed a gas-tax increase.

But raising the gas tax is unpopular with policymakers on both sides of the aisle, who view a gas-tax increase as a tax increase on the middle class. Biden has pledged to not raise taxes on individuals and households making under $400,000 annually.

User fees: Republicans say they want to pay for infrastructure through user fees, though they have yet to detail what exactly their proposed user fees would look like.

GOP lawmakers, including in the senators’ $568 billion proposal, have suggested that a fee on electric vehicles could help to pay for an infrastructure bill. Some Republican lawmakers have also suggested that a vehicle miles traveled fee, perhaps one focused on commercial trucks, could be a potential revenue-raising option.

The Biden administration, however, has expressed opposition to any user fees that violate the president’s $400,000 pledge.

Some Democrats who are key players on transportation issues have expressed interest in vehicle miles traveled fees in the past, but say that the idea needs to be tested further before it’s implemented at the national level.

Democrats also argued that an electric vehicle fee would not raise a sufficient amount of revenue, given that electric vehicles make up only a small portion of all vehicles.

Repurposing unspent federal funds: Republican senators suggested in their proposal that infrastructure spending could be offset in part by repurposing unspent federal funds, such as from previously enacted coronavirus relief laws.

But such an idea wouldn’t be Democrats’ first choice.

When asked about this idea during Thursday’s press briefing, White House Press Secretary Jen Psaki said that in that scenario, the administration “would need to assess whether these funds are needed and not take them away from fighting the pandemic that we continue to battle every day.”

Deficit spending: Given the challenges in finding a consensus to pay for infrastructure spending, one option could be to not offset the cost of some or all of legislation.

Some Democrats and left-leaning economists have expressed openness to partially deficit-finance an infrastructure package, given that interest rates are currently low.

But coronavirus relief packages that Congress passed this year and last year have already added significantly to the debt, and some lawmakers may not want to add even more to the debt amid concerns about inflation.

Biden has proposed fully paying for his infrastructure proposal, and GOP senators said in their proposal that they don’t want an infrastructure bill to add to the debt.

When asked recently if the White House would be willing to not pay for some or all of an infrastructure bill in order to get a bipartisan deal, Psaki suggested that such a discussion was premature.