It finally appears that serious discussion is imminent in Washington about infrastructure investments in the United States. This is welcome news and, done correctly, can pay major dividends in economic growth for decades. However, the burdens of the tax plan that President Biden has proposed to pay for his infrastructure bill would fall more on workers and consumers at this time in the country when they can least afford it.
When the coronavirus first struck, many dire predictions were made of the country sinking 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. But hopefully we may now be on the cusp of finally getting the pandemic under control and, wonder of all wonders, our economy is not in a depression. It has recovered in many sectors, led by business employment and investment. Many believed our economy may not have fared as well had it not been so strong going into the pandemic. We must be careful not to cut off the legs that can take us forward in this journey from out of the coronavirus era.
Infrastructure investments are a wise step in this journey. But to fund them with increases in the corporate income tax is a mistake as the corporate income tax is destructive to economic growth. Several global multilateral institutions have concluded this. Raising the corporate income tax using rate increases or other measures has a direct adverse effect on jobs. The National Association of Manufacturers reports that the most common tax increases proposed by Biden, many of which are part of his infrastructure plan, would cost us the same as one million jobs in its first two years and then almost six million jobs during 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. Who bears the remainder of the tax? Other people such as customers and shareholders do. More than 50 percent of Americans hold stock in companies, so that means most of us, which includes the retirees and pension funds holding money for millions of people. Politicians like to talk about the desirability of an even more progressive tax, often citing the corporate income tax as a case. But this is a shallow perspective and, when you look at who really bears the tax, it is often instead a case of regressivity.
Similarly shallow are some of the reasons cited for raising the corporate income tax now, such as making firms that are profitable pay their “fair share” of tax burdens. But some things cannot be dismissed with sound bites. Some firms cut their tax burdens as they made new investments in plants and other items under the Tax Cuts and Jobs Act.
Think back a few months when this was of utmost importance to all of us at 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 that passed the Senate unanimously to incentivize business to stay open, employ people, and make capital investments in the pandemic. Remember that? It was not long ago at all.
There are much better alternatives to fund infrastructure than damaging tax increases. These include user fees, public private partnerships, and sales from underused government assets. Let us embrace infrastructure, but in an effective and efficient way to benefit everyone.
Michael Fryt is treasurer and member of the board of directors at National Taxpayers Union and Pete Sepp is president for National Taxpayers Union.