The business community is bracing for Democratic proposals to raise the corporate tax rate to pay for infrastructure spending and other priorities.
Infrastructure is seen as one of the rare areas where Democrats and President Trump might be able to come to a deal, since both sides have called for improvements to the nation’s roads, railways and bridges.
The problem is how to pay for the new spending.
{mosads}Many in Washington expect Democrats to push for a hike in the corporate tax rate, which was slashed under the tax law championed by Trump.
“I have no doubt that it will be considered,” said Marcia Hale, president of the infrastructure advocacy group Building America’s Future.
That’s a non-starter for business groups, and likely will be for Trump and most congressional Republicans as well.
“Talk of repealing any part of the tax reform bill is a non-starter,” Ed Mortimer, U.S. Chamber vice president of transportation and infrastructure, said in a statement to The Hill.
The GOP tax law cut the corporate tax rate from 35 percent to 21 percent as part of an effort to make the U.S. more in line with other countries.
Many Democrats also thought the corporate tax rate was too high at 35 percent, but view the GOP cut as too large. Congressional Democrats also voted unanimously against the tax law, arguing that it disproportionately benefited businesses and wealthy individuals.
Democrats have already released some proposals to roll back the corporate tax cut and other aspects of the GOP tax law in order to pay for infrastructure.
Last year, top Senate Democrats proposed raising the corporate rate to 25 percent, and rolling back parts of the tax law that benefit the wealthy, to fund $1 trillion in infrastructure investments. The Democrats said that the corporate-tax increase would raise $359 billion over 10 years.
Outgoing Rep. John Delaney (D-Md.), who is running for president, has floated increasing the corporate tax rate to 23 percent to raise about $200 billion for infrastructure.
“This small change to the new tax law would be more than worth it, because smart infrastructure investment helps businesses compete and grow,” Delaney said in a letter to Trump earlier this year.
Henry Connelly, a spokesman for House Minority Leader Nancy Pelosi (D-Calif.), the favorite to become Speaker next year, said “Democrats are looking at a variety of options to pay for bold infrastructure investments in the next Congress.”
Rep. Peter DeFazio (Ore.), the top Democrat on the House Transportation and Infrastructure Committee, said on a call with reporters the day after the midterm election that some people are talking about rescinding some of the tax cuts as a way to pay for infrastructure but that the decision will ultimately be up to the Ways and Means Committee.
DeFazio’s preference would be a more sustainable source of funding, In an interview with MarketWatch published Monday, DeFazio was somewhat critical of using a rescinding of the GOP tax cuts for the wealthy.
“Since we’re borrowing, what, a trillion and a half dollars to pay for the tax cuts, it doesn’t sound like real money, and it doesn’t sound sustainable,” he said.
Some business groups are preparing to defend the tax law’s corporate-rate cut.
“Raising the rate on job creating businesses of all sizes and the workers they employ as a source of revenue for the Highway Trust Fund, for instance, wouldn’t just be an unprecedented course of action – it would be an unacceptable consequence for tax reform’s true beneficiaries: the American workforce,” said the RATE Coalition, a group of businesses and trade associations that advocated for the corporate-rate cut during the tax debate.
A spokeswoman for Business Roundtable said that “infrastructure proposals can and should complement the benefits of tax reform — not counteract them.”
David French, senior vice president of government relations at the National Retail Federation, said he thinks “the economics of the corporate tax rate have been successful” and that raising the rate to pay for infrastructure spending isn’t a good idea.
Paying for an infrastructure bill by rolling back the corporate-rate cut would also be a nonstarter with the GOP Senate.
“Hiking taxes on U.S. businesses would hurt American competitiveness in the global economy and could lead to significant layoffs of American workers,” incoming Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said in a statement Wednesday.
A spokesman for Senate Environment and Public Works Committee John Barrasso (R-Wyo.) said the senator “will consider serious proposals to pay for infrastructure” but that rolling back the tax cuts isn’t such an idea.
The White House criticized the Senate Democrats’ proposal when they unveiled it in March, but a White House spokeswoman declined to comment for this story.
At a press conference the day after the midterms, Trump said he’d be open to making “some adjustment” to the tax cuts for corporations and high earners if Democrats propose tax cuts for the middle class.
It’s unclear exactly what infrastructure pay-for option could garner enough bipartisan support to pass. An increase in the federal gas tax is supported by some lawmakers and the Chamber of Commerce, but is still likely to be politically challenging.
Besides infrastructure, Democrats have also suggested ticking up the corporate rate in order to pay for other priorities. For example, during a House Ways and Means Committee markup in September, Democrats offered amendments that would have raised the corporate rate to pay for restoring the full state and local tax deduction and cementing a lower threshold for the medical-expense deduction.
Criticisms from the business community are unlikely to deter Democrats from pushing for a rollback of the corporate tax cut. Democrats have been arguing that companies are using their tax savings from the 2017 law primarily for stock buybacks rather than to hire more workers or raise wages.
Michael Linden, a fellow at the left-leaning Roosevelt Institute, said that the tax-cut law was a “political loser” for Republicans and that it’s smart politics for Democrats to propose raising the corporate rate to pay for things like infrastructure or an expansion of the earned income tax credit.
“That’s a very good trade economically,” he said. “That’s a no-brainer.”