President Joe Biden and congressional Democrats are readying their next big legislative push for a $2.25 trillion infrastructure package that he wants to pay for with tax increases, likely making the measure a non-starter for Republican lawmakers and many farm groups.
The president’s infrastructure plan will have a heavy focus on climate policy and include substantial new funding for rural broadband, according to a fact sheet released by the White House early Wednesday morning.
Biden’s plan includes $621 billion for transportation, including roads, bridges, electric vehicles and waterways, plus $100 billion to ensure that the entire country has access to broadband.
Another $16 billion is earmarked for port and waterway improvements.
The “plan will modernize 20,000 miles of highways, roads, and main-streets. It will fix the ten most economically significant bridges in the country in need of reconstruction. It also will repair the worst 10,000 smaller bridges, providing critical linkages to communities,” the White House says.
An additional $50 billion is set aside in the plan for climate resilience projects. The funding could be used in part for “agricultural resources management and climate-smart technologies” and forest management, according to the White House fact sheet.
An alliance of farm and environmental groups has recommended Congress increase funding for conservation programs in order to help farmers adopt climate-friendly practices. Agriculture Secretary Tom Vilsack also has signaled that increased funding for wildfire prevention is a key priority of his for addressing climate change.
The “plan invests in rural and Tribal communities, including by providing 100 percent broadband coverage, rebuilding crumbling infrastructure like roads, bridges, and water systems, providing research and development funding to land grant universities, and positioning the U.S. agricultural sector to lead the shift to net-zero emissions while providing new economic opportunities for farmers,” the White House fact sheet says.
Another $5 billion is earmarked for rural development. This program will empower rural regions by supporting locally-led planning and capacity building efforts, and providing flexible funding to meet critical needs,” the fact sheet says.
To pay for the plan, Biden proposes to increase the corporate income tax from 21% to 28% and to take other steps to prevent companies from avoiding U.S. taxation. Biden also wants to increase the global minimum tax for corporations and calculate the rate “on a country-by-country basis so it hits profits in tax havens,” the fact sheet says. A potential change in the capital gains tax is not mentioned in the White House document.
If the legislation doesn’t have GOP support because of the way it will be financed, then it will be harder for farm groups and rural advocates to shape the infrastructure provisions.
The Association of Equipment Manufacturers on Wednesday welcomed the proposed infrastructure but warned against reversing the tax cuts that Republicans pushed through in 2017. AEM's members include industry giants Deere and Co. and Caterpillar Inc.
"We stand ready to work with President Biden to help him make the bold, transformational investment in workforce development, infrastructure, and American manufacturing that is long overdue, said AEM's senior vice president of government and industry relations, Kip Eideberg.
"At the same time, we strongly urge him to make sure that we preserve the predictability and stability in the tax code that keeps equipment manufacturers competitive and drives job creation and good wages. Tax reform made equipment manufacturers more competitive in the global economy. It is imperative that we do not undo that progress.”
In April, the White House is planning to propose another massive spending package, this one focused on "human infrastructure" with increased spending for child care, education and health care. That package could include additional tax increases.
Biden’s campaign pledges contained proposals to raise more than $3 trillion in new revenue over 10 years, according to an analysis by the Tax Foundation.
The proposals included rolling back the federal estate tax exemption, now $11.7 million for 2021, and eliminating the step-up in basis for inherited assets, which could leave heirs facing substantial capital gains taxes. He also has proposed to raise taxes on corporations as well as individuals making more than $400,000.
If the legislation includes tax increases, Democrats will almost certainly have to move it through Congress using the budget reconciliation process, which means they would need no GOP support for the bill in the Senate as long as all 50 Democrats vote for it.
“The only way that they (Democrats) see that they can continue to authorize this kind of spending is to include tax increases,” Arkansas Rep. Rick Crawford, a senior Republican on the Transportation and Infrastructure and the Agriculture committees, told Agri-Pulse.
“And that's where we're gonna have some heartburn, because we don't have a tax problem, we have a spending problem.”
Missouri Rep. Sam Graves, the top Republican on Transportation and Infrastructure, issued a statement last week saying infrastructure spending needs to be targeted and offset by spending cuts elsewhere in the federal budget.
“We need to take a hard look at where the most significant backlogs are and invest in transportation projects that will actually make a difference. We simply cannot afford another Green New Deal disguised as an infrastructure bill,” he said.
Senate GOP Whip John Thune of South Dakota suggested Republicans were also unlikely to help pass an infrastructure bill, even if Democrats place the tax increases that pay for it in a separate reconciliation measure. “I don't think our guys are going take the bait on that,” he told reporters.
But Rep. Jim Costa, D-Calif., told Agri-Pulse that Republicans have long talked about the need for more infrastructure spending without offering ways to pay for it. “Now they’re criticizing us because (the infrastructure package) is going to be paid for, and then they don’t want to look for anything that provides pay-fors,” Costa said.
Coalitions representing farm groups and other business interests have already formed to fight various tax proposals that could be considered, including changes to the estate tax and stepped-up basis.
Among their concerns is that if Democrats raise the corporate tax rate — which Biden proposed increasing from 21% to 28% — they also may shrink the 20% qualified business income deduction that is widely used by farms and small businesses, said Patricia Wolff, a senior director for congressional relations with the American Farm Bureau Federation.
The deduction was enacted by the 2017 tax law to reduce small business tax rates in line with the cut to the corporate tax rate. The vast majority of farms are organized as sole proprietorships, partnerships or S corporations and taxed at individual tax rates, rather than as C corporations.
If there is an increase in the corporate tax rate, “we’re concerned that people may also say that non-C corps should also have a rate increase,” Wolff said.
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Repealing the step-up in basis and applying a 39.6% tax rate to capital gains over $1 million, as Biden proposed during the campaign, would go a long way toward paying for his infrastructure package. The Tax Foundation estimated those provisions would raise $470 billion over 10 years. The only proposals in Biden’s campaign plan that raise more revenue are an increase in the corporate tax rate ($1 trillion over 10 years) and imposing Social Security taxes on income over $400,000 a year ($820 billion).
Wolff said farm groups will be counting on having allies elsewhere in business when it comes to fighting any proposals like eliminating the step-up in basis or reducing the estate tax exemption.
“These aren’t just farm and ranch issues. these are issues for any small business, any family-held business. That is certainly a much bigger grassroots pool than farmers and ranchers,” she said.
Democrats will have little margin for error. Unless a Senate Republican breaks party ranks, Biden won't be able to afford to lose a single Senate Democrat, and Democrats narrowly hold the House, 219-211. One New York Democrat, Rep. Tom Suozzi, announced Tuesday that he won’t support a tax package unless it increases or eliminates the $10,000 cap on deducting state and local taxes (SALT) that was enacted in 2017. “No SALT, no deal. I am not going to support any change in the tax code unless there is a restoration of the SALT deduction,” he said.
Repealing or increasing the SALT cap would reduce federal tax revenue and primarily benefit residents of high-income, high-tax regions.
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