A leading tax think tank projected President Joe Biden’s infrastructure plan would lead to a decrease in long-run economic output.
The Tax Foundation, a nonpartisan group that generally prefers lower taxes, released modeling of Biden’s American Jobs Plan on Friday. The think tank examined Biden’s plan as first proposed, which clocks in at about $2.3 trillion — although that number will be significantly lower if negotiations with Republicans are successful.
Biden’s plan, which relies on changes in the corporate tax code for its funding mechanism, would reduce gross domestic product in the long run by 0.5% and result in 101,000 fewer jobs in the United States, the Tax Foundation estimated.
The modeling takes into account not only the infrastructure spending but also the proposed revisions to the tax code, which include hiking the headline corporate tax rate from 21% to 28%, raising the global intangible low-tax minimum tax from 10% to 21%, and imposing a 15% minimum tax on corporations, among other changes.
The think tank predicts that infrastructure spending itself would generate positive GDP growth over the next decade, to the tune of 0.3% growth and 61,000 jobs.
However, that is offset by the detrimental effects of increasing the corporate tax rate, the foundation said. Researchers concluded that raising the rate to 28% would cause a 0.7% drop in GDP and the loss of 138,000 jobs. Raising the GILTI rate and a 15% book minimum tax would have less pronounced overall effects, the foundation concluded.
The modeling comes as Biden and congressional Republicans struggle toward an infrastructure deal. The president met with Republican Sen. Shelley Moore Capito of West Virginia on Wednesday, with plans to negotiate again on Friday.
During the Wednesday huddle, Biden offered a number of ways that a bipartisan infrastructure package could be funded that would still leave the 2017 tax cuts intact, a person familiar with the situation told the Washington Examiner.
Biden suggested using the 15% minimum tax and stepped-up IRS enforcement and funding as a way to finance a $1 trillion package without raising the corporate tax rate, a move that the GOP has said would be a non-starter.
Despite the rate hike not being part of Biden and Capito’s specific negotiations, the administration is still looking to raise the rate at some point and in some way, according to the person. White House press secretary Jen Psaki additionally confirmed that Biden has not abandoned his overall plan to hike the corporate tax rate.
Biden’s other big spending proposal is the $1.8 trillion American Families Plan. It proposes free universal preschool for all 3-year-olds and 4-year-olds and two years of free community college. It also extends the current expanded iteration of the child tax credit, which was set to expire this year, until 2025.
In order to fund that plan, Biden is looking to raise the top individual income tax rate to 39.6% and tax capital gains for households making more than $1 million as ordinary income. The Tax Foundation modeling for that plan found that it would result in a 0.4% reduction in long-run GDP.