As Democrats mull how big to go with a second major legislative package this year, they face not only questions on what to include but how to pay for it.
Some of those questions may be answered next week, when President Joe Biden gives a speech in Pittsburgh which is meant to fill in some details on his plans for an infrastructure
On Capitol Hill, though, various options are being floated, some new and some old.
Senate Finance Chairman Ron Wyden, an Oregon Democrat, held a hearing Thursday on international taxation and said he and fellow Democrats Sen. Mark Warner of Virginia and Sen. Sherrod Brown of Ohio will put out a framework for taxing U.S. multinational companies “in the coming days.”
“Our new framework is based on a few simple propositions. First, multinationals must pay a fair share, just like Americans who work for a living. There were too many corporate loopholes and opportunities for gamesmanship before the Trump tax law, and the Trump tax law only made the situation worse,” he said, referring to the 2017 tax overhaul.
He also said it should reward companies for creating jobs in the United States instead of overseas.
Wyden’s comments appeared consistent with ideas advanced by Biden during his presidential campaign. Then, he proposed raising the corporate tax rate to 28%, setting a minimum 21% tax rate on profits made overseas by multinationals, tax penalties for companies that “that ship jobs overseas in order to sell products back to America,” and imposing a 15% tax on book income to ensure every company pays at least some in taxes.
Wyden, as head of the tax-writing committee in the Senate, will spearhead the search for ways to pay for what will reportedly be a $3 trillion package, but that did not keep Sen. Bernie Sanders, the chairman of the Senate Budget Committee, from laying down two markers of his own Thursday.
Sanders, ahead of his own panel’s hearing on tax-related matters on Thursday, unveiled his corporate tax hike bill, which he said would raise $2.3 trillion.
Sanders’ bill would raise the corporate income tax rate to 35%, higher than Biden’s proposed 28%. It would also make it harder for companies to lower their tax rates by routing profits through low-tax jurisdictions and it would tax corporate inversions – where a company sets up an offshore subsidiary to take advantage of lower tax rates but its headquarters and operations remain in the U.S. – at the same rate as U.S. companies.
The nonpartisan Joint Committee on Taxation said just the anti-offshoring portions of the bill would raise $1.021 trillion over 11 years. Sanders also unveiled a non-corporate tax hike bill that would boost the estate tax by lowering the size of an estate exempt from taxes, raising more than $400 billion.
While overhauling the corporate tax system and rolling back some of its more favorable provisions from the 2017 Republican tax revamp could provide large amounts of revenue, Democrats are also looking at smaller bore ideas, like a revival of the Barack Obama-era Build America Bonds.
House Speaker Nancy Pelosi mentioned bonds as one way “to help pay for all of this” in her weekly press conference Thursday. In 2020, when House Democrats passed a big but largely unpaid for infrastructure bill, it included a reinstatement of Build America Bonds, a program favored by House Ways and Means Chairman Richard Neal.
The bonds resembled municipal bonds issued by local governments in that they could be used for capital spending, working capital and refinancing old bonds. They were attractive to investors because even though the interest income was taxable, investors also received a tax credit that could be used to bring down both regular tax bill and the Alternative Minimum Tax.
Each proposal for higher taxes will present political difficulties for Democrats, which will make more attractive the other obvious way to pay for infrastructure: by simply borrowing and adding to the $28 trillion national debt.
But with interest rates near historic lows as a result of the coronavirus pandemic, some economists argue it’s the right time to borrow and invest for long-term priorities like infrastructure. It’s a proposition Pelosi has sounded sympathetic to recently.
At a press conference early in March, Pelosi said former President Trump had said he wanted infrastructure but was vague on details.
“It’s just when it came time to pay for it that he stormed out the door. But, we’ll have to pay for some of it. We’ll have to find ways to cover fees, et cetera. That’s all a discussion that has to take place now,” she said.