President Biden released what many have referred to as his infrastructure spending bill on Wednesday, and packed inside of the fact sheet are all of the buzz words his campaign promised to address once in the White House. The American Jobs Plan is chock full of climate crisis aversion and social justice fixes, with most of the clarity coming from bills the White House singled out, like the CHIPS Act. The China challenge is also mentioned a few times.
The plan consists mainly of one-time capital investments but is set out over a 10-year period, with $2 trillion on the table. The plan includes $50 billion to rebuild critical domestic supply chains, with a new office in the Department of Commerce to monitor domestic industrial capacity. It also proposes another $50 billion to support semiconductor manufacturing and research. If those proposals become law and the money is actually spent on domestic industrial plants, that would have a significant impact on the U.S. manufacturing base.
Republicans in the Senate are unlikely to agree to a corporate tax hike from 21% currently to 28%, reversing the signature policy of the Trump era. However, Democrats could opt to use the budget reconciliation process that allows certain spending and revenue bills to pass the Senate by a simple majority and avoid a filibuster.
The White House stated that public domestic investment as a share of the economy has fallen by more than 40% since the 1960s and The American Jobs Plan would reignite that “in a way we have not invested since we built the interstate highways and won the Space Race,” the Jobs Plan states.
This huge plan is proposed to be funded with some combination of higher individual taxes, higher corporate taxes, and larger deficits, and all three funding sources will be controversial, even with some Democratic congressmen. CPA has suggested paying for any infrastructure plan with a small charge on foreign capital inflows which drive the dollar exchange rate too high. The double beneficial effect would be to raise $3 trillion from foreigners, not Americans, while rebalancing trade and rebuilding domestic supply chains across the country.
There were a few standouts in the proposal that we think are of interest to CPA members.
First, the Plan would fix the ten most economically significant bridges in the country in need of reconstruction. It also will repair the worst 10,000 smaller bridges. While the document does not specifically say anything about Buy American mandates, we believe that Biden’s previous Executive Orders on this provide enough of a hint that those bridges will not be built with foreign steel.
“By ensuring that American taxpayers’ dollars benefit working families and their communities, and not multinational corporations or foreign governments, the plan will require that goods and materials are made in America and shipped on U.S.-flag, U.S.-crewed vessels,” the White House document states.
The Plan also called for replacing “thousands of buses and rail cars, repair hundreds of stations, renew airports, and expand transit and rail into new communities.” China is already selling millions of dollars of rail equipment to US cities and private transit services. Without safeguards, this proposal risks channeling even more money to Chinese manufacturers.
Climate-related tech plays a central role in the document and is mentioned throughout, from buying electric vehicles for the U.S. Postal Service, to switching to electric busses for those owned by the Federal government and used by its employees. Biden also wants to make at least 20% of America’s school bus fleet battery-powered through a new Clean Buses for Kids Program at the Environmental Protection Agency, with support from the Department of Energy.
Biden is proposing a $174 billion investment to win the EV market from China that includes everything along the EV supply chain “from raw materials to parts” and to “support American workers to make batteries and EVs.”
The main EV battery companies producing here are South Korean and Japanese, with Tesla and now General Motors being the domestic names. We think the EV supply chain is extremely important for the U.S. New battery-powered vehicles require fewer parts, meaning the automotive industry is set to shrink. Key components are batteries and motors.
In regards to manufacturing and supply chain resiliency, another core part of the American Jobs Plan, President Biden is calling on Congress to make a $300 billion investment in order to “strengthen manufacturing supply chains for critical goods. President Biden believes we must produce, here at home, the technologies and goods that meet today’s challenges and seize tomorrow’s opportunities.”
The Plan also calls for some $52 billion to go to support domestic manufacturers, with some of the money going to things like existing capital access programs, though this targeted rural businesses and businesses in the clean energy space.
The President’s plan also includes specific supports for modernizing supply chains, including in the auto sector, like extending the 48C tax credit program.
To get this done will require a 28% C-Corp rate, the document says.
The President’s tax reform proposal will increase the minimum tax on U.S. corporations to 21% and calculate it on a country-by-country basis so it hits profits in tax havens. It will also eliminate the rule that allows U.S. companies to pay zero taxes on the first 10% of return when they locate investments in foreign countries.
Biden is calling his corporate tax plan the “Made in America Tax Plan” and says it is designed to “encourage job creation at home.”
A recent study found that 91 Fortune 500 companies paid $0 in federal taxes on U.S. income in 2018. CPA found that the average corporation paid just 8% in taxes.
“President Biden’s plan will reward investment at home, stop profit shifting, and ensure other nations won’t gain a competitive edge by becoming tax havens,” according to the White House.