Joe Biden is prepared to drop his demands for an increase in the US corporation tax rate if enough Republicans agree to support a surge in infrastructure spending, according to people familiar with the negotiations.
The concession by the US president is aimed at catalysing a bipartisan agreement on his bid to fund more than $1tn in additional spending over the next decade to upgrade roads, bridges, and broadband networks across the country.
The US president wanted to fund the plan primarily with an increase in the corporate income tax rate from 21 per cent to 28 per cent, but Republicans are adamantly opposed to it on the grounds that it would hurt the economy and partly unwind Donald Trump’s signature tax cuts.
In a meeting with Shelley Moore Capito, the West Virginia senator and lead Republican negotiator in the talks on Wednesday, Biden said he was willing to drop his insistence on the rise in corporate income tax in the interests of a bipartisan deal.
But he proposed that the new infrastructure spending should be funded by more aggressive tax law enforcement by the Internal Revenue Service on wealthy households. And he wants to impose a 15 per cent minimum tax on businesses so they cannot take advantage of loopholes that mean they end up paying very little or nothing at all.
“This does not mean he is jettisoning his overall positions about the [Trump tax cuts] and wealthy taxpayers and corporations or his overall plans,” said one person familiar with the talks. “But . . . in the interest of reaching across the aisle and finding a practical agreement, in the context of these negotiations specifically, this was a solution he put forward.”
Biden’s move came ahead of a self-imposed deadline of next week to proceed with negotiations with Republicans on infrastructure, or to ditch them and try to pass the package using the wafer-thin Democratic majorities in Congress.
The US president is expected to “reconnect” with Capito on Friday to discuss the state of the talks, according to the White House.
Biden’s decision to drop his bid for a corporate income tax increase may only be temporary and confined to the Republican negotiations. If the US president ends up negotiating an additional spending package with Democrats alone, a corporate income tax increase is likely to be back on the table.
Still, the step by the president, first reported by the Washington Post, highlights the political difficulty of pushing through any revenue increases in the face of full Republican opposition. The US president is also aiming to increase individual taxes on the wealthy — including on capital gains and dividends — to fund his economic agenda.
The concessions made by the US president in the Republican negotiation relate to domestic taxes, and are separate from his international corporate tax reform proposals.
On the global front, Biden is seeking a compromise with other nations to set a 15 per cent minimum tax in order to remove the incentives towards tax avoidance and the shifting of profits to low-tax nations.
A breakthrough on global tax policy could come in the coming days as G7 finance ministers meet in London to discuss the US plan, possibly setting the stage for a broader deal at the OECD and G20 levels.
Biden’s infrastructure plan, laid out in late March, is worth $2.3tn, but over the course of the talks with Capito, he has gradually lowered his target as the Republican side has moved upwards in terms of how much it is willing to spend.
A possible compromise might be found with a pricetag of little more than a $1tn, but it is still unclear whether either side would find that palatable.