There are two perspectives on what is happening in the United States right now
The positive is: life returns to normal, restrictions are lifted, people travel and see their loved ones again. And there is the negatives: Millions of Americans are left jobless and businesses big and small struggle to find and retain a workforce.
Unfortunately, Washington, DC’s response to poor employment worsening economic recovery would not improve. It doesn’t have to be like that.
The negotiators in Congress are nearing an agreement on infrastructure. Critical investments in roads, bridges, and more would have a positive impact on American workers. Research by the Tax Foundation found that President Biden’s spending plan, taken by itself, would increase GDP and create jobs.
But the leading proposals for funding that spending come at a price – job losses, paychecks, and ultimately American competitiveness – that more than make up for these positive gains.
Tax increases would destroy jobs and damage wages
The president has proposed several tax increases, each of which would tax workers in places like Arizona, Nevada, and Colorado, where multinational companies are based and employ tens of thousands of workers.
He called for the corporate tax rate to be raised, possibly to 28%. Studies by the tax foundation have shown that this would lead to a loss of 138,000 jobs in the long term with a wage dell of 0.6%.
He has proposed doubling down on a complicated tax called GILTI, which was made law as part of the Trump tax cut and would harm companies selling their products overseas. This is supposed to make US companies less competitive and offer US workers fewer job opportunities while leaving foreign competitors who do not pay GILTI unaffected.
By 2031, these business tax changes alone would result in average annual tax increases of $ 982.53 for Arizonans, $ 1,194 for Nevadans, and $ 1,308 for Coloradans.
The establishment plan could affect all income over time
And while the president continues to work to promote his promise to not collect taxes on workers who earn less than $ 400,000 a year, models from the Tax Policy Center, Penn Wharton, and the Tax Foundation show that in the long run his American Jobs plan would hurt the wallet at any income level.
Modeling by the Tax Foundation has shown that by 2025, workers in places like Maricopa County will reduce their after-tax income by nearly $ 880 a year. By 2031, that number would climb to nearly $ 1,600.
Tax policy has compromises. While expanding the child tax credit can increase after-tax income, corporate tax increases can offset those gains. While investments in roads and bridges bring short-term benefits, the duplication of flawed international tax policies like GILTI severely limits long-term growth and opportunities.
So how can we get people back to work while investing in infrastructure without harming our economy? The answer is not as complex as it may seem.
How to finance infrastructure without this damage
First, we need to prioritize economic growth. Independent research by groups like the Organization for Economic Co-operation and Development has shown that a growing economy raises wages, improves living standards and increases opportunities. The same studies show that corporate income tax is the most damaging tax on economic growth.
Second, we should make sure we don’t duplicate broken tax policies to fund infrastructure projects. A full recovery can be assisted by helping our manufacturers manufacture in the US while allowing them to freely sell their products domestically and internationally.
Lifting the tariffs introduced under the previous administration would be a good start, and withdrawing from Biden’s push to double the Trump tax on U.S. multinational companies would help those companies focus on hiring and expanding.
After all, we should finance the infrastructure by focusing on just that – the infrastructure.
Adding user fees like gas taxes and tolls would put money straight to the places where these projects would be completed. In addition, just like prices, usage fees play an important role in dampening overuse.
These steps will keep the focus on the task at hand while supporting economic recovery. DC is an uncompromising city, but worker wages and new jobs don’t have to be on the cutting block to fund infrastructure.
Will McBride is vice president of federal tax and economic policy for the Tax Foundation, a nonprofit research organization based in Washington, DC. You can reach him at firstname.lastname@example.org.