President Biden’s American Jobs Plan, to spend $2 trillion on infrastructure over 10 years, and his Made in America Tax Plan are odd bedfellows. The jobs plan outlines investments in concrete and steel infrastructure, in 21st century infrastructure such as electric vehicle charging stations, the electric grid and rural broadband, and in sundry progressive programs such as affordable housing, community colleges, child care and home care. The tax plan would pay for the jobs plan through higher corporate income tax rates. The mismatch is the absence of arrangements for infrastructure users to shoulder some of the costs of the infrastructure they use.
Higher corporate income taxes in Biden’s tax plan have an intrinsic inefficiency — unlike taxes on goods and services, they discourage not only consumption but also investment in plant and equipment and research and development. Austan Goolsbee, a senior adviser to former President Obama, once estimated the deadweight loss from corporate income taxes to be 10 percent of the tax revenue. Greg Mankiw, a senior adviser to former President George W. Bush, has noted that deadweight loss rises with the square of the tax rate, so that doubling the tax rate increases the deadweight loss fourfold.
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Randall Lutter is a senior fellow at the Manhattan Institute.
Arthur Fraas is visiting fellow at Resources for the Future.
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