Business lobbying groups in the United States applauded a bipartisan $1.2 trillion infrastructure deal, but are preparing to oppose corporate tax rises coming in a separate but related spending measure that Democrats hope to pass without Republican support.
The US Chamber of Commerce, the National Association of Manufacturers, the National Retail Federation, and other well-funded lobbying groups plan to deploy the same argument they used in 2017 to convince Republicans to give them massive tax cuts: higher corporate taxes equal fewer employment.
“We don’t know what’s in that package,” Rachelle Bernstein, chief tax counsel for the retail group, said of the Democrats’ “reconciliation” bill expected to contain new social spending and tax hikes.
“But we don’t think it is good to use a corporate tax increase to finance spending,” said Bernstein, whose group has spent $1.5 million on lobbying in the first quarter of 2021, according to watchdog OpenSecrets.org.
The Biden administration’s pitch for reducing U.S. economic inequality and competing more effectively with China relies on using tax hikes on corporations and wealthy Americans to pay for some $4 trillion in new spending on transportation, communications, research, renewable energy, childcare, housing, education and healthcare.
Treasury Secretary Janet Yellen in May laid out to the U.S. Chamber of Commerce her argument that such productivity-enhancing investments, paid for in part with a corporate tax increase to 28% from 21%, would still boost corporate profits.
The International Monetary Fund last week said such investments would stoke U.S. growth for years, and baked their enactment into a new 2021 U.S. GDP growth forecast of 7%, the strongest since 1984.
Yellen is expected to say at a G20 finance meeting in Venice, Italy this week that corporations globally need to pay more for the investments made by governments — payments enforced by a global minimum tax that neutralizes tax havens.
Whether U.S. companies will be forced to pay more at home is likely to come down to a battle for the hearts and minds of a handful of moderate Democrats in both the House and the Senate, lobbying group officials told Reuters.
LOBBYING FOCUS ON SINEMA, MANCHIN
These business groups had hoped for the bipartisan infrastructure bill and partisan tax and spending bill to be considered separately, betting that this would make it easier to kill the latter bill.
But House Speaker Nancy Pelosi “blew that up” by insisting that the two bills pass in tandem, said Jon Lieber, U.S. managing director for the Eurasia Group political risk consultancy and a former economic adviser to Senate Republican Leader Mitch McConnell.
Lieber said this increases the likelihood that infrastructure spending turns into a partisan bill that needs the support of every single Democrat in the Senate, and all but a handful of House Democrats.
Business lobbyists are focused on persuading Democratic senators Joe Manchin of West Virginia, Kyrsten Sinema of Arizona and a few Democratic House members that tax hikes will hurt small businesses just emerging from the pandemic.
“I’m going to target 10 or 20 of the most vulnerable House Democrats,” said Tom Spulak, co-leader of King and Spalding’s government advocacy and public policy practice.
“I’m going to go into those districts and say that first of all this is a bad deal, then say that Democrats have dealt in bad faith,” he said, referring to Democrats agreeing to leave tax increases out of the infrastructure package, while pursuing partisan tax hikes.
A new coalition of 28 business groups called America’s Job Creators for a Strong Recovery is advertising in swing-state Arizona to influence voters to sway Sinema and fellow Senate Democrat Mark Kelly.
“This may not be in most people’s eyes the right time to start slamming tax increases on businesses that are just coming back from the pandemic,” said Jade West, chief government relations officer for the National Association of Wholesaler-Distributors in Washington, the coalition’s organizer.
According to OpenSecrets.org, half of the coalition’s member organisations spent $3 million on lobbying in the first three months of 2021.
Lobbying and pro-business groups are rolling out research that disputes the Biden administration’s claims that the tax and spending plans will create millions of jobs.
According to the Tax Foundation, a pro-business think tank, the “American Jobs Plan,” which includes both infrastructure and corporation tax hikes, would result in a net long-term GDP decrease of 0.5 percent and 101,000 fewer jobs in the United States.
Even if 75% of the tax rise funds productivity-enhancing public initiatives, according to a National Retail Federation-funded analysis by accounting firm EY, U.S. GDP will be cut by $72 billion annually. According to EY, the reduction in labor income translates to a 700,000 job loss across the economy.
A new perspective is shown through independent research. According to Oxford Economics, while business investment will fall by 1% by the end of 2023, public investments will add 2 million jobs by the end of 2024, and long-term potential production growth will be 0.1 percent higher than baseline expectations after a decade.
POLLS: TAX RICH, CORPORATIONS
Corporate tax revenue has dwindled as a source of U.S. federal funding from nearly 40% in the 1940s to less than 7%, driven recently by 2017 Republican tax legislation that cut the headline corporate tax rate to 21% from its long-term 35% level.
According to a Reuters analysis of 2020 tax data released this month, even if President Joe Biden’s proposed corporate tax rate of 28% is implemented, the largest U.S. companies would still pay a lower effective tax rate than their international competitors — around 21% — due to generous deductions and credits in the U.S. tax code. find out more
Recent polls show that raising taxes on firms and the affluent executives who control them to pay for government spending is overwhelmingly politically popular.
In a June poll conducted by the left-leaning Americans for Tax Fairness, 69 percent of voters supported raising taxes on the affluent and businesses, with 68 percent of independent voters agreeing.
Among rural voters, a source of strength for Republicans, the poll found that 55% favored raising the corporate tax rate to 28%, while 58% favored raising taxes on Americans earning over $400,000 annually.
“The American public is not on the side of the companies here,” the group’s executive director, Frank Clemente, said. “They want Biden’s $4 trillion spending proposal paid for by raising taxes on the wealthy and corporations. They don’t want it to be paid for by raising the debt ceiling.”
According to a Reuters/Ipsos poll, 65 percent of Americans favor increased taxes on the rich, and the majority believe that “trickle down economics has never worked in America.”