Infrastructure Plan Builds Corporate Tax Debate

In the S-1 filed ahead of its April IPO, Frontier Airlines cited several risk factors it said could threaten its business model of providing cheap flights. Two in particular sat side by side on the list: airport infrastructure costs and taxes. Frontier has natural concerns about maintaining the “competitive advantage” of its “low-cost structure” (S-1, login req.). But as it turns out, the budget airline is not the only one worried about infrastructure and taxes right now. The entire business world is fixated on them as it starts to wrestle with the Biden administration’s ambitious infrastructure plan – and, more pointedly, the question of how much they are going to pay for it in the form of new taxes.

The president kicked off that debate with his unveiling of the plan last week. The sprawling initiative, known as the “American Jobs Plan,” would improve roads, bridges, and ports (including airports, Frontier will be happy to note). In addition, it calls for investment in clean energy, rural broadband, housing and elder care. Unlike a Frontier flight, those types of items don’t come cheap. The estimated price tag is $2 trillion.

The Biden administration wants to pay that down over a 15-year period, helped by an increase in the corporate tax rate from 21% to 28%. As it began pitching the plan to Washington and the world, the administration benefitted from a couple of perhaps-unexpected talking points.

The first was a headline-grabbing report from the Institute on Taxation and Economic Policy, which found that 55 companies in the S&P 500 and Fortune 500 paid no federal corporate income tax at all in their most recent fiscal year, despite being profitable. Many, in fact, received tax rebates. The ITEP attributed the phenomenon to “long-standing tax breaks preserved or expanded by the 2017 Tax Cuts and Jobs Act (TCJA) as well as the CARES Act tax breaks enacted in the spring of 2020.”

Second, one of the biggest companies of all – Amazon – came out in support of a tax increase to pay for improved infrastructure. According to the ITEP, Amazon paid an effective tax rate of 9.4% last year.

That’s not to say the tax hike is going to be an easy case to make. The Business Roundtable, for its part, claims to be in favor of infrastructure investment, but also came out with a statement that it “strongly opposes” using “corporate tax increases” to pay for them.

Nonetheless, the administration is already maneuvering to keep businesses from taking their balls and going home (or to Mexico, or Brazil) if the tax hike does pass. Treasury Secretary Janet Yellen is coordinating with other G-20 countries to establish a minimum global tax rate, to keep themselves from participating in a race to the bottom on taxes.

If she’s successful, it might be the most successful bridge-building project the world has seen in quite some time.