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How to Pay For It

The brief to this point has provided information relevant to making an independent judgment about what to include in an infrastructure package and how much to spend on it. We now turn to the question of how to pay for increased infrastructure spending. Of course, the amount to be spent impacts the answer about how to pay for it. A much more ambitious plan is required to pay for the American Jobs Plan proposed $170 billion per year in new funding than for Senate Republicans’ proposed $37.7 billion per year.

The Bipartisan Infrastructure Framework that was agreed to by President Biden and the Common Sense Coalition hues closely to the Common Sense Coalition’s plan on the spending side. Fewer details have been agreed to at this point on how to pay for the more modest investments. Many or all of the funding sources in President Biden’s plan that are not included in the bipartisan package will likely be included in the separate legislation that includes human infrastructure and the American Families Plan.

We first review two of the largest funding measures that have been agreed to as part of the Bipartisan Infrastructure Framework. We then review President Biden’s proposals for how to pay for the American Jobs Plan that are not included in the bipartisan framework. Finally, we review the provisions of the Senate Republican’s funding framework not included in the bipartisan framework. Several of the plans include a number of smaller funding proposals, including some innovative ones, that are beyond the scope of this brief.

Bipartisan Infrastructure Framework

Bipartisan Infrastructure Plan

The first of two of the most significant funding sources that are included in President Biden’s and the Common Sense Coalition’s bipartisan framework is a measure to reduce the gap between what is paid and what is owed in taxes. The Bipartisan Infrastructure Framework proposes an increase in the IRS budget for making sure corporations and wealthy individuals pay what they legally owe. The amount of net revenue, after the costs of funding increased enforcement, are difficult to estimate. The Biden Administration estimates it could raise as much as $70 billion per year. The Committee for a Responsible Federal Budget estimates that increased enforcement resources overall would bring in more like $10 billion per year. The Problem Solvers Caucus also supports closing the tax gap by providing the IRS more enforcement resources. Senate Republicans do not.

 

Funding Sources

  • Reduce tax gap between what is owed vs paid
  • Repurpose unspent COVID relief funds

A second funding source that President Biden and the Common Sense Coalition agreed to is repurposing unused COVID relief funds approved in 2020.  Senate Republicans also agree that these funds should be a source for new infrastructure spending.

The Case For

Supporters of closing the tax gap between what is paid and what is owed argue that the way tax laws are currently enforced is unfair to middle and lower-income families. Most individuals’ pay is automatically reported directly to the IRS.  Much of corporations’ and wealthy individuals’ incomes is not. Especially because they do not have the same resources that corporations and wealthy individuals to hire accountants and attorneys, supporters of closing the tax gap argue, lower and middle-income individuals have far fewer opportunities to avoid taxes or fight an IRS audit. The teams of accountants and lawyers who work for corporations and the wealthy, on the other hand, actively seek legal loopholes and then fight audits if the IRS challenges the lengths to which they have taken tax avoidance. Some supporters of closing the tax gap also argue that reductions in IRS enforcement resources in recent years to wage such difficult battles have compounded the problem. They argue that the result is a decline in the audits of large corporations, while everyday families continue to be audited at similar rates.

Some supporters of repurposing unspent COVID relief dollars to pay for new infrastructure investments argue that the COVID relief packages were too large to all be spent practically or effectively. Many states and local governments, they argue, now have enormous budget surpluses.

The Case Against

Opponents of closing the tax gap argue that the IRS already makes too many individuals’ and corporations’ lives unnecessarily miserable with its current level of enforcement resources.  Telling the IRS to squeeze more out of American taxpayers with increased enforcement actions will simply increase how much we suffer from these unwanted experiences with the federal government.

Opponents of repurposing COVID relief dollars argue that it is too early to start redirecting those funds for other purposes. They suggest that the risks of continued COVID infections are not yet fully behind us, particularly with new strains emerging. The work to recover from the economic and other impacts, they also argue, will continue for some time even after the pandemic itself is behind us. They suggest that those funds should continue to be available to address those enduring impacts.

The Evidence

The Treasury Department reports that typically about 200 companies report net income to shareholders of $2 billion or more. Of those, “a significant share pay zero to negative income taxes.” The IRS reports that annual audit rates of corporations with over $20 billion in assets have declined from 100% in 2011 to under 60% in 2019.

The Committee for a Responsible Federal Budget’s (CRFB) COVID Money Tracker indicates that about $1.6 trillion has been approved by Congress but not yet disbursed or committed. Additional CRFB analyses found that the first three federal COVID relief packages included more than $360 billion specifically for state and local governments. The last COVID package that President Biden signed into law on March 11, 2021 included another $350 billion for state and local governments. Many states now have significant budget surpluses. The example most frequently cited is California’s report in May that it has a $76 billion surplus. Two months earlier, the last COVID relief package allocated an additional $43 billion to California’s state and local governments. The Associated Press reports that most states are experiencing proportionally similar surpluses in the wake of the significant COVID relief funds they have received.

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