Senate Republican Leader Mitch McConnell proclaimed in Kentucky this past week that his mission was to stop the socialist agenda of President Biden; while the White House looks for a bipartisan agreement on infrastructure.

The President and his White House team continue to talk to a handful of Republicans who have put forward a $600B infrastructure bill that moves ahead with traditional projects such as roads, bridges, airports etc. Democrats are split with some supporting Biden’s outreach to Republicans and others committed to “going big” with only Democratic votes. In my view there is a chance that Congress may move forward on a two-track approach with a bipartisan traditional infrastructure bill, and a second program passed exclusively with Democratic votes under Budget Reconciliation rules.

If there is going to be a bipartisan bill a stumbling block could be paying for the program. The Biden Administration has proposed using an increase in the corporate tax as the “pay-for.” Increasing the corporate tax is a non-starter for Republicans. The reduction of the corporate tax rate from 35% to 21% was the centerpiece of the Trump tax cuts. Prior to the Trump/Republican cut the US had one of the highest corporate tax rates in the world. President Trump and Congressional Republicans argued that the lower rate made American companies more competitive with global rivals and played a significant role in the robust economy pre-pandemic. Republicans will not support any bill that reverses this accomplishment.

While increasing the corporate tax may be off the table for a bipartisan infrastructure bill it is possible that Republicans could support an increase in the gas tax, a user tax. The gas tax hasn’t been increased since 1993 and is only $.18.4 a gallon. As autos have become more efficient the tax has brought in less and less revenue, and an increase might make sense to pay for roads and bridges.

A related issue is what to do about the expected increase in electric cars, EVs, which avoid the gas tax altogether. Republicans could expand that gas user tax in some form to capture revenue from EVs.

A third possible bipartisan tax might be an initiative to give the IRS more money for audits to collect from tax cheats. It’s estimated that the US may be missing $1T in uncollected taxes. Republican controlled Congress have cut IRS funding, but as part of an infrastructure bill compliance might be an acceptable way to raise revenue. The White House is reportedly ready to give the bipartisan talks another month but at some point they will reach a decision to fish or cut bait. I continue to believe that there is a 75% chance that an infrastructure bill will pass by the fall; if there is no bipartisan bill infrastructure will pass using Reconciliation.

West Virginia Democratic Senator Joe Manchin has expressed a preference to have a bipartisan bill; but West Virginia is a poor state that needs federal infrastructure dollars, it is my view that at some point he will agree to a Democrats only reconciliation approach. If it is a Democrats only bill increasing the corporate tax is back in play. Manchin, and a few others, have said they believe that the 28% rate proposed by the White House is too high; but there is support for a lower number such as 25%. Indeed when the Trump White House pushed for the lower corporate tax rate many thought the final figure would be 25%, and there was some surprise it ended up as low as 21%.

There is considerable Democratic support for giving the IRS more money to go after tax cheats and this could become part of a Democrats only reconciliation bill.

In any event I expect parts of the Biden infrastructure proposal to pass by fall

Intellectual Property (IP)

This past week the Biden Administration indicated that it would support an effort to waive the intellectual property protection given to the Covid 19 vaccine. I will be writing more about this in coming weeks; but as a former adviser to the US Government on trade issues it is my view that this is a mistake.

Protecting IP is a cornerstone of US trade policy and to waive the protection undermines the government’s negotiating position. From negotiations with China to WTO the US has stood with the EU and others to insist on the protection of private sector breakthroughs. To blink and waive the protection for the vaccine is a mistake. There are other alternatives to ensure that the vaccine gets to poor nations and it can be done with the full cooperation of the vaccine manufacturers.

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