Biden’s Climate Tax Plan | How Attacking Profit Shifting Unlocks Billions In Clean Infrastructure Financing

How Biden's "The American Jobs Plan" benefits climate efforts. (Image: Unsplash)

The biggest and most complex part of The American Jobs Plan and corresponding funding strategy through The Made In America Tax Plan – is how climate infrastructure is going to get the necessary government support it needs.

If you read through the above linked documents, the immediate response you’re likely to have is that most of the target funding focuses are going to be surrounding infrastructure rehab and incentivizing the private sector to invest into US R&D and manufacturing.

Effectively the priority statement is to build a true – Made in America standard.

However, we can quickly see that the climate and resiliency focus of the plan isn’t as defined as one would like it to be from an initial read through.

The Made In America Tax Plan Banks On Cutting Fossil Fuel Subsidies And Re-Working Existing Investment Tax Credits (ITCs)

Cutting direct fossil fuel subsidies is very much a political move rather than a concrete “defund the fossil fuel industry” type move as explained well by David Roberts.

However, as you read into the performance of using ITCs for incentivizing solar development you suddenly see some logic in continuing this approach. Tax Equity investors made a killing with solar development and financing, so it’s only natural to believe that if ITCs were created to drive additional energy storage installations and upgrading our High Voltage transmission lines we’d see 10s of Billions in annual capital being deployed into the space on a year to year basis.

The Problem Is 10s of Billions Per Year Is A Drop In The Bucket To Rebuild Our Infrastructure To Aid Our Climate

Investment over the next 10 years needs to be in the 100s of Billions if not Trillions to rehab, if not replace, all of our existing infrastructure.

President Biden factors for the 100s of Billions we need indirectly in his Made in America Tax Plan

The tax plan directly attacks profit shifting by corporations – a simple example of this is Apple, one of the most cash rich and liquid companies in the US, if not globally, uses existing tax loopholes by moving capital into different countries to avoid a large income tax liability.

Proposed approaches range from getting global buy in to stop enabling profit shifting to avoid income tax liabilities to setting a baseline corporate tax rate across the board as a way to ensure that the capital is there to fund this $2 Trillion infrastructure plan President Biden is proposing.

Stopping Profit Shifting Is Harder Than A Minimum Corporate Tax Rate. It's Nerve Racking To Think That's Where We Want to Pull Our Funding From For This Plan.

Accountants are smart and by the time this passes through the hands of congress and every democrat and republican has a chance to put their stamp of approval on this plan – there will be loopholes available for a smart accountant to find.

Corporations fundamentally want to maximize profits at all costs as that’s what shareholders will demand. These days shareholders have begun to demand high ESG standards and require corporations to form sustainability budgets.

This helps in the overall funding available for climate related efforts – including infrastructure rehab – but it doesn’t deliver enough to solve the problem.

If Blocking Profit Shifting Works - ITCs Will Become The Most Valuable Income Tax Reduction Tool For Large Corporations - Bringing 100s of Billions In Private Funding To Climate Infrastructure.

When we think about how instrumental ITCs have been as a method of accelerating solar infrastructure development at the residential to utility scale level – It suddenly becomes easy to see why if corporations became participating tax equity investors in renewable energy or climate infrastructure related projects – we’d unlock billions in capital that wasn’t being leveraged before.

Regardless of your stance on tax credits in general – it is a proven subsidy path that has driven solar adoption up and to the right.

If it were possible to drive corporations to invest alongside the government through ITCs into climate focused infrastructure we’d hit our carbon neutral goals by 2030 with the existing technology we have today and breakthroughs being commercialized as we speak.

The Fear Is If Blocking Profit Shifting Becomes A Political Battleground.

It’s not a fear as much as a concern that this proposed legislation is going to have a strong division in congress. Those that tend to believe that we should reduce taxes tend to not believe in the governments ability to spend that money effectively and on the flip side those who do believe in fair taxation tend to trust those in office to spend and allocate capital effectively.

Regardless of the side you’re on in this debate – the biggest component as it relates to the climate infrastructure funding we need is how the money is going to be sourced. Some may say defund any incentives for the fossil fuel industry, effectively a carbon tax – which will be faced with deadly political war. Some may say create ITCs for every key piece of infrastructure we need built out – but then the dependency on independent tax equity funds to funnel all the capital in, meaning lower yield projects will not get the funding it needs.

In The Climate Funding Question The Plan Can't Depend On Partisan Legislation

In general it doesn’t matter what side people are on, their perspective could be right or it could be wrong. I personally would love to see Congress and President Biden succeed in getting this plan through just because I see the huge upside it brings to accelerating infrastructure development.

How To Make The Made In America Tax Plan Bi-Partisan As It Relates To Climate Infrastructure.

Though I’m not an export on tax laws – here’s my proposed approach. Through a form of a tax – set a minimum tax rate for corporations, earning above a certain dollar amount, to contribute towards a national climate infrastructure fund.

This way we can tax corporations without having to fight over profit shifting or fossil fuel subsidies – instead forcing all corporations to allocated part of their revenue toward sustainability/climate infrastructure the form of a tax would likely drive the capital needed to fund the $2 Trillion infrastructure plan being proposed.

If we assume that climate and resiliency is now a bi-partisan topic – climate funding via a tax, which may be avoidable through the direct investment into qualified climate infrastructure projects, could help create a 10 year plan that all sides will be acceptable with.

About The Author

Swarnav S Pujari

Swarnav S Pujari

Founder of The Impact

Swarnav has over 10 years of experience in the energy & climate tech space, holds 2 patents and is active in the tech, climate and media industries. He specializes in Product/Product Innovation as well as Go-To-Market and Growth Strategy.

By training he’s a Materials Engineer with a background in research from his time at Georgia Tech and University of Illinois (UIUC).

He founded TouchLight a utility backed energy company focused on developing IP for utilities and startups pushing electrification forward. He also serves as the appointed Chairman for the Town of Yorktown’s Climate Smart Communities Task Force, where he helps with drafting legislation and enabling sustainability efforts within the town.

Concurrently, Swarnav founded The Impact to help investors, emerging founders and driven climate enthusiasts discover and identify new climate-tech startups, technologies and opportunities before they hit the traditional media sources.

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