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Original title: Biden crushed 2 trillion in 8 years to be an “infrastructure freak”
The $ 1.9 trillion has yet to be spent, and US President Biden is eager to implement another plan: an economic plan focused on building infrastructure, on a scale of $ 2 trillion. Since the beginning of Biden’s election campaign, infrastructure has been the subject of his mind. Whether in terms of employment or the status quo of the infrastructure, this plan has its place. Yet even if Biden is ambitious, in the latest tug of war between two parties, it is not easy to successfully break through Congress.
Four main elements
Biden is determined to do something great. In anticipation of the market, on March 31 local time, Biden delivered a speech in Pittsburgh, Pennsylvania, and the $ 2 trillion infrastructure plan was officially unveiled.
According to Biden’s speech, the eight-year plan is part of the Biden-Harris administration’s “Build Back Better” vision, which aims to rebuild America’s aging infrastructure and promote electric vehicles and clean energy. Create job opportunities. The second part dedicated to focusing on health, education and child care systems will be announced in April.
Specifically, this plan includes four main elements: First, investment in transportation infrastructure and the establishment of a “resilient infrastructure” that can withstand climatic disasters. The second is to renovate and build more than 2 million affordable homes and commercial real estate, replace all lead pipes and service cables across the country, and invest in broadband overall. The third is to improve the economics of nursing, help the elderly and disabled to obtain affordable health care, and expand the number of nurses. Invest in climate research and manufacturing.
In addition to the top three expenses, Biden also specifically mentioned the fourth item, namely, raising corporate taxes to cover the eight-year spending plan. Biden proposed raising the corporate tax rate to 28% and the minimum tax rate for multinational companies to 21%.
“This is not a touch-up plan.” In his speech that day, Biden fully affirmed his plan. “In fact, this is the largest job investment in America since World War II. It will create data. Millions of job opportunities.” “
In Biden’s view, this infrastructure plan to reform the American economy is of great importance and will achieve the same ambitious results as President Roosevelt’s “New Deal” or President Johnson’s “Great Society” plan in the 1960s. .
“This is a fiscal policy and it certainly can promote economic growth at a macro level,” said Sun Jie, a researcher at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. The United States is more concerned with employment, so from this perspective, it is definitely good for the US economy. In fact, there are problems with the US infrastructure.
It is an indisputable fact that US investment in infrastructure is insufficient. Data shows that the share of US infrastructure investment in GDP has fallen from 4% in 1950 to 2.7% in 2019. According to data from the Global Infrastructure Hub, the US has an investment gap in infrastructure of US $ 3.8 trillion from 2016 to 2040, making it one of the countries with the largest infrastructure gap in the world.
Where does the money come from
Ideals are beautiful. Research from the Federal Reserve shows that the fiscal multiplier for infrastructure investment can double – that is, one dollar of infrastructure investment increases GDP by two dollars. Based on this calculation, the infrastructure investment plan with a full scale of approximately US $ 2 trillion will boost the real growth rate of the US GDP by approximately 0.2% each year.
The immediate beneficiaries have emerged. Since the infrastructure plan includes investments in new energy and electric vehicles, Tesla rose more than 5% at the close for US stocks on Wednesday. Taking into account the demand for steel infrastructure and other industrial products, in the last week, Alcoa (AA) increased 26% in five business days, and US Steel (X) increased 32% during the same period.
But the reality is scarce. To successfully launch such a massive plan, Biden is destined to have to overcome many obstacles. The first problem is where the money comes from.
According to the Associated Press, the White House said the infrastructure plan will invest $ 621 billion in bridges, highways, public transportation, ports, airports, and electric vehicle development and other transportation infrastructure construction, and will use $ 300 billion of dollars to improve drinking water infrastructure. Facilities, expanding broadband access and improving the electrical grid, $ 213 billion for the construction and renovation of affordable and sustainable housing, $ 580 billion for manufacturing, research and development, and job training in the United States, and $ 400 billion for the elderly and support for care for the disabled.
For this, Biden also gave his own solution. “No one should complain about the 28% corporate tax rate.” According to the US Tax Policy Center, this will add $ 730 billion in taxes to the US government within 10 years.
As for the 21% minimum tax rate for multinational companies, Biden said it is primarily to prevent companies from transferring profits abroad to avoid taxes. And this part can generate revenue of $ 550 billion for the United States government in the next ten years.
In addition to these two tax increases that have been claimed by Biden, other tax increases have been proposed before. For example, by raising the maximum personal tax rate for people with an income of more than US $ 400,000 to 39.6%, this part of the tax will be US $ 110 billion in the next decade. However, Biden emphasized in his speech that he will not increase the tax rate for people with annual incomes of less than $ 400,000, but is open to other suggestions.
Still, deficits are still unavoidable due to natural expenditures. According to estimates by Cornerstone Macro Consulting analyst Donald Schneider, the infrastructure plan will still result in a cumulative $ 500 billion increase in the US fiscal deficit.
Donkey and elephant controversy
Biden is ambitious, but the Republican mountain is in front of him. After all, the two parties in Congress have been unable to pass major bills on infrastructure construction for a long time, and they have different views on the scale of investment and methods of financing. Today, while Democrats control both houses of Congress, occupying only half of the seats in the Senate, it is no small challenge to get through.
The Republican Party has already declared: “I think the leadership of the new Democratic government is wrong.” Senate Minority Leader McConnell, a Kentucky Republican, said on March 30 that if the plan “will lead to massive tax increases and trillions of dollars in national debt,” he is unlikely to support the plan.
Obviously, Tuesday’s call failed to win the Republican leader’s support for Biden. However, Biden doesn’t seem to care too much, having previously stated that he hopes the infrastructure bill can win the support of the Republican Party. But if Democrats can’t get the support of at least 10 Republican senators, they will have to revert to the budget fix process.
Using the budget resolution process, Senate Democrats can circumvent the 60-vote limit to pass the bill. Only 50 Democrats are required to support the bill, plus the President of the Senate and Vice President Harris vote to pass the bill. Democrats used this procedure to pass the $ 1.9 trillion economic stimulus plan without the support of any Republican congressman.
However, according to the provisions of the budget law, there is a limit on the number of times the budget settlement process can be used. This year, after the $ 1.9 trillion economic stimulus plan, Democrats have only one chance left. But if he relaxes before the 2022 midterm elections, the Democratic Party will have two more chances.
Liu Xiangdong, deputy director of the Economic Research Department of the China Center for International Economic Exchange, said frankly that in this fiscal year, it is difficult for the two houses to use the budget reconciliation process. After all, spending so much on a budget a year, breaking the budget still requires the two parties to negotiate.
In Liu Xiangdong’s view, the government is unlikely to fully invest in this plan, perhaps the government will invest part of it and then attract part of the social investment. The government has two ways of spending. One is to raise taxes and the other is to issue bonds. But now the US debt has reached US $ 28 trillion. It’s hard to say how much room there is to keep increasing.
In addition to being expensive, the tax increase on this plan is also controversial. Liu Xiangdong said the tax increases are consistent with the usual practice of the Democratic Party, but due to Trump’s tax cuts before, there may be opposition to the tax increases now.
In fact, Joshua Bolten, CEO of the “Business Roundtable,” an organization made up of some 200 executives from leading US companies, said US authorities should avoid adding new obstacles to economic growth and job creation, especially in the economy. According to Bank of America Merrill Lynch calculations, Biden’s tax increase plan means that the EPS of the stock market as a whole will fall 7%, with the medical and technology industries being the hardest hit.
As for the risk of inflation and deficit after a large amount of money, it appears that the Biden administration has not yet considered it. Sun Jie also mentioned that according to standard analysis, the current plan is relatively large, which will cause interest rates to rise, capital inflows and the appreciation of the US dollar. However, from the perspective of the US situation, the corresponding monetary policy of the Fed may be necessary, as from the second. If the interest rate stabilizes, the dollar will not appreciate as much.
Liu Xiangdong pointed out that no specific measures have been seen yet, it is possible that the framework of a plan will be proposed first and then carried out in stages. This plan is different from the previous one for anti-epidemic economic stimulus, the operating trajectory of the latter is more specific, now it involves not only where the money comes from, but in which topics and projects it invests and how companies can participate. The United States has rarely introduced such schemes before, and more detailed methods are needed in the future.
Beijing Business Daily Reporter Tao Feng Tang Yitian
