President Joe Biden has unveiled the American Jobs Plan, a $2.25 trillion investment in infrastructure and more. The \u201cmore\u201d concerns me, as does the likelihood proposed tax increases will prove insufficient to cover the costs. With a second infrastructure plan looming, along with tax reforms and a variation of the Green New Deal, there are significant risks that debt servicing will negatively affect economic growth\u2026 and the ability of the federal government to respond to any further emergencies.<\/p>\n
As I have argued before, infrastructure investment during a time of low interest rates makes good sense, especially since we need $4 to $5 trillion in upgrades of and maintenance to existing infrastructure. The American Society of Civil Engineers maintains infrastructure report cards for each state and for the nation overall. In a nation with failing bridges, rotting water systems, and unreliable electrical grids, deferred maintenance costs lives and money.<\/p>\n
Assuming shared responsibility with the states, I might consider a $3 trillion federal investment over a decade reasonable and beneficial.<\/p>\n
But, The American Jobs plan isn\u2019t the infrastructure plan the ASCE suggests we need. It is an expansion of federal involvement in state, local, and private responsibilities.\u00a0Mixed in with good ideas, there are progressive priorities that should not be in this package. (And I am prepared to debate their propriety in any federal budget package.)<\/p>\n
Paying for these extraneous priorities will require substantial new revenues. The Biden administration\u2019s initial proposal for raising revenues is an increase in the corporate tax rate from 21 percent to 28 percent. That tax increase represents a 33 percent increase in tax liabilities. Yes, that\u2019s a 7 percent rise, but you need to look at the percentage increase, not the raw percentages. If taxes rise from 10 percent to 20 percent, that a 100 percent increase\u2026 a doubling of the tax burden.<\/p>\n
National Public Radio published the following breakdown of the American Jobs Act, which I have annotated in brackets.<\/p>\n
By The Numbers: Biden’s $2 Trillion Infrastructure Plan<\/a>
\nNPR.com
\nApril 2, 2021<\/p>\nTransportation:<\/strong><\/p>\n
$174 billion in electric vehicle investments\u00a0[If these are federal purchases, merely a redirection of spending from combustion to EV fleets, I might be persuaded there are long-term benefits and savings.]<\/strong>
\n$115 billion for bridges and roads
\n$20 billion to improve road safety
\n$85 billion for existing public transit
\n$80 billion for railways
\n$50 billion to improve infrastructure resilience
\n$25 billion for airports
\n$17 billion for waterways and ports of entry
\n$20 billion to reconnect urban neighborhoods cut off by highways<\/p>\nWater, Internet, electric:<\/strong><\/p>\n
$45 billion to remove lead pipes
\n$56 billion for modernizing water systems
\n$100 billion for high-speed broadband\u00a0[Not a federal role, though I might not oppose cities, counties, or states forming limited purpose public Internet providers.]<\/strong>
\n$100 billion for the electric grid and clean energy
\n$16 billion for putting “hundreds of thousands [of people] to work in union jobs” plugging oil and gas wells and restoring and reclaiming abandoned mines\u00a0[Energy companies should pay for all end-of-life procedures, not taxpayers.]<\/strong>
\n$10 billion for a Civilian Climate Corps\u00a0[No, not an infrastructure project.]<\/strong><\/p>\nHomes, schools, buildings:<\/strong><\/p>\n
$213 billion for affordable housing\u00a0[Research finds affordable housing programs often have unintended consequences. Block grants and Universal Basic Income remain better solutions.]<\/strong>
\n$100 billion for school construction\u00a0[State and local\u00a0responsibility.]<\/strong>
\n$12 billion for community colleges\u00a0[State and local responsibility.]<\/strong>
\n$25 billion for child care facilities\u00a0[Not a federal infrastructure project.]<\/strong>
\n$18 billion for VA hospitals
\n$10 billion for federal buildings<\/p>\nWorkforce, innovation: [None of these should be in an emergency infrastructure spending plan.]<\/strong><\/p>\n
$400 billion for home- or community-based care for the elderly and people with disabilities
\n$180 billion for research and development, including investing $50 billion in the National Science Foundation and $35 billion “to achieve technology breakthroughs that address the climate crisis”
\n$300 billion for manufacturing and business, including $50 billion for semiconductor research and manufacturing, $30 billion for pandemic preparedness and $52 billion for domestic manufacturers
\n$100 billion in workforce development programs targeted at underserved groups, including $5 billion for violence prevention programs<\/p><\/blockquote>\nInfrastructure has a multiplier effect, while a sudden jump in taxation tends to suppress economic growth. What if the funding mechanism, the 33 increase in corporate taxes, slows the economy more than the spending increases economics activity?<\/p>\n
Some economists, and too many politicians, trust forecasts and models to be predictive. It\u2019s one thing to model the past, another to model what has never occurred. A lot of humility is called for at this moment.<\/p>\n
If the Biden proposals work, he will be regarded as among the great presidents. If, however, the economy stalls, inflation rises, and the investments go as well as the California high-speed rail project, Biden and the Democrats will be offering a cautionary tale on the limits of Keynesian stimulus.<\/p>\n
Republicans need to find a compromise with Pres. Biden and Democrats, but that\u2019s politically unlikely. Neither party\u2019s base tolerates genuine compromise.<\/p>\n
Assuming the tax increases are implemented and businesses don\u2019t actively offset higher rates, there could be net-neutral result. That\u2019s not a win for Biden or progressive economic theories.<\/p>\n