The Economic Impact of President Biden's Infrastructure Proposal
Ahmed Elkhwad ‘23
President Biden recently unveiled his sweeping proposal to revamp America’s “crumbling” infrastructure. The $2 trillion plan includes provisions to fund expanded public transportation, revamp roads and bridges, modernize water systems, expand internet access, expand the electrical grid and internet access in rural communities, and encourage people to switch from gas vehicles to electric vehicles.
There is widespread agreement amongst politicians in both parties, economists, and infrastructure experts regarding the need for revamping the country’s infrastructure. The United States’ overall infrastructure currently places at a lowly thirteenth in the world, according to the World Economic Forum. Ongoing infrastructure modernization and expansions projects from America’s economic rivals, namely China and Russia, have also increased the urgency for infrastructure reform.
However, there is widespread disagreement about the bill’s source of funding. President Biden announced that he plans to fund the reform by increasing the corporate tax rate from 21% to 28%. Corporate taxes were lowered from 35% to 21% in 2017, a move that received widespread support from many Republicans, who are now displeased with President Biden’s proposal to increase corporate taxes again.
Many economists are similarly worried about a potential increase in corporate taxes. These economists acknowledge that President Biden’s overall proposal is likely to be beneficial in the long run, but they state that the short term effects could be negative. There is often a time lag between the approval of infrastructure projects and their eventual roll out and implementation. Many of the proposed infrastructure reforms in President Biden’s proposal won’t actually begin implementation until 2023 or later. However, the effects of the tax hikes would be felt almost instantly, with many economists worried that the corporate tax increase will lead to a decline in private sector hiring and investment. As such economists at Moody Analytics have predicted that economic growth in 2022 will be a mediocre 1.3%, with the proposed infrastructure reforms having no effect on growth for that year. However, some economists have predicted that the infrastructure bill will have a moderately positive impact on economic growth in 2022. Analysts at the corporate investment banking firm Natixis predicted that the infrastructure proposal would boost 2022 growth from 3.3% to 4%. Similarly, economists at Oxford University predicted that the bill would slightly increase 2022 growth, from 3% to 3.5%.
So how will the proposed infrastructure reform affect the US economy in the long run? Economists are universally in agreement that the proposal will reap long term benefits for both future GDP growth and hiring. The economists at Moody Analytics expect the overall bill to add 0.5% to economic growth in 2023, and 1.6% in 2024. This would lead to roughly 1.4 million new jobs in 2024 and a million new jobs in 2025. In total, Moody Analytics predicts that 2.7 million new jobs will be created by 2030 due to the proposal. Despite the large amount of spending outlined by the proposal, the economists at Moody predicted that it would only increase the national debt by $850 Billion over the next ten years. This is because most of the spending would be offset by the proposed corporate tax hike.
