The roughly $2.3 trillion spending proposal unveiled Wednesday would make investments in infrastructure over the coming decade that officials say would enhance the economy’s productivity, such as through public transportation upgrades that make it easier for commuters to get to their jobs, or rural broadband expansion that improves workplace technology.
Economists say those types of changes could enable the economy to grow more rapidly over the long term and lift living standards without triggering worrisome inflation.
But critics, including business groups and many Republican lawmakers, say the administration’s plan to pay for the measures through tax increases will damp investment, undercutting the boost to growth. Some note the plan will add to federal budget deficits, at least temporarily. And some observers say parts of the package won’t do much to raise productivity and change the economy’s long-term growth trajectory.
“It depends on the investment,” Alan Auerbach, an economist at the University of California, Berkeley, said of the potential for raising long-term growth. “Anything that makes workers more productive and private businesses more productive would all seem to be helpful.”
The goal is different from the most recent stimulus package, which aimed to provide immediate, short-term aid through checks to individuals, enhanced jobless benefits and expanded tax credits. The government borrowed all of the money and is expected to spend most of it this year, ramping up consumer demand, economic output and job growth, which will taper off in 2022.
The new package focuses on long-term economic goals that predate the Covid-19 crisis, including repairing roads and bridges, investing in research and development, and making new investments in clean-energy technology such as electric-vehicle charging stations. Funding for the projects would be spent over eight years, and while the benefits could be slow to materialize, they would likely be felt for much longer, supporters say.
“We could be talking a couple of years before firms start to see the benefits,” said Harvard University economics professor Karen Dynan, a Treasury official during the Obama administration. “But of course you want to look all the way through the life of the infrastructure [to see] what the payoff is over the longer run.”
Federal spending on domestic physical infrastructure, research and development, and education and training has declined steadily since the 1960s to between 1% and 2% of gross domestic product recently. Mr. Biden’s plan would increase federal investment by 1% of GDP over eight years.
His proposal includes $621 billion to modernize transportation infrastructure, $300 billion to boost the manufacturing industry, $213 billion on retrofitting and building affordable housing and $100 billion to expand broadband access, among other investments.
The administration intends to pay for the plan with tax increases on corporations spread out over 15 years, reversing most of the tax law changes Republicans made in 2017. The proposal would raise the top corporate tax rate to 28% from 21%.
The U.S. Chamber of Commerce said Wednesday it supported the broad goal of more infrastructure spending, but added it should be financed at least in part by a gasoline tax, not through tax increases on corporations.
“We strongly oppose the general tax increases proposed by the administration which will slow the economic recovery and make the U.S. less competitive globally—the exact opposite of the goals of the infrastructure plan,” said Neil Bradley, the Chamber’s executive vice president and chief policy officer.
If the package’s higher spending was spread evenly across the eight years, it would amount to roughly $250 billion a year, or about 1% of annual GDP, according to a senior administration official. The tax provisions would raise about $125 billion, or 0.5% of GDP, a year, in corporate revenue over 15 years, the official said.
That would translate into a net stimulus of roughly 0.5% of GDP in each of the first seven years under the plan, as spending outpaces revenue collection, estimated Paul Ashworth, chief U.S. economist for forecasting firm Capital Economics.
The gap between spending and revenue over the coming decade would also add, at least temporarily, to government budget deficits. During the first 10 years, the plan would generate about $1.3 trillion in revenue, offsetting roughly 60% of new spending during that period, according to Jeffries economists Aneta Markowska and Thomas Simons.
They estimate the plan could add between 0.5 and 1 percentage point to their 2022 GDP growth forecast of 5.2%.
White House officials say the proposed corporate tax increases would generate enough revenue to pay for total spending under the bill after 15 years, and would ultimately reduce the federal debt if they remain in place.
Douglas Holtz-Eakin, president of the American Action Forum, a right-leaning think tank, and a former economic adviser to President George W. Bush, said some provisions would do little to enhance the economy’s productive capacity.
The $180 billion provision for research and development is beneficial, for example, but likely isn’t large enough to change the trajectory of technological innovation, he said. Increased spending on clean-energy technologies and care for the aging and those with disabilities may be worthwhile but aren’t primarily aimed at boosting long-term growth, he said.
“I doubt that this is, on balance, a pro-growth package,” Mr. Holtz-Eakin said.
Boosting long-term growth isn’t the administration’s only objective. Mr. Biden said Wednesday the investments are necessary to tackle climate change and help the U.S. compete with China, whose spending on research and development as a share of economic output has outpaced the U.S.
Mr. Biden’s plan also stresses equity in access to jobs and transportation options, including $20 billion for a new program that would reconnect neighborhoods cut off by past transportation investments as well as research funding for historically Black colleges and universities.
The White House also estimates the plan would create “millions and millions” of jobs over time, including in new clean-energy sectors and in caring for the aging and those with disabilities.
The U.S. labor market is already forecast to strengthen this year as the economy continues to recover from the pandemic’s effects, spurred by vaccinations, recent infusions of federal stimulus and ample household savings. The unemployment rate ticked down to 6.2% in February, well below the pandemic’s peak near 15% last April but still well above 2019’s 50-year lows. Federal Reserve officials project the rate will fall to 4.5% by the end of this year and 3.5% by the end of 2023.
Overall, the U.S. had 9.5 million fewer jobs in February than a year earlier, just before the coronavirus pandemic took hold in much of the country. But some firms are already reporting labor shortages as they try to increase production while many workers remain sidelined for multiple reasons, including long waits to get vaccinated, fears of Covid-19 and the vaccines, lack of child care or lack of the skills required for the jobs opening up.
Ms. Dynan said the latest Biden plan could accelerate job growth over the coming year, as firms hire workers for new building projects or existing infrastructure repairs and modernization. That could especially benefit many low-skilled workers, she said, who have been hit hard by the pandemic. But the plan’s focus on renewable-energy investments means some of the new jobs will likely require workers with higher skills, which will call for training assistance, she said.
“It is important that you include resources that would help you train people,” she said. “But that’s an investment, just like the infrastructure is an investment.”
This story has been published from a wire agency feed without modifications to the text.