Biden plans US$2.25 trillion spending, corporate tax hikes

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WASHINGTON – President Joe Biden will unveil a US$2.25 trillion (S$3 trillion) US infrastructure plan on Wednesday (March 31) – paid for by steep tax hikes on businesses- that his administration said will prove the most sweeping since investments in the 1960s space programme.

The four-part, eight-year plan dedicates US$620 billion for transportation, including a doubling in federal funding for public transit. It would provide US$650 billion for initiatives tied to improving quality of life at home, like clean water and high-speed broadband.

There’s US$580 billion for strengthening American manufacturing – some US$180 billion of which goes to what’s billed as the biggest non-defence research and development program on record – and US$400 billion to address improved care for the elderly and people with disabilities.

Mr Biden’s plan would increase the corporate income tax to 28 per cent from 21 per cent, and set a 21 per cent minimum tax on global corporate earnings. The White House said tax increases will be “fully paying for the investments in this plan over the next 15 years”. But the plan faces a rough road in Congress.

Garnering Republican support in either the House or Senate, both of which Democrats by narrow margins, will be difficult, if not impossible. Corralling moderate and progressive Democrats will also be a challenge.

“Like great projects of the past, the president’s plan will unify and mobilise the country to meet the great challenges of our time: the climate crisis and the ambitions of an autocratic China,” the White House said in a statement before Mr Biden’s afternoon speech in Pittsburgh.

What Mr Biden lays out on Wednesday is just the first part of his long-term economic programme, with a second round of initiatives to be announced in mid-April. Those will focus on “helping with the challenges like health care costs, child care, and education”.

The programme will prove far more complex to enact than the US$1.9 trillion pandemic-relief Bill signed earlier in March.

Republicans are staunchly opposed to tax increases, and the breadth of measures will invite partisan and even internal Democratic battles. Senate Republican leader Mitch McConnell has warned that efforts to improve infrastructure shouldn’t turn into “a Trojan horse for massive tax hikes and other job-killing left-wing policies.”

As seen with the Covid-19 Bill, Mr Biden’s initial plans are coming in much bigger than what economists had anticipated. The shift to a major expansion in fiscal policy has already driven up forecasts for growth this year, and sent Treasury yields climbing. While stocks have reacted with some volatility in recent weeks, the S&P 500 index hit a record high on Friday.

Mr Biden’s plan will create millions and millions of jobs, an administration official told reporters, while declining to provide a specific figure.

Pittsburgh Model

Mr Biden will present his “American Jobs Plan” on Wednesday in Pittsburgh, a city the White House views as a prime example of an old manufacturing hub revitalised by new industries from health care to technology.

The administration wants the same type of reorientation that Pittsburgh saw to provide fresh opportunities to working-class cities and towns across the country. The plan envisions an expensive political gambit carried out over the next decade to try to create well-paying jobs by both updating the country’s infrastructure and preparing for the coming weather patterns wrought by climate change.

A major undercurrent through the infrastructure plan is addressing inequality and expanding help for segments of society that the administration judges have been left out in the past. For example, in addition to fixing the “ten most economically significant bridges in the country in need of reconstruction,” there’s US$20 billion for a new programme that will “reconnect” neighbourhoods that were cut off by past investments, such as the I-81 highway in Syracuse, New York. And all lead pipes will be replaced, to address water-quality issues.

Another key theme is bolstering US competitiveness against China. There’s US$50 billion earmarked for domestic semiconductor manufacturing, and US$40 billion more in upgrading research capacity in laboratories across the nation.

Climate change is also a major target. The transportation funding proposed specifically directs US$174 billion to electric vehicles, including sale rebates and tax incentives for consumers to buy American-made cars.

While infrastructure has traditionally been a bipartisan endeavour, Republicans have warned they’re not in favour of the major tilt towards renewable energy in the administration’s approach. Senate GOP leader Mitch McConnell also said his party wouldn’t vote for tax increases.

Outreach to GOP

Administration officials said Mr Biden is open to input from members of Congress of both parties on what provisions should be in a final package and how to pay for them.

The White House expects to have robust outreach to GOP lawmakers and is committed to a serious discussion with them, a White House official said on the condition of anonymity to discuss the administration’s plans. That effort began with inviting Republicans from relevant committees to a Tuesday briefing with Mr Brian Deese, the National Economic Council director.

But Mr Biden’s plans don’t necessarily need Republican support to become law.

Senate Majority Leader Chuck Schumer and House Speaker Nancy Pelosi could choose to fit many of the President’s proposals into one or more budget reconciliation Bills, which require only a simple majority vote in the Senate. The challenge is, as Ms Pelosi has already indicated, that not all elements could fit into such a Bill, which sets certain requirements for inclusion.

The infrastructure package doesn’t include any of the proposed tax increases on individuals that Mr Biden talked about on the campaign – like raising the top tax rate for individuals and increasing the levy on capital gains. That was purposeful, an administration official said, because White House aides believe corporate-tax reform should pay for infrastructure and the efforts to enhance the attraction of the US as a place to do business.

Potential Legacy

Tax experts and lawmakers expect the administration to try to raise taxes on the wealthy and their assets in the second package coming later this spring.

If Mr Biden does succeed in passing the bulk of the packages he introduces, it could put him in the pantheon with Lyndon Johnson or Franklin Delano Roosevelt, presidents who instituted sweeping changes through legislation on civil rights and the social safety net.

“This really is transformational in a way we have not seen since the Great Society,” said Dr Dean Baker, senior economist at the Centre for Economic and Policy Research, a left-leaning think tank.

“Like a lot of people, I underestimated Joe Biden. He was always in the background – as vice presidents are supposed to be – always in the centre of the party politically. And he was clumsy. That is what we saw, and that is why I underestimated him. But I can’t quarrel with what he done since he took office.”

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