Joe Biden unveiled his plan to plough $2 trillion in government spending into US infrastructure alongside $2 trillion in higher corporate taxes, as the first stage of a multitrillion-dollar effort to reshape the world's largest economy.
The US president made the announcement in Pittsburgh, Pennsylvania on Wednesday, calling it the biggest public investment programme since the creation of the interstate highway system and the Space Race of the 1960s.
“It’s going to create the strongest most resilient, innovative economy in the world. It’s not a plan that tinkers around the edges,” Mr Biden said, adding: “This is not to target those who have made it, not to seek retribution. This is about opening opportunities for everybody else.”
Coming just weeks after Congress approved a $1.9 trillion fiscal stimulus plan to reboot the pandemic-ravaged US economy, Mr Biden’s investment proposal sets the stage for weeks of delicate negotiations on Capitol Hill, where Democrats hold razor-thin majorities in both chambers of Congress.
If passed, it would represent a high-stakes bet by the White House that a lasting injection of government funds, funded by higher corporate taxes, will strengthen the economy as it emerges from the coronavirus crisis, rather than weaken it, as Republicans argue.
Mr Biden said it would also help America's standing in the world: "[It] will promote our national security interest and put us in a position to win the global competition with China in the upcoming years. It's big, yes. It's bold, yes, and we can get it done."
The plan sets aside up to $621 billion in funding for traditional infrastructure upgrades, including roads, bridges, public transport networks, electric vehicles and vital hubs such as ports and airports.
Climate crisis
It will also try to direct the spending towards projects to help the US mitigate the climate crisis, which the Biden administration has vowed to tackle head on, in a big shift from the scepticism of former president Donald Trump.
These proposals include $100 billion in measures to modernise the electricity grid, tax credits for clean energy generation and storage and to plug orphan oil and gas wells – as well as $213 billion to make homes more energy-efficient and $100 billion to do the same for public schools.
Meanwhile, $180 billion of funds will be directed towards investments in research and development in areas such as artificial intelligence and biotechnology, aimed at improving competitiveness with China. A further $300 billion in government spending is to be devoted to manufacturing subsidies, including help for chipmakers.
While supporters of Mr Biden’s plan have already argued that it will address decades of chronic under-investment in public goods that has hurt the economy, critics were concerned that the corporate tax increases could be harmful to US competitiveness.
Mr Biden wants to raise the corporate tax rate from 21 per cent to 28 per cent, and muster additional revenue through a 21 per cent global minimum tax, calculated on a country-by-country basis "so it hits profits in tax havens", according to the White House. The president also wants to scrap an exemption from taxes for companies on the first 10 per cent of earnings produced internationally and end tax preferences for fossil fuel producers.
The president twice singled out Amazon for being among a slew of blue-chip US companies that "use various loopholes so they pay not a single solitary penny in federal income tax".
He added: “I don’t want to punish them but that’s just wrong . . . I’m going to put an end to that.”
Criticism
Even before Mr Biden released his plan, the Business Roundtable, which represents the biggest blue-chip companies in Washington, attacked the tax increases in the plan.
Neil Bradley, the US Chamber of Commerce's chief policy officer, on Wednesday said that while it favoured a "big and bold" infrastructure package, the corporate levies were "dangerously misguided" and would "slow the economic recovery and make the US less competitive globally – the exact opposite of the goals of the infrastructure plan".
Trade unions cheered the announcement. “Joe Biden understands we need to go big, and this announcement brings us one step closer to delivering the aggressive changes we need to rebuild our country,” tweeted the AFL-CIO, the largest US trade union federation.
Mr Biden’s spending proposal is expected to last about eight years, whereas the corporate tax increases are expected to be phased in over 15 years, beyond the US government’s traditional 10-year budget window, implying the plan will add to America’s deficit during that time.
Despite the high price tag of Mr Biden’s infrastructure package, the White House is expected in the coming weeks to complete its investment plan with an additional set of spending measures on “childcare, healthcare [and] education” that is likely to top $1 trillion, bringing the total amount to more than $3 trillion.
The second package is expected to be paired with tax increases on wealthy individuals, including on income, capital gains and estates.
As he prepares to begin the negotiations with Congress on both packages, Mr Biden is facing competing pressures within his party. Alexandria Ocasio-Cortez, the New York Democratic lawmaker, has said the $2 trillion infrastructure plan is “not nearly enough” and has argued for a higher figure.
But other Democrats are worried that the spending and tax rises could be excessive, with some even calling for a repeal of a cap on deductions for state and local tax payments, which would amount to a tax cut. – Copyright The Financial Times Limited 2021