Ted W. from Lancaster, PA asks: Good Morning Mitch, I’d like to hear your thoughts on the potential $3 trillion infrastructure spending bill. For starters, is this even possible or is it just politics as usual? I’m also curious about how infrastructure bills impact the economy. Thank you.
Mitch’s Response:
Thanks for writing, Ted – great question. In recent history, the infrastructure issue has gotten plenty of airtime on campaign trails, only to fizzle when it comes time to actually pass bills. We have not seen any major investment in infrastructure in decades – there are always disagreements on cost and how to pay for it.
No one should rush to assume ‘this time will be different,’ but it is meaningful to acknowledge that infrastructure seems to be the second major priority of the Biden administration (the first priority being the already passed $1.9 trillion stimulus bill). This prioritization is akin to the 2017 Tax Cut and Jobs Act passed during the Trump administration, meaning the infrastructure bill is receiving quite a bit of national attention – even before any details have been revealed.1
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What we know so far about the $3 trillion Biden proposal is that it may be broken into two parts: first is more traditional infrastructure spending, focused on roads, bridges, water infrastructure, and expanding broadband. I’ll touch on the second part below.
With regards to at least roads, there may be some funding available even if a larger bill does not pass. The 2015 federal surface transportation funding authorization, known as the FAST Act, is set to expire in September, but there appears to be bipartisan consensus to extend the program and increase the pool of funding. The Senate committee overseeing the matter said funding should increase by 27%, while the relevant House committee wants a more than 40% increase. Even if there is not a sweeping infrastructure bill, a bigger funding pool for the Highway Trust Fund should boost infrastructure spending.
The second part of the infrastructure package takes on a less traditional definition of infrastructure, focusing on education and healthcare – what Biden refers to as the “caregiving economy.” This part of the bill would seek to extend the expanded child tax credit, provide universal pre-kindergarten and tuition-free community college, and increase funding for elder care services – among many other proposals.
Taken together, the $3 trillion-over-ten-year infrastructure plan is massive and thus faces meaningful hurdles in the 50-50 Senate. What’s more, the notion of paying for it with higher tax increases on corporations, higher top marginal tax rates for high-income individuals, tightening international tax rules, and increasing the capital gains tax make it dead on arrival for most Republicans. Whether Democrats try to use other means to pass the bill remains to be seen.
Regarding your question, significant infrastructure spending will generally have multiplier effects on the real economy, at least with regards to road, bridge, and broadband building. Not only does infrastructure spending go dollar-for-dollar into the real economy with spending on gravel, asphalt, concrete, cable, and more, it also creates jobs needed to do the building – which feeds into personal incomes and consumer spending.
At this point, however, it is important to remember that infrastructure bills, while popular, have had a lot of difficulties getting passed. The national attention this bill is receiving may change the calculus for both sides, but there is little doubt reaching an actual agreement is a tall order.
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