Will infrastructure spending help progress?

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Will infrastructure spending support growth?

If you haven’t had the time or energy to dive into the Biden Administration’s $ 2.3 trillion American Jobs Plan (AJP), fear not – I’ve got you covered.

The plan aims to “redefine and rebuild a new economy” using government money in four areas:

Jill Schlesinger

1. Classic Infrastructure: Roads, Rails, Bridges, and Transportation Systems ($ 621 billion)

Housekeeping: water ($ 111 billion), childcare facilities ($ 25 billion), schools ($ 100 billion), federal buildings ($ 10 billion), broadband ($ 100 billion), affordable housing ($ 213 billion). USD)

3. Caregiving Economy: Aid to Elderly and Disabled People in the Nation ($ 400 billion)

4. The workplace economy: R&D ($ 180 billion), manufacturing and small business ($ 300 billion), and workforce development ($ 100 billion)

The reason for the infrastructure spending is that the country needs an upgrade to many of its systems. The White House notes that “Inland public investment as a share of the economy has declined more than 40% since the 1960s,” making the richest country in the world 13th for the overall quality of our infrastructure.

The AJP makes the leap from physical infrastructure to “human infrastructure” when it adds money for the care industry. Human infrastructure is a term coined to cover government spending on health, education, and nutrition. The best example of this was the postwar GI bill, which gave millions of World War II veterans access to college or business schools, provided low-interest mortgages, and established medical care and hospitals for veterans.

Infrastructure spending would be spread out over eight years, but paid for by higher corporate taxes for more than 15 years. The plan would increase the corporate tax rate to 28%, a step backwards from the previous tax law of 2017 that lowered corporate tax rates from 35% to 21%. Other changes include the introduction of a minimum tax of 15% for large companies (with incomes in excess of US $ 2 billion), the doubling of the tax rate on corporate foreign profits from 10.5% to 21% and the introduction of a global minimum tax, to discourage companies from taking advantage of lower tax rates abroad.

The AJP not only promises that no investments have been made in the last few decades, but also promises that “millions of good jobs will be created”. While the plan could create a number of jobs, the U.S. job market is already on track to regain its former glory. According to Moody’s Analytics, the AJP would help the labor market return to pre-pandemic levels by early 2023, “not much different than without the plan”. The reason is that it would likely take a few years for government spending to stimulate growth and create more jobs.

Government investment in infrastructure will fuel the economy in the next few years, but estimates are everywhere of how much boost the plan would bring. In fact, the economy should explode higher this year before the AJP. In its most recent outlook, the IMF has made “a substantial upgrade for the United States (1.3 percentage points)” and is forecasting growth of 6.4% for this year. This is the case after a decrease of 3.5% in 2020. The IMF has also upgraded its estimate of global growth, which is expected to be 6% in 2021 after the historic -3.3% decline in 2020. Global growth has accelerated due to the massive $ 16 trillion in global government spending that “prevented far worse results”. IMF estimates suggest that “without such support, last year’s severe collapse could have been three times worse”.

The IMF has not yet weighed on the AJP, but the most immediate impact of the legislation is that it could exceed growth in both the US and around the world.

Jill Schlesinger, CFP, is a business analyst for CBS News. As a former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check their website at www.jillonmoney.com.