The large-scale project of the US President, totaling $ 4.5 trillion, will cost the American economy dearly. Public debt, budget deficit will increase, GDP will decrease in the fut-ure. Biden’s infrastructure threatens ordinary Americans with falling w-ages and job losses. Par-adoxically, the plan itself is aimed at creating them.
Biden presented the project for modernization and infrastructure development at the end of March. A trillion dollars is expected to be allocated to production projects. And three times more – for social spending, poverty alleviation and environmental protection.
This is called “infrastructure injection”. In the next ten years, they plan to renovate roads, bridges, and water supply systems. Much attention is paid to the fight against climate change – the development of “green” transport. There will be half a million charging stations for electric vehicles, many pedestrian zones and bike paths. They will improve power grids, provide access to the Internet in cities and towns where there are difficulties with this.
In the energy sector, we are betting on ecology in order to “get rid of carbon pollution” by 2035.
Biden believes that “this will lay the foundation for sustainable growth.” In his opinion, the project will not only raise the economy and living standards, but will also help in the struggle for world leadership, since “it was the global investments in infrastructure that have repeatedly moved the United States forward in the past.”
Moreover, all these initiatives should create two million jobs a year. A very important factor is high unemployment in the United States, although it has been declining since July as the economy recovers. In the summer, most vacancies were opened in the leisure and entertainment industry (380 thousand) and education (221 thousand).
Whom to pay
This project was in the plans of Barack Obama and even sounded in the election campaign of Donald Trump. But Biden’s predecessors failed to convince Congress to give them the green light. And this time, history repeats itself.
The fact is that Biden expects to receive money mainly through higher taxes. Thus, it is proposed to increase the corporate rate from the current 21 to 28 percent. In essence, this nullifies all business concessions introduced by the Trump administration in 2017.
The former head of the White House has drastically cut corporate fees to boost the competitiveness of American entrepreneurs. As part of the largest reform in 30 years, corporate income tax was reduced from 35 to 21 percent.
Economists have already calculated the consequences. In their opinion, the change in the tax system will reduce domestic investment. This means that jobs, on the contrary, will decrease, wages will decrease, which will eventually hit the middle class as well.
The Tax Foundation, an independent tax analysis organization, estimates that Biden’s proposed rate hike alone will force businesses to cut their fixed capital in-vestment — and this threatens to lose nearly 160,000 jobs in 10-30 years. In addition, the combined federal and state tax rate will rise to 32.34, the highest among the G7 countries.
In the short term, Biden’s project could indeed create about 2.3 million jobs, according to S&P Global. However, any construction site is not eternal – the object will be handed over and people will again find themselves at the labor exchange.
Moody’s Analytics also pointed out the dubiousness of Biden’s ideas: “Already in 2022, employment will be reduced by 23 thousand jobs, since higher corporate taxes will come into force, and infrastructure costs will begin later.”
A Trillion Wishlist
Critics call the American president’s plan “another multi-trillion dollar wishlist of the left.” And they compare it with the costs of a pandemic: half of the money went to no one knows where, leaving a record high public debt and a huge hole in the budget.
Moreover, the project is not at all infrastructural: 621 billion – for transport, 400 – for programs of assistance and adaptation of the elderly and people with disabilities, 300 – for small businesses, 180 – for research and development.
According to the Republicans, people should not be misled. If we talk really about infrastructure, 115 billion will remain for upgrading highways, roads and main streets. Plus 25 billion for airports. And 17 more – for inland waterways, ports and ferries.
“This project will create jobs in remote regions, facilitate access to them. In large cities, the infrastructure is objectively outdated and does not correspond to modern realities, it is not designed for such a large population. In the United States, the issue of modernization is very acute,” Anastasia Bunina, employee of the Center for North American Studies, IMEMO RAS named after E. M. Primakov.
After months of debate, the Senate finally passed a 1.2 trillion package. Now it must be approved by the House of Representatives.
But the additional 3.5 trillion that left-wing Democrats insist on is still in question. They want to direct these funds to climate initiatives, social services, education and health. The moderate wing of the party as a whole agrees to the bill, but would like to reduce the expenditure side. Democrats expect to adopt the document using a procedural tool known as “budget reconciliation.” This will bypass the GOP legislators. Although confrontation is still inevitable. However, the democrats themselves are not sure of the need for such huge spending. It is impossible to support another multi-trillion dollar bill, given the “banquet” that Biden threw into a pandemic, said Democratic Senator Joe Manchin.
According to a study by the Wharton School at the University of Pennsylvania, the only thing that Biden’s plan can increase is federal debt: by another 8.9% in te-n years. Otherwise, it’s a di-saster for investors, wor-kers and taxpayers. At the same time, GDP will fall by four percent and may shr-ink by another five by 205-0.
Hit the ceiling
In the midst of the pandemic, huge costs and a printing press are running at full capacity, the US national debt has already exceeded the size of the economy. According to all forecasts, this should have happened only in ten years. But it happened much earlier – too much was spent on supporting the national economy.
In 2020, the authorities pumped almost $ 9 trillion into the economy. By the e-nd of March, debt had rea-ched 101 percent of GDP. This only happened once, right after World War II, in 1946. And now American finances are hitting the legal maximum for borrowing – 28.5 trillion dollars.
In August, the Ministry of Finance introduced eme-rgency measures to avoid default. Reduced investm-ent in the old-age and disability pension fund. So far, this allows you to live without increasing debt, while freeing up space for the pl-acement of new bonds. It is necessary either to urgently raise the bar of borrowing, or to suspend the operation of the relevant law.
But at the end of September, the Senate again failed the government debt ceiling vote. The limit must be raised before the second half of October. By then, the Ministry of Finan-ce is likely to have exhausted emergency measures.
Against this background, Biden’s next multi-trillion-dollar project looks like a time bomb that will be laid under the American economy.