Joe Biden unveiled an ambitious public infrastructure investment plan, proposing approximately $1.7 trillion over 10 years for investment in physical capital and R&D. An additional $500 billion would be allocated to workforce incentives and Medicaid benefits.

The plan represents a major shift in U.S. economic policy. After decades in which the U.S. government largely allowed the market to allocate resources, the Biden administration has decided that not all growth and profits are created equal. In the coming years, it will direct public procurement, research and development grants, direct investment, and tax credits. Its goal is to reward industries that create jobs domestically, support U.S. manufacturing, maintain U.S. technological leadership over China, reduce carbon emissions, and improve the standard of living for the disadvantaged. 

Much of the spending will involve investments to improve traditional infrastructure, such as roads, bridges, public transportation systems, and waterways. These “shovel-ready” projects have been a proven remedy for recessions since the New Deal of the 1930s, as spending can quickly boost aggregate demand and create domestic jobs that are resistant to outsourcing, while, in the long term, they can improve productivity. Biden’s spending plan also calls for investments in research and development in semiconductors, batteries, and broadband technology—areas where the United States faces fierce competition from China.

Under the plan, the spending will be spread out over the remainder of the decade and financed over more than 15 years by raising the corporate tax rate from 21% to 28%.  Each percentage point increase in the corporate tax rate would raise just over $100 billion in tax revenue over ten years, so this proposal would generate between $700 billion and $800 billion during that period.

The plan also proposes raising the effective tax rate on Global Intangible Low-Taxed Income (GILTI) to 21% from the current effective rate of 10.5%, and shifting the system to a country-by-country basis that would prevent companies from using tax credits from high-tax jurisdictions to offset GILTI earnings in low-tax jurisdictions.

While higher taxes may affect corporate profits, the impact should not be overstated. The proposed increase in the corporate tax rate from 21% to 28% (negotiations in Congress could end up capping that figure) is only a partial reversal of Trump’s 2017 tax cut, which reduced the rate from 35% to ​​21%. Furthermore, the infrastructure plan would add 1.6% to U.S. GDP by 2024, providing an upward bias to consensus earnings growth.