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

The plan represents a significant philosophical 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 government procurement, research and development grants, direct investment, and tax credits. Its goal is to reward industries that create jobs in the country, 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 conventional 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 in which 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 generate slightly more than US$100 billion in tax revenue over ten years, so this proposal would raise between US$700 billion and US$800 billion during that period.

The plan also proposes raising the effective tax rate on Global Intangible Low-Tax Income (GILTI) to 21% from the current effective rate of 10.5% and shifting the system to a country-by-country basis, which 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 limiting 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.