Joe Biden unveiled an ambitious public infrastructure investment program proposing about $1.7 Trillion/ 10 years in physical capital and R&D investment. Another $500 bn would go to workforce incentives and Medicaid benefits.

The plan represents a major 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 equal. In the coming years, it will direct government procurement, research and development grants, direct investment and tax credits. It aims to reward industries that create jobs at home, support U.S. manufacturing, maintain U.S. technological leadership over China, reduce carbon emissions, and improve the living standards of 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 the spending can quickly boost aggregate demand and generate outsourcing-proof domestic jobs, while, in the long run, 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 U.S. faces fierce competition from China.

Under the plan, the expense would be spread out over the rest of the decade and paid for over 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 bn over ten years in tax revenue, so this proposal would raise between $700-800 bn over that time frame.

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

While, higher taxes may affect corporate profits, the effect should not be overstated. The proposed increase in the corporate tax rate from 21% to 28% (negotiations in Congress could end up narrowing that number), is only a partial reversal of Trump's 2017 tax cut, which reduced the rate from 35% to 21%. Otherwise, the infrastructure plan would add 1.6% to U.S. GDP by 2024, putting an upward bias on consensus utility growth.