View from Washington: Finally... infrastructure
Image credit: reuters
The $2tn price tag on President Biden's plan reflects masses of work that can wait no longer.
Two main schools of thought are emerging around President Biden’s $2tn (£1.45tn) American Jobs Plan for infrastructure. The first is that it reflects a more left-leaning Democrat political and fiscal agenda; the second is that it finally addresses weaknesses in the US economy that have been allowed to grow and spread largely unchecked for decades.
The second interpretation is the best place to start.
The periodic Infrastructure Report Card produced by the American Society of Civil Engineers has marked the US as at best a borderline-fail for as long as anyone can remember – before Biden’s announcement the grade stood at C-. The President had some numbers of his own simply for repairs when launching the plan yesterday (31 March): 20,000 miles of road and 10,000 bridges were two prominent examples.
There are ‘new-build’ engineering investments in there as well, such as extending the high-speed rail network and pouring $174bn into the electric vehicle market, part of which will create a national charging infrastructure. And there are allocations that will cover AI, machine learning, biotechnology and other cutting-edge research: an extra $50bn for the National Science Foundation, $30bn more to support R&D in rural areas and $40bn to improve the federal laboratory, computing and broader physical R&D infrastructure.
Biden also wants the $50bn semiconductor manufacturing and research plan backed by both Democrats and Republicans in the earlier CHIPS For America Act to finally be funded and put into action.
However, all these can also be seen as acts of necessity.
With China having restated its commitment to high technology research in its 14th Five-Year Plan, just three weeks ago, and already having spent trillions on its domestic communications infrastructure, the US’s global economic lead is under real challenge in every sense. Indeed, when Chinese officials suggested in response to Biden’s plan that they could even give the US a leg-up in high-speed rail, it was an uncomfortable reminder for Washington that the best trolling comes laced with truth.
So, while the Biden administration puts on a public show of maintaining US superiority or at least matching the Middle Kingdom, there are today some awkward areas where it also knows it must work on restoring parity.
Regardless of whether necessity is here the mother of investment and invention, that reality cannot be entirely divorced from the politics. These are also interesting.
The administration aims to pay for the $2tn plan over 15 years mostly through corporate tax measures. The main rate will be raised from its current 21 per cent to 28 per cent (although it had long been 35 per cent before Donald Trump took office); loopholes that allow US companies (particularly the search, social media and e-commerce giants) to offshore profits and avoid taxation at home will be closed; and tax credits and deductions to the fossil fuel industry will end.
Funnily enough, Republicans and business lobbying groups are less than keen. Senate minority leader and professional brick-in-the-road Mitch McConnell was quick to describe the plan as “another Trojan horse for far-left demands”. But, whatever else you might want to say about him, McConnell is a master at reading a room, and he may already be wondering whether that strategy will fly.
Remember that what Biden is proposing looks so enormous because it is mostly the result of years of neglect. In that context, both parties recognise that action is required now.
Don the Builder promised America ‘Infrastructure Week’ but it never came. The former President was not a details guy and his own party did not want to bear the stigma (or the opprobrium of major contributors) for raising taxes. Nevertheless, a Trump-led infrastructure splurge was feared by Democrats because it could have solidified his existing support and even increased it in the Rust-Belt states as well as threatening their party’s historical coalition with organised labour.
McConnell now finds himself on the other side of the issue. Oppose Biden’s plan and the Democrats will have a weapon to use against Republicans in the 2022 midterm elections.
The President aims to push through his plan by 4 July, so that the money and the jobs start to flow well before the polls open. The number of voters who switched from Obama to Trump, despite the apparently massive political divide between them, is long thought to have been underestimated. Biden just happens to be stretching his programme across a broad enough swathe of the US economy, by both region and sector, to catch many of those.
Meanwhile, the President will be able to push through his plan as long as he keeps every Senator in his own party on side using a US political procedural measure called reconciliation – and $2tn can fund an awful lot of ‘necessary’ projects in an awful lot of states.
These are politics as raw as anything McConnell himself has practised.
But the real news remains that, finally, it looks like the US is getting a comprehensive infrastructure plan. Perhaps it is not as flashy as Apollo or as demonstrably transformative as the interstate highway programme, but it is massive. However, it does need saying that the plan is also still only a beginning – or maybe we should think of it as potentially the biggest ‘Reset’ button the global economy has ever seen?
Or even better, as a true reflection of, “Whatever it takes”?
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