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View from Washington: Biden begins building

The President has got agreement on an infrastructure deal but it falls far short of the 'once in a lifetime' programme he originally wanted.

Context. It really can be an awkward so-and-so.

Consider this. On one level, President Biden deserves praise for having finally squared the circle on a meaningful US infrastructure bill. Others have tried, others have failed (and, most recently, others have just talked bigly). Biden has – some upcoming congressional debate aside – secured bipartisan support for a programme worth $550bn in new money over the next five years.

However, it is only about a quarter of what Biden was originally seeking in his $2.25tr American Jobs Plan. Even allowing that the original proposal included some non-infrastructure elements (most notably around social care for the elderly), that’s quite a shortfall.

The final number is also some way short of the $2.6tr that will be needed over the next decade according to the most recent Infrastructure Report Card analysis from the American Society of Civil Engineers. That was published in March.

Moreover, the funding proposals for Biden’s plan contain serious contingencies. Republican opposition killed his first idea of paying for the Jobs Plan by raising US Corporate Income Tax from 21 per cent to 28 per cent. Instead, for example, a hefty chunk will come from currently unused coronavirus emergency funding, the winding down of federally-backed furlough schemes, and by clawing back fraudulent claims. Cryptocurrency will meanwhile be taxed more aggressively, and future radio spectrum sales earmarked.

Given continuing warnings about the potential of a resistant strain of Covid-19 emerging in those parts of the world not yet significantly vaccinated (and too much vaccine-scepticism in the US itself), that kind of redirection of federal funds does look like a bit of a gamble.

However, the numbers are cautious in terms of the anticipated ‘economic multiplier’ – the ratio of extra economic activity that each dollar of federal expending is expected to generate. This has been held at just a tad above a conservative 1:1 ($560bn), rather than the 1.5-3.0:1 range some studies have promoted.

Nevertheless the main longer term issue may be that Biden has so far failed to upend the Washington model that sees central government as very much a minority contributor towards national infrastructure spending. Breaking with that past (and present) was a goal his original figures tended to imply.

And that model is becoming a problem.

According to the US Centre on Budget and Policy Priorities (CBPP), the federal government provides only 25 per cent of public infrastructure spending as things stand, with states having to meet the rest through local taxation as well as devices such as bonds and public-private partnerships. Meanwhile, according to a further analysis by the Global Infrastructure Hub, the US ranks 19th out of the G20 nations in this expenditure as a proportion of GDP, at just 1.5 per cent.

The consequences clearly inform the ASCE’s Report Card. Issued every four years, it estimates the growth in the investment gap between 2017 and 2021 to have been $500bn, merely a notch shy of what Biden has managed to extract from Congress today. By that benchmark, standing still is being touted as a remarkable achievement.

It must be said that there are important programmes within the Bill that go beyond the need to address neglected public transport, roads, bridges and utilities and eye the digital and green economies. There is $7.5bn to electrify school buses and public-owned ferries, and another $7.5bn that could go to the build-out of a national EV charging network. Some $65bn will go towards closing the urban/rural broadband gap and extending better quality services to those on lower incomes (although Biden had pitched this at $100bn).

This is progress, and considering how little others have achieved, calling the Bill underwhelming does feel over-critical. There is also a fair argument that had Biden not aimed so very high originally, he might well not have brought enough Republicans around to the numbers they have now agreed to back.

Still, where Joe Biden began by promoting his plan as a “once in a lifetime” opportunity, its scale right now suggests it could well be visited at least twice in his current term, and certainly once more if he is re-elected. It’s the first step on what is still proving a very, very long journey.

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