President Biden plans to unveil a $2 trillion infrastructure plan during a Wednesday speech in Pittsburgh, WSJ reports.
The Details: The proposal is generally focused on “fixing roads and bridges, expanding broadband internet access and boosting funding for research and development, while proposing an expansive increase in corporate taxes to pay for the package.”
- Biden is expected to support his efforts by stating the “investments are necessary to help the U.S. compete with China and tackle climate change.”
But Wait: Biden just signed another massive bill, a $1.9 trillion coronovarius relief package. That was the first of a two part ordeal. The second, which should focus more on child care, healthcare and education will debut in April.
- “The president’s advisers have said the Covid-19 pandemic shifted American attitudes about the role government should play in their lives, making political space for once-in-a-generation federal investments that could reshape the country.”
The Other Side: Biden is set to face staunch opposition from “Republicans to significant tax increases, concern from moderate Democrats about big spending and stirrings from progressives that Mr. Biden’s plan isn’t ambitious enough.”
Numbers To Consider:
- Biden plans to raise the $2 trillion over 15 years by raising the corporate tax rate from 21% to 28%.
- The proposal allocates “$621 billion to modernize transportation infrastructure, $400 billion to help care for the aging and those with disabilities, $300 billion to boost the manufacturing industry, $213 billion on retrofitting and building affordable housing and $100 billion to expand broadband access, among other investments.”
- Other important numbers: it calls for modernizing 20,000 miles of roadway, constructing 50,000 EV charging stations, eliminating carbon emissions from the carbon grid by 2035 and $20 billion for a new program that would cater to “neighborhoods cut off by past transportation investments as well as research funding for historically black colleges and universities.”
In isolation, raising the corporate tax rate by 7% and increasing taxes on foreign earnings would be a headwind against U.S. stocks.
- This is simply because you’re reducing post-tax cash flow to investors by that amount, which should reduce the valuations by that amount into the future.
- But if the money is spent in a wise way that stimulates the economy, the additional growth and productivity could offset the tax increase.
The $621 billion to modernize our aging transportation infrastructure is well-needed and should have benefits to the economy.
- Modernizing roadways would help transportation and logistics around the country, which is good for many aspects of the economy.
- Building 500,000 electric vehicle charging stations will be greatly beneficial to EV adoption.
- A standard requiring more low-carbon energy will be great for climate change and for the proliferation of clean energy projects, while continuing to put pressure on legacy coal and gas companies.
Investing billions into semiconductor manufacturing will be a boon to companies like Intel, TSMC, and others that are building foundries in the U.S. It’s a really good move from a defense standpoint as well amidst the rising tensions with China and Chinese companies.
Expanding homecare for the elderly will boost post-acute healthcare companies across the board, which already enjoy very lucrative long-term secular trends.
Spending money on broadband access is something I’d like to see, as I believe access to the internet is the modern day equivalent of access to libraries and school. It’s the best way to provide all citizens with education and mobility.
I have a harder time seeing the direct economic benefit from spending billions for reinvestment in poor neighborhoods, affordable housing, healthcare, and education, although these are important social issues that obviously need attention.
I like a lot of ideas in the proposal and think many of the initiatives have the ability to make the U.S. more prosperous. But the value that the spending brings must outweigh costs of increasing the corporate tax burden and going into more national debt.
And I have my concerns about the government’s track record for spending money. Throwing dumb, government money is not the way to solve problems in the long-term. In fact, usually creates perverse incentives.
- If we spend money on building infrastructure, we need a cohesive plan and incentive structure for the companies that are doing the work in order to ensure quality and cost-efficiency.
- If we spend money on social programs, we need to address root causes of poverty and unequal access to opportunity and use the funds to build infrastructure and create well-incentivized funding programs. Social programs go to waste when money is simply spent without pairing it with long-term solutions. Many “give a man a fish” instead of “teaching a man to fish”.
We’ll be watching the proposal’s journey and seeing if there are sectors and stocks that may benefit from the extra government funding.