Biden unveils $2 trillion infrastructure plan
President Biden released a $2 trillion plan recently to modernize the nation’s infrastructure. He also proposed a set of corporate tax increases and reforms that are intended to help pay for the cost of the infrastructure improvements over a 15-year period.
The Process Going Forward
• The release of this plan is the starting point for long-anticipated debate on an infrastructure/tax package. The president is publicly announcing the plan while Congress is out of session, which ensures that it will get maximum media coverage and national attention.
• The House and Senate have laid some of the groundwork on these issues by holding hearings over the past few weeks. This process will accelerate in April and May, and
Democratic leaders in the House and Senate will then write a bill reflecting their priorities.
• No votes have been scheduled on the president’s plan, but our sense is that the House will act first sometime this summer. President Biden and Democratic leaders in the House and Senate would like to see a final bill passed by the end of July (before its August recess), but this timetable may easily slip into the fall.
• While the Biden proposal will serve as the base package for Congress to consider, the House and Senate will add many provisions to it. Congress will fiercely debate these issues over the next few months, and its imprint on the final package will be significant.
• While some aspects of this plan are bipartisan, many are not. Therefore,
Democrats will use the budget reconciliation process to pass the bill in the House and Senate. The biggest effect of this maneuver is that the Senate will be able to pass the final proposal with a majority (51) of votes instead of the 60 votes that are needed to pass most other legislation.
The Substance of the Plan
• The new investment in basic infrastructure will draw bipartisan support, but the focus on “green” energy and related infrastructure will turn off many Republicans. A key question in the Senate will be whether Senator Joe Manchin (D-WV) will support a bill that will very likely be disadvantageous to the coal industry, which is important in his state. In order to pass in the Senate, changes likely will be needed to accommodate Senator Manchin.
• House and Senate members will try to add their own “pet” infrastructure projects to the bill to benefit their districts or states, which could negatively impact the effort’s reputation in the public as the debate evolves.
• The tax provisions outlined by the President will be expanded as the House and Senate write their own bills. The president’s plan only addresses corporate tax rates and provisions, but the House and Senate will also add tax increases and provisions relating to individuals as well. We have highlighted these potential provisions over the past several months. They include capital gains tax increases, changes to the estate tax, and a return to the 39.6% tax bracket for the top earners, among others. These proposals, which will be subject to significant debate, are likely to be added to a final plan from Congress in the months ahead. We also expect the corporate tax provisions to be expanded as well. Congress doesn’t often get a chance to reform the tax code, and Democratic lawmakers in particular will press hard to get preferred tax policy provisions included in the final bill.
• Notably, the Biden proposal doesn’t contain an increase in the federal gasoline tax. It also doesn’t propose any new “user fees,” such as a tax on miles driven that has been suggested by some lawmakers. It also doesn’t mention any other ideas that have been floated to finance infrastructure in the past, such as the creation of an infrastructure bank, increased privatization of certain infrastructure projects or the reinstatement of “Build America Bonds,” among others.
• While support for the plan will primarily come from Democrats and opposition from Republicans on Capitol Hill, one interesting group to watch will be the business community. They will embrace the general infrastructure improvements but are irked that they have been asked to pay for them through higher taxes. A divided business community would aid Democrats in passing this bill.