Analysis

Nonpartisan Economists Say Biden’s Infrastructure Plan Will Decrease Economic Growth

   DailyWire.com
US President Joe Biden signs the American Rescue Plan on March 11, 2021, in the Oval Office of the White House in Washington, DC. - Biden signed the $1.9 trillion economic stimulus bill and will give a national address urging "hope" on the first anniversary of the start of the coronavirus pandemic. (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)
MANDEL NGAN/AFP via Getty Images

President Biden recently unveiled a $2.7 trillion infrastructure bill called the American Jobs Act — a piece of legislation he branded as a “once in a generation investment in America.”

In addition to $621 billion in spending on roads and bridges, the American Jobs Act allocates $213 billion towards schools and housing, $400 billion into healthcare, and $180 billion into research and development. Reflecting the broader goals of the Biden administration, the legislation is sprinkled with provisions specifically addressing the “climate crisis” and “persistent racial injustice.”

Though the American Jobs Act was branded as a bipartisan initiative, Republican lawmakers instantly noticed the plan’s true intentions — pleasing special interests and instituting the Democrats’ radical domestic policies, among other things.

As Politico reported, the bill instantly sparked “the most intensive lobbying effort in history.” Sensing that the federal government would soon begin shelling out billions in tax dollars, special interests immediately began scrambling for a piece of the pie. Some prominent lobbying firms even had to turn away clients after an unprecedented spike in demand for their services.

Conservative commentators — such as Fox News anchor Tucker Carlson — slammed the Democrats for the thinly-veiled attempt to advance their agenda: “I mean look, if you want a reparations bill, if you want a Green New Deal, just say so and let’s have the debate, but don’t call it an infrastructure bill because it’s not.”

Contrary to Biden’s claims that the bill would serve as a landmark public investment, economists across the political spectrum pointed out major flaws with the American Jobs Act. The Penn Wharton Budget Model (PWBM) — a nonpartisan initiative of the University of Pennsylvania’s Wharton School that analyzes public policy proposals — found that the legislation would decrease economic growth.

As the analysts found, any benefit gained from new infrastructure would be considerably outweighed by tax increases and government spending.

Lower Output

The spending and tax provisions in the American Jobs Act are forecasted to decrease GDP — the total output of an economy measured in terms of finished goods and services.

PWBM distinguishes between “public investments” and “transfers.” The former involves new spending that would “enhance the productivity of private capital and labor,” and the latter involves payments to Americans that do not lead to new production.

Under the PWBM analysis, $2.1 trillion is counted as public investment, while $600 billion — nearly one quarter of the new spending enacted by the legislation — is treated as transfer payments.

Though public investments are more economically productive in the long-run, PWBM clarifies that “spending on either public investments or transfers, if financed through increased federal deficits, has the indirect effect of crowding out private investment.” In other words, the legislation would lead to more Americans’ dollars used for financing government debt instead of new private sector projects — a phenomenon that would limit economic growth over time.

As PWBM continues, the benefits of the new infrastructure simply do not outweigh the costs: “although the plan’s public investments increase the productivity of capital and labor, that productivity boost is not enough to overcome additional crowding out of capital due to increased government deficits.”

As a direct result of deficit spending, the analysis foresees a 0.25%, 0.19%, and 0.33% dip in GDP by 2031, 2040, and 2050, respectively.

Taxes

Economic output is further reduced by the American Jobs Act’s higher tax regime. 

In its current iteration, the American Jobs Act calls for raising the corporate tax rate from 21% to 28%, establishing a minimum tax on corporate book income, raising the tax rate on profits earned overseas, and cutting tax preferences for fossil fuels. These new taxes would have two direct economic effects: “decreasing firms’ incentives to invest and disincentivizing saving by households.”

When Americans place their money in savings accounts, mutual funds, and other investment vehicles, they directly or indirectly serve to finance new projects by private ventures. 

Raising corporate tax rates lowers returns on investment for private American investors. Facing these lower returns, households “save less which in turn decreases investment and the capital stock.”

According to PWBM, the new tax hikes will cut GDP at rates of 0.59%, 0.56%, and 0.49% by 2031, 2040, and 2050. 

In combination, the new spending and taxes created by the American Jobs Act point toward a 0.9% drop in GDP within the next decade, as well as a 0.8% drop over the next 30 years.

Other Productivity Measures

The American Jobs Act has serious negative effects on other measures of productivity in the United States — namely, the capital stock and the average hourly wage.

The “capital stock” refers to the total supply of capital — such as factories, machinery, and buildings — useful for producing goods and services in the United States. PWBM adds that “the investment-disincentivizing effects of the AJP’s business tax provisions decrease the capital stock by 3 percent in 2031 and 2050.” 

In turn, “the decline in capital makes workers less productive despite the increase in productivity due to more infrastructure, dragging hourly wages down by 0.7 percent in 2031 and 0.8 percent in 2050.” 

Government Debt

The American Jobs Act produces mixed results in terms of government debt.

Overall, the legislation would spend $2.7 trillion on new government programs and raise $2.1 trillion through new taxation, producing a $600 billion deficit spread over the course of the next decade. 

By 2031, this new deficit would boost government debt by 1.7%. However — assuming no more increases in federal spending — the legislation would reduce debt at rates 3.4% and 6.4% by 2040 and 2050.

The views expressed in this opinion piece are the author’s own and do not necessarily represent those of The Daily Wire.

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