Key Takeaways
- The American Jobs Plan is the proposed ‘infrastructure’ plan the White House released on March 31st, 2021.
- The total cost of the plan is $2.7 Trillion dollars and looks to invest in everything from construction, internet, homecare, education, and upgrades to VA hospitals.
- The plan is paid for, in large part, by the raising of corporate taxes, which some argue would decrease job growth.
- The plan includes a lot of things that some have criticized and questioned whether many proposals can be described as “infrastructure.”
Over the past few weeks, news coverage has been swirling about infrastructure, and the American Jobs Plan proposed by the White House should (a) entail and (b) what the definition of ‘infrastructure’ ought to be. Countless articles, headlines, and opinions have been made regarding the proposed plan and its effects on the economy and society as a whole.
Many people look at the total amount the plan would cost, while many cherry-pick parts of the plan to have a narrative that pushes one side or the other. What is actually in this plan, and what are the predictions regarding lasting effects the plan will have on the national economy?
Background
On March 31st, 2021, the White House released their “Fact Sheet” regarding President Biden’s economic plan to restart the national economy due to the impact of the COVID-19 pandemic. Like all White House administrations, economic plans are relatively standard and often one of the first significant pieces of legislation proposed under the phrase “stimulus package.”
According to the White House statement, the plan is to “unify and mobilize the country to meet the great challenges of our time…” Yet, what are these challenges? President Biden, his administration, and many on the left see climate change, along with the continual economic encroachment of China, as two of the most significant threats against American interest. Although there have been many criticisms against the science behind climate change, both liberals and conservatives can agree on the latter.
Even if you disagree with climate change or that China is an economic threat to American interests, the White House statement is correct in stating that although the U.S. is the wealthiest country, the nation ranks only 13th compared to other countries regarding infrastructure.
According to Statista.com, America ranks below four Asian nations, six European nations, and the United Arab Emirates. According to the White House, the plan is being touted as an investment in “Americans and deliver the jobs and opportunities they deserve…” all while addressing systemic and implicit biases and injustices.
So what’s in it?
According to the Committee for a Responsible Federal Budget (CRFB), here is a summary of federal spending that the American Jobs Plan would entail:
- $621B into Transportation Infrastructure
- $590B into Domestic Manufacturing, Research, and Development, and Job Training Initiatives
- $400B for the expansion of home care services and additional support for care workers
- -$400B in Clean Energy Tax Credits
- $328B to improve Housing, Modernize Schools and Child Care Facilities, and Upgrades to VA Hospitals and other federal buildings
- $311B in investments to increase Broadband, the electrical grid, and clean drinking water.
In total, the jobs plan would spend between $2.25T to $2.7T over eight to ten years, and to many conservatives and deficit hawks, this number is outrageous. Yet, criticisms started before bipartisan negotiations even began.
According to USAToday, Republicans argued that the package should be limited to “transportation, broadband internet, and other basics…” excluding green energy, housing, education, and VA hospitals. Republicans also argue that the proposed plan would raise taxes and hurt job growth.
Looking back at the CRFB, the American Jobs Plan does include a tax plan. Here is a quick overview of what the administration proposes:
- The corporate tax rate would increase from 21% to 28%. This is less than the +30% tax rate before the 2017 tax cuts.
- Strengthen the global minimum tax (GILTI) for U.S. multinational corporations. According to Investopedia, the GILTI tax is intended to discourage the moving of intangible assets and related profits to countries below the U.S. corporate tax rate.
- Eliminates the deduction for Foreign-Derived Intangible Income (FDII), which the Tax Policy Center describes as “income that comes from exporting products tied to intangible assets, i.e., patents, trademarks, and copyrights, held in the United States.”
- Enacts a 15% minimum tax on “corporate ‘book’ income.” According to the Tax Foundation, book income is the amount of income a corporation publicly reports to shareholders’ financial statements. This policy would eliminate a loophole in the corporate tax law that allows a business to appear profitable while paying little to no taxes.
- It prevents U.S corporations from inverting or claiming tax havens as their residence.
- Eliminates tax preferences for fossil fuels.
- Eliminates deductions for U.S. corporations related to offshoring jobs and creates tax credits on onshoring jobs.
- Ramps up corporate tax enforcement.
- Achieving a global agreement on a strong corporate minimum tax through multilateral negotiations, Treasury Secretary Janet Yellen has already begun to call for.
According to the CRFB summary, the 10-15 year savings would equal about $1.75T to $2.75T.
Moody’s Predictions
There is a lot to unpack within this plan, but many wonder what the real economic benefits and consequences will be with the passage of a plan this large and this costly. Moody’s Analytics, a provider of economic research, risk, performance, and financial modeling, writes in their analysis published earlier this month (April 2021), “Increasing infrastructure investment by over 1% of GDP over the next decade as…proposed has both near-term (aka short-term) and long-term benefits.”
Moody’s analysis predicts that within the short-term federal deficits would rise significantly. Yet, due to the economic impact of the COVID-19 pandemic, a rate of unemployment (U-3) (seasonally adjusted) around 6%, and slack within the economy, the plan could help the more than three million additional unemployed individuals seek jobs across the country.
The analysis also shows within graphs that since the 1960’s infrastructure spending has significantly decreased among federal, state, and local governments as a percentage of GDP. Their second chart also shows that the American Jobs plan would still cost less in the short term than SNAP benefits and federal spending on unemployment insurance when America is in a recession.
Read: Republicans Unveil $568 Billion Infrastructure Counter to Biden’s American Jobs Plan
As for the long-term implications, Moody’s predicts that the investment in public infrastructure and green energy would significantly benefit the country’s GDP and employment by “lowering business costs, thus improves competitiveness and productivity, allows workers to live closer to where they work and thus reduces commute times, improves labor participation, and reduces carbon emissions.”
Macroeconomic Theory
Infrastructure spending as a stimulus to a nation’s economy comes from Keynesian economics, which has been a go-to macroeconomic theory for roughly the last 90 years and was used during President Franklin Roosevelt and the New Deal. Investopedia, a website dedicated to financial and economic knowledge and education, states regarding the “Economic Impact of Infrastructure” that estimates by the Congressional Budget Office (CBO) and “a meta-analysis of empirical results from economic research” suggest that investments regarding public infrastructure do lead to “a stimulating effect on private spending,” while also having a more significant impact on GDP.
Does this mean that infrastructure spending in the American Jobs Plan is best? According to the Investopedia article, it is under specific circumstances that infrastructure spending can add broad, macroeconomic benefits with increases in GDP and employment. However, economics and infrastructure spending does not mean that the economy will bounce back overnight or in a month. It is a timely process that can take years to see the benefit fully.
The way that stimulus spending, with regards to the American Jobs Plan, this would be ‘infrastructure,’ can be utilized effectively is by three principles:
- Spending and projects must be timely.
- Stimulus must be targeted.
- The money being used must be temporary.
Redefining the Term: “Infrastructure”
The biggest fight currently happening within Congress regarding the American Jobs Plan is what many are calling an attempt to redefine the term: “infrastructure.” The traditional definition, used by public administrators and reiterated by Republic politicians, tends to be referring to the tangible foundations that are the physical and organizational structures that help promote growth within the economy, such as roads, bridges, et.al.
However, critics of the White House proposal state that the administration is trying to “redefine,” or in a better term: “expand,” the meaning to cover the systems of care needed to help the elderly, veterans, disabled, and children. According to an USA Today article, the White House is looking to expand infrastructure to include “human” and “social” infrastructure.
So what is human and social infrastructure?
Human infrastructure are services that promote human development and human capital which many advocates, mostly progressives, argue is key to a modern economy. Human infrastructure includes services like healthcare, education, and other care-giving programs/services, while social infrastructure can be defined as the “construction and maintenance of facilities that support social services,” i.e. hospitals, schools, housing, prisons, and railways. There tends to be some overlap within each definition, but conservatives argue that when discussing infrastructure the conversation should be regarding the traditional sense of maintaining the physical, tangible structures.
Read: PRO Act Strengthens Labor Unions, Seeks to Abolish Right-to-Work Laws
Progressives and advocates argue, though, that helping the physical infrastructure of the country isn’t enough and that there are systems that need help to grow a modern economy, and help people be their most productive selves. In his article, Mr. Garrison states that “caregiving” is at the very heart of Biden’s plan, which as two goals:
- To reduce a backlog of over 800,000 low-income elderly and disabled citizens who’ve been unable to receive the at-home care services they need or want.
- To tackle a labor shortage with increased pay, benefits, and the support of the right to unionize for “home care workers.”
To tackle these goals, the White House and advocates are increasingly arguing that the American Jobs Plan is intended to not only rebuild the country’s physical infrastructure, but provide an opportunity for all citizens to be able increase their productivity through job training, career growth, and finding the right services for themselves and families. According to a survey, stated within the USA Today article, at the beginning of the COVID-19 pandemic close to 1.4 million fewer women were in the labor force due to the caregiving of children, the elderly, or “other loved ones.”
Why it matters
Infrastructure policy is not simple, and no plan that comes along is going to be perfect. But, what is essential is truth, transparency, and empirical data that can be translated easily to the American people. Whether you believe this plan is good or bad for various reasons, an investment in America’s physical infrastructure is desperately needed.
It can have long-term benefits that will ensure success into future generations. As the nation continues to debate over whether “infrastructure” should expand to other areas and services, there is no one correct answer. Like Rome, America was not built in a day and the decisions Washington makes regarding the America Jobs Plan will have significant impacts on our economy and society for years to come.
Jonathan Solomon holds an Associate in Arts from Trident Technical College where he studied political science, philosophy, and economics, he is now finishing up his BA in Political Science with a concentration in politics, philosophy, and law from the College of Charleston. He self-identifies as a pragmatist wanting to help educate and create policies and public administrative practices that benefit all people, regardless of political differences.
