Following the post-COVID stimulus hangover in 2022, the bull market has continued to run. One of the key factors was the Federal Reserve’s decision to
The American Jobs Plan
Published Date : April 20, 2021
April 20, 2021
President Biden recently introduced The American Jobs Plan, his proposal to address our country’s aging infrastructure, which many could agree is in need of improvement. The bill, estimated to cost around $2 trillion dollars, includes approximately $600 billion for transportation infrastructure upgrades alone, which studies show many Americans support. Additional infrastructure upgrades include:
• Improving drinking water infrastructure
• Expanding broadband access
• Upgrading electric grids
• Building and retrofitting affordable housing
• Constructing and upgrading schools
• Caring for elderly and disabled Americans
• Investing in manufacturing, research and development, and job training efforts
As part of the plan, 40 percent of the work is targeted toward disadvantaged and excluded communities, thus attempting to simultaneously address social justice issues. This has created an early debate about whether the plan is too broad, as well as whether we can afford it and how to pay for it.
The administration estimates that a proposed tax increase on corporations through the Made in America Tax Plan would raise $2.5 trillion over the next fifteen years, thus covering the cost of the plan if both the infrastructure and tax plan were passed side-by-side. Specifically, the proposed tax bill would increase the federal corporate tax rate from 21% to 28%, which may sound like a significant increase, but is still well below the pre-2017 level of 35 percent. Additionally, the bill would aim to close numerous tax loopholes and establish a global minimum tax on U.S. multinational corporations. In a recent article, Forbes reported that at least 55 of the top 500 U.S. companies did not pay income taxes in 2020. Gallup poll research has shown that most Americans favor corporations paying their fair share of taxes.
The proposal to increase taxes is of course in direct conflict with the common belief that reducing taxes spurs economic growth. The argument is that tax cuts boost demand by increasing disposable income and by encouraging businesses to hire and invest more. While this can be true, following the corporate tax rate cuts under President Trump, there was little evidence of companies reinvesting much of the tax savings to expand business, which was one of the primary goals of the tax overhaul.
Whatever your view about the impact of taxes, the data supports that while increases in taxes can have a negative impact on the economy, the impact is more significant when the economy is weak but milder when it is operating near capacity. As the U.S. recovers from the pandemic, our view is that the economy will continue to strengthen going forward. Thus, whether you agree with the broad nature of the Biden infrastructure spending plan or not, now could be a good time to make the investment in the infrastructure for our future.
Sources: The American Rescue Plan, Americans for Tax Fairness, Brookings.edu, Forbes, Institute of Taxation and Economic Policy, NY Times, Pew Research, Tax Policy Institute
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