Roads Less Traveled: Breaking Down President Biden's Plan for America's Deteriorating Infrastructure System
In Short
The Situation: On March 31, 2021, President Biden announced a $2 trillion proposal entitled "The American Jobs Plan" to update America's struggling infrastructure system.
The Result: The plan's priorities include improvements to roads and buildings, and increased investment in clean technology such as broadband internet and electric vehicles. These investments will be incentivized through tax credits and grants, and the budget is proposed to be funded with proceeds from increased corporate taxes.
Looking Ahead: Businesses interested in infrastructure and clean energy will find many opportunities over the bill's eight-year proposed lifetime. However, no formal bill has been proposed, and will not pass until July 2021, at the earliest.
The Road Towards Better Infrastructure
On March 31, President Biden announced a $2 trillion proposal to update America's struggling infrastructure system. On both sides of the aisle, leaders have long acknowledged America's deteriorating infrastructure, ranked 13th globally. During their terms, former presidents Barack Obama and Donald Trump each presented their own infrastructure proposals without success, so the need for infrastructure reform remains.
Biden's newly announced "The American Jobs Plan" will spend in four major areas: more than $600 billion on repairing and updating transportation, more than $600 billion on improving building and utilities, more $500 billion on training and research for jobs, and $400 billion on improving in-home health care. It is a deviation from what customarily would be thought of as infrastructure as it focuses on more than tangible infrastructure assets. New projects in transportation, infrastructure, and energy alongside wide-ranging tax credits, grants, and incentives could provide many opportunities for private sector businesses. This Commentary reviews the principal sections of President Biden's proposal and potential opportunities for businesses in infrastructure, energy, and technology.
Infrastructure
President Biden's new plan proposes investment in infrastructure updates for roads, bridges, and buildings. Bridge and roadway repairs receive $115 billion, however, by some estimates, the backlog of repair projects for federal roads alone is in excess of $800 billion. An additional $225 billion fund will be created for "ambitious projects that have tangible benefits to the regional or national economy but are too large or complex for existing funding programs." Public schools, community colleges, low-income housing, veteran's hospitals, and federal buildings will also receive billions of dollars in funding for refurbishment and updating. Also, $20 billion in Neighborhood Homes Investment Act ("NHIA") housing credits will become available over the next 5 years for building 500,000 low- and middle-income homes. There is not a clear indication regarding the desire to leverage and tap the billions of dollars of private funds targeted for infrastructure investment to fix the infrastructure of the U.S. transportation system.
Energy and Technology
The plan also focuses on broadband internet and electric vehicles ("EV") as avenues for eco-conscious investment. EV consumers and producers will benefit from tax incentives and rebates for purchasing electric vehicles as well as increased funding for private investments in clean energy vehicles. To support this increase in EVs, the plan creates grant and incentive programs for the private sector to build 500,000 EV charging stations by 2030. In total, it purports a $174 billion boost in spending in the electric vehicle market.
The electrical grid is also in serious need of updating, with the plan dedicating more than $100 billion to its repair. This investment supports the administration's goal of providing high speed broadband internet to 100% of Americans, a goal funded through another $100 billion. Achieving this goal will be largely made possible by private companies, who will have several grants and tax incentives available.
Tax Implications
Other benefits besides project-specific grants and funding include tax credits that incentivize investment in renewable energy. The plan calls for a 10-year extension of the federal production tax credit and the investment tax credit. Additionally, there are proposed expansions of energy tax credits to make energy storage eligible for the investment tax credit. These expanded and extended tax credits seek to encourage investment and further development in the solar and wind energy sectors.
However, these opportunities will come at a cost to corporations. Funding for the bill will be provided through a series of tax increases. According to President Biden's announcement, recent analysis by the Joint Committee on Taxation found that the 2017 tax bill cut the average rate that corporations paid in half, from 16% to less than 8% in 2018. This new plan will raise the corporate tax rate to 28%, add a 21% minimum tax on U.S. corporations, and create a 15% tax on book income. Additionally, this will eliminate the rule allowing U.S. companies to pay zero taxes on the first 10% of foreign investment, and provides funding to increase IRS enforcement.
What's Next
A formal bill has not yet been proposed by Senate Democrats. The plan President Biden announced was merely an outline of an opening proposal. While House Speaker Nancy Pelosi strives to pass the bill in some form by July 4, there has been speculation that it will take longer to reach a legislative conclusion. Given former presidents Obama and Trump's failures to secure infrastructure bills, it is unclear if Biden will be uniquely successful in walking the road less traveled in terms of a successful program in U.S. infrastructure investment.
Four Key Takeaways
- President Biden proposed a $2 trillion infrastructure bill increasing spending on infrastructure, energy, and technology.
- The bill provides tax incentives and grants to private sector businesses who are involved in infrastructure and clean energy, and the proposal appears to be targeted towards remedying social issues as much as it is targeted toward fixing crumbling infrastructure assets.
- As currently contemplated, the bill would be funded, at least in part, through increased corporate taxes.
- A formal bill has not yet been proposed, and the earliest the bill would pass is July 2021.
