Biden $3T Infrastructure Plan Out Next Week

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Biden $3Tr. Infrastructure Plan Out Next Week

Upon taking office, President Biden proposed a $1.9 trillion rescue package, and just 46 days after his inauguration, Congress sent him the American Rescue Plan, a $1.9 trillion package. So reports in recent days from the White House that Biden will introduce a $3 trillion recovery plan next week became headline news. Biden will travel to Pittsburgh, PA to lay out his Build Back Better infrastructure plan next Wednesday. 

With so much money on the line, questions arise. What are priority projects? Which will help ignite and sustain recovery? What is “infrastructure”? How much of this package will be stimulus? How much should be paid for? We explore these questions and more below.

Good weekends all,



President Biden’s infrastructure proposal is expected to include two major parts: spending on traditional public works projects like roads, bridges and telecommunications (including a major focus on clean energy), and investments in “human infrastructure” such as education and paid leave. To pay for the package, Biden is weighing higher taxes on corporations and individuals and allowing Medicare to negotiate drug costs.

Yesterday, the Senate approved HR 1868, which exempts the budgetary impacts of the ARP from the PAYGO Act, so sequestration cuts to mandatory programs will be delayed. Congress’ willingness to waive PAYGO indicates that it may do it again if reconciliation is used to pass the Build Back Better plan. Even though Democrats may raise taxes, the general view of the caucus, says a Senate Chief of Staff: “if the GOP didn’t have to pay for their tax cuts [in 2017], why should we have to pay for infrastructure?”

Testifying before the House Transportation and Infrastructure Committee yesterday, Secretary Pete Buttigieg called the present moment “the best chance in any of our lifetimes to make a generational investment in infrastructure.” Buttigieg pointed to widespread public support for infrastructure spending and a $1 trillion backlog in repairs and improvements around the country. Below, we evaluate plans for infrastructure spending previously proposed by Biden and Democrats and discuss potential stimulative effects if incorporated into the Build Back Better plan. 

‘Hard’ Infrastructure

President Biden promises massive investments in physical infrastructure. The Build Back Better plan will likely contain a combination of direct public spending, leveraged federal dollars to attract private investment, and incentives to states & localities through matching funds. 

A pertinent piece of the work has been completed. Last summer, the House passed the Moving Forward Act, a $1.5 trillion infrastructure plan sponsored by Transportation Committee Chair Peter DeFazio. This bill is expected to be the framework on which Biden’s team will build the first part of the Build Back Better package. This part of the package could include components such as:

  • $1 trillion in investments in roads, bridges, rail lines, waterways, ports, electric vehicle charging stations, power grids, sanitation facilities, and private activity bonds
  • $400 billion for green technologies and combating climate change
  • $100 billion for housing infrastructure
  • $100 billion for school infrastructure
  • $100 billion for broadband development

Relative stimulative effect: Infrastructure spending on this scale would lead to significant economic growth. Per Moody’s, every dollar spent by the government on transportation infrastructure would yield a $1.29 increase in GDP — a higher multiplier effect than tax cuts. While broadband development is a mostly “shovel-ready” project that primarily needs money to get off the ground, most of these other items will take at least three years of planning and permitting before the full stimulative effect is realized. 

Some proposals, such as investments in private activity bonds and broadband development, could attract Republican support, and the Biden team indicates that they will try to make this component of the Build Back Better plan bipartisan. Bringing back earmarks this Congress, congressional Democrats will dare Republicans to oppose a package with projects in their districts and states. As the pay-for for this spending may involve either raised taxes on corporations or deficit spending, Republican support will likely be hard to come by. 

‘Soft’ Infrastructure

President Biden is committed to prioritizing the middle class and tackling inequality with his economic agenda, and Build Back Better’s proposed investments in human infrastructure draw from a variety of longstanding Democratic policy priorities.

This portion of the package, which could range from $1-2 trillion, may include some of the following existing Democratic proposals:

  • $547 billion to establish a family and medical paid leave program 
  • $700 billion for universal child care and Pre-K
  • $358 billion to include dental, vision, and hearing coverage in Medicare, the cost of which would be more than offset by prescription drug negotiations 
  • $60-70 billion for free community college 
  • Enhanced subsidies for the Affordable Care Act 
  • $70 billion for free or reduced tuition and overall investment in HBCUs, and minority serving institutions (MSIs)

Relative stimulative effect: Federal spending on universal child care and Pre-K have fiscal multiplier rates of 1.19 and 1.17, respectively. A federal paid family leave program would significantly reduce economic inequality. Free community college, meanwhile, would increase enrollment and degree completion, upskilling the American workforce. These programs may have a more immediate stimulatory effect on the economy than traditional infrastructure because federal funds would mostly go toward expanding access to existing programs rather than starting up new projects.

Despite the popularity of similar policies enacted in the American Rescue Plan, these soft infrastructure proposals are being criticized by Republicans as progressive wish list items. Early indications suggest that Republicans will almost certainly oppose these provisions in unison and Democrats may need to go back to the reconciliation well for them to pass.

Tax Incentives

Biden campaigned on a series of business and individual tax credits to spur economic growth and provide stability for families. While incentives like the Child Tax Credit and Earned Income Tax Credit were included in the American Rescue Plan, tax credits related to offsetting child care and energy efficiency costs may be incorporated in the infrastructure package. Additional proposed tax incentives include: 

  • establishing a 10 percent “Made in America” tax credit for companies that invest in new domestic manufacturing 
  • expanding the New Markets Tax Credit by $5 billion annually
  • expanding the low-income housing tax credit by $10 billion annually
  • restoring the $15,000 refundable tax credit for first time home buyers
  • creating a new $5 billion annual refundable low-income renter’s credit

Tax incentives have relatively small immediate stimulative effects. Combined, these tax expenditures would cost more than $500 billion over the next decade. Republicans are unlikely to support these incentives, so in order to pass, they would either need to be included in a reconciliation bill or be included in a year-end bipartisan tax extender bill that includes Republican proposals. 

Economics of Infrastructure Spending 

In his first formal press conference yesterday, Biden talked up infrastructure spending, calling it an opportunity to create “significant numbers of really good-paying jobs.” Given the massive scale of spending that Biden will propose, the Build Back Better plan would have a significant stimulative effect on the economy. Unlike the ARP, however, the timing and implementation of the plan will depend on which projects are “shovel-ready.” Since the ‘soft’ infrastructure component will focus spending mostly toward programs already in existence, the macroeconomic benefits would be realized faster than the returns on investments for ‘hard’ infrastructure projects — many of which involve longer time horizons. With the economy already projected to have a strong FY 2021, the Build Back Better plan will seek to ensure long-term economic stability. 

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