Letter IEDI n. 1083—The Biden Government's Plan for Productive Modernization
In the first 100 days of his administration, the new US President Joe Biden announced two investment plans which, if approved by Congress, will result in public expenditures in the order of US$ 4.1 trillion in an eight to ten-year horizon. One is the American Jobs Plan, the other is the American Families Plan.
The object of this Letter IEDI is the American Jobs Plan (Biden Plan). This plan aims to increase the competitiveness of the US economy to contain the rise of China, through a comprehensive and ambitious program to modernize the infrastructure, revitalize the manufacturing industry—with significant encouragement to the domestic semiconductor industry—and stimulate research and technological innovation.
This productive modernization plan, which also includes a component of investment in social infrastructure, has as its transverse axes environmental sustainability, regional development, reduction of socioeconomic inequality, strengthening of workers and unions, and inclusion of ethnic minorities and vulnerable communities.
One of the guiding principles of the Plan is to ensure that growth gains from higher government spending on public goods are distributed fairly, reducing racial, ethnic and gender disparities in the American population.
The Biden Plan submitted to Congress for consideration foresees public investments of nearly US$2.3 trillion to be carried out over eight years, in an amount equivalent to 1% of GDP per year.
Most of the resources will be allocated to sustainable infrastructure (US$ 1.3 trillion), covering the areas of transport infrastructure—with the renovation and modernization of highways, roads, bridges, railways, airports and ports—and community infrastructure—which includes public utility services, with emphasis on clean energy, drinking water and universal access to broadband Internet, as well as housing, schools and day care centers, and public buildings.
Investments in the order of US$ 580 billion will be directed to the revitalization of the manufacturing industry, research and development activities in critical technologies and workforce development and training. The industry is considered by the US government as a mechanism that helps translate research and innovation into sustained economic growth.
Therefore, it will receive additional investments of around US$300 billion to strengthen domestic supply chains, with emphasis on the semiconductor sector; modernize and decarbonize domestic manufacturing; promote clean energy research and production; support small businesses, especially in non-white communities and vulnerable communities; prepare against future pandemics; and promote sustainable regional development.
The Plan also includes a social infrastructure component, allocating US$400 billion to support the home and/or community care sector for the elderly and the disabled, including better working conditions and higher salaries for caregivers, who are mostly non-white women
The government also intends to ensure that all public investments provided for in the Biden Plan lead to the creation of good quality American jobs, with strict standards of workplace safety and with a free and fair choice to organize, join a union and collectively negotiate wages and benefits. In the assessment of the Biden administration, the increase in unionization can favorably impact general economic growth, improving productivity.
Along with the American Jobs Plan, President Biden announced the Made in America Tax Plan with the aim of ensuring that profitable corporations pay their fair share of taxes and encourage job creation in the United States, as well as improving incentives to the energy sector.
The proposed tax plan will reward domestic private investment, stop the transfer of profits and jobs abroad, ensure that other nations do not gain a competitive advantage by becoming tax havens, and provide adequate tax incentives for new green technologies and production of clean energy.
This tax reform plan, which is also pending congressional approval, goes in the opposite direction of the changes introduced in 2017 by the Government of President Donald Trump (Tax Cuts and Jobs Act), providing for an increase in the corporate tax to 28%, the introduction of a minimum 15% tax rate on the accounting profit of large companies that record high earnings but have little taxable income, an increase to 21% of the global minimum tax rate for large US multinationals, the elimination of incentives and loopholes that favor the shifting of profits and jobs abroad, etc.
The reform of corporate tax codes is expected to bring in more than US$2 trillion in revenue over the next 15 years. In the government's assessment, this increase in revenue will fully cover expenditures on investments provided for in the Biden Plan and will also help the effort to permanently reduce the fiscal deficit.