Benefits of $2T Biden plan won't outweigh tax costs: Tax Foundation

Dive Brief:

The economic benefits from President Biden’s $2 trillion proposal in infrastructure spending would not exceed the costs from pushing up taxes, including increasing the corporate tax rate to 28% from 21%, according to the Tax Foundation.
“The economics is clear: If Biden wants to maximize the economic benefits of his $2 trillion in infrastructure spending, he should cut $2 trillion in other (wasteful) government spending to pay for it,” the Tax Foundation said.
Federal investment yields only half the return of private sector investment and, if financed by debt or taxes, could crowd out private investment and do more harm than good, the Tax Foundation said, citing a Congressional Budget Office (CBO) report.

Dive Insight:

President Biden on Thursday proposed a sweeping package of spending on bridges, roads, airports and expanded broadband internet coverage in what would be the biggest federal outlay for infrastructure since creation of the interstate highway system in the 1950s.

Biden proposes paying for much of the plan by reducing many of the 2017 tax cuts, including raising the corporate tax rate and increasing the minimum tax on the foreign profits of U.S. companies to 21% from 10.5%.

“It’s time to build our economy from the bottom up and from the middle out, not the top down,” Biden said Thursday when announcing the plan in Pittsburgh.

“I’m proposing a plan for the nation that rewards work, not just rewards wealth,” he said. “It builds a fair economy that gives everybody a chance to succeed, and it’s going to create the strongest, most resilient, innovative economy in the world.”

The Tax Foundation, referring to the 2016 CBO report, said “the benefits of the Biden infrastructure plan won’t outweigh the cost to the economy of the tax increases.”

Federal investments yield only half of the economic return as private sector investments and $1 in federal spending results in just 67 cents of actual investment by prompting state, local and private sector entities to curtail outlays, the Tax Foundation said.

Tax Foundation economists who modeled a package of infrastructure spending financed by an increase in the corporate tax rate found that economic growth declined.

“The Biden administration is making a big bet that the economic benefits of $2 trillion in ‘one-time’ government infrastructure spending will outweigh the economic harm of permanently taking $2 trillion out of the private sector,” the Tax Foundation said.

“Based on CBO’s assessment of the economic and budgetary effects of federal investment, there is no reason to believe that the economy will be better off with such a trade,” according to the Tax Foundation.