Tatiana Edovina & Dmitry Butrin
The US Senate on Tuesday approved a $ 1 trillion infrastructure development plan. This is the first White House initiative led by Joe Biden to massively renovate roads, bridges and various utilities. The plan provides for an increase in government funding by $ 550 billion over five years and will not require a tax increase. They will be required by the second part of the Democratic Party’s plan, for $ 3.5 trillion – this part contains all the initiatives to increase social security (see text on the same page), and for its approval new sources of income must be found.
The US Senate supported the plan to increase spending on infrastructure and create new jobs (Infrastructure Investment and Jobs Act) in the amount of $ 1.2 trillion over eight years ($ 973 billion over five years). 69 senators voted “for”, 30 “against” (Democrats and Republicans have equal seats). The plan is aimed at large-scale improvement of the state of infrastructure – the construction of roads and bridges, the renewal of electricity and water supply systems, protection from climate disasters. New spending for these purposes will amount to $ 550 billion over five years – the rest is in the existing programs.
Initially, the plan was announced in the amount of $ 2.3 trillion over eight years, but provided for an increase in the tax burden – in particular, by raising the corporate tax from 21% to 28%. In the approved version, the increase in costs is proposed to be compensated by the reallocation of funds from other items, in particular, allocated to combat the pandemic. Ho-wever, the Congressional Budget Office estimates that this would increase the budget deficit by $ 256 billion over ten years.
Increasing infrastructure spending is one of two key priorities for the Joe Biden administration. The first, in essence, is an extension of a similar program of the administration of US President Barack Obama, which, for a variety of reasons, was implemented in a small part. The second, the family support plan, provides for an increase in social spending. Both priorities were outlined in the draft budget for fiscal 2022 presented in June. Its expenditure side is estimated at $ 6 trillion with a revenue side of $ 4.17 trillion. The budget deficit will be $ 1.84 trillion, which is significantly less than this year ($ 3.67 trillion with spending of $ 7.25 trillion, in relation to US GDP, the deficit should be reduced from a record 16.7% to 7.3% and up to 4.7% in 2023). At the same time, back in March, the second major package of assistance to the American economy in the amount of $ 1.9 trillion was approved during the pandemic: this allowed maintaining anti-crisis payments, but sharply increased the level of the deficit for this year.
Support measures that were not included in the infrastructure plan were transferred to a larger initiative of the Democrats – by $ 3.5 trillion. She views “infrastructure” very broadly, covering a wide range of costs, from free daycare to expanding health insurance coverage, including for the elderly. The approval of this part of the plan will be impossible without raising taxes. In the previously put forward plan to increase social spending (in June its volume was $ 1.8 trillion for ten years), it was proposed to compensate for new spending by raising the income tax rate from 37% to 39.6% for families with incomes over $ 400 thousand and sharply – from 20% to 39.6% – increase the capital gain rate for those whose income exceeds $ 1 million.
The impact of the plan on the budget deficit and national debt will depend on the balance of the revenue side (that is, tax increases). In any case, the representatives of the Democratic Party will not be able to count on the support of the Republicans in the adoption of the package, but taking into account the majority in both chambers, they plan to use a special approval procedure. At the same time, the influence of the increase in fiscal spending on inflation and the growth of American GDP has already been noted by the US Federal Reserve and international analysts, in particular, the IMF. Recall that the Fed predicts that prices this year will rise by 3.4% (3% excluding food and energy), but in 2022 they will slow down to 2.1%.
At the same time, consumer spending inflation, which the regulator is guided by, in May increased by 3.9%, including excluding food and energy – by 3.4%, a month earlier the figure was 3.6% (3.1%). But the price growth index (historically showing higher inflation) showed an acceleration in June to 5.4% (0.9% month-on-month).
As for GDP growth, its increase in the second quarter by 6.5% on an annualized basis (that is, if the economy grew at the same rate not only in April-June, but throughout the year) was below expectations, however, fiscal measures can accelerate growth this year up to 7% (the forecasts of the FRS and the IMF after the adjustment turned out to be comparable).
The next year, the fund raised its forecast by 1.4 percentage points to 4.9% (the Fed was expecting an increase of 3.3% in June, but this estimate is likely to be raised in September). The Fed has already given a weak signal about a possible cut in the asset repurchase program, noting that the economy is approaching inflation and employment targets – the approval of new plans is likely to accelerate the normalization of the regulator’s policy.
Note that the infrastructure programs in the United States, designed to close some of the differences in the state of infrastructure in the United States in comparison with the developed OECD countries, have been discussed for at least 12 years, and the “social” program as a whole is intended to bring the standards of social redistribution in the United States and Europe closer to each other. what Democrats in the US have been calling for in general since the 1980s. How slowly this naturally happens demonstrates the scale of real resistance to this by a large segment of American society.
