Biden infrastructure plan would lower U.S. debt, add to GDP: Wharton examine
U.S. President Joe Biden stops at La Crosse Municipal Transit Utility in La Crosse, Wisconsin, the United States, on Jan.
Kevin Lemarque | Reuters
A bipartisan infrastructure deal by President Joe Biden and a group of senators would not only help economic growth but also reduce national debt, according to a new study by the University of Pennsylvania’s Wharton School.
Wharton School researchers said the additional $ 579 billion in new infrastructure spending would increase domestic production by 0.1% and reduce US debt by 0.9% by 2050.
“Over time, as new spending declines, IRS enforcement continues, and revenue increases from increased production, national debt will decrease 0.4 percent from baseline, and 0.9 percent in 2040 and 2050, respectively “Wrote the Wharton team.
Speaking to CNBC Tuesday, Wharton’s chief economist Jon Huntley said that improvements in public capital (roads, bridges, and other physical infrastructure) make private capital (trucks and trains moving goods for businesses) more productive over time .
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Fewer potholes and disruptions in rail traffic add up to US economic activity over the years and encourage further private sector investment.
The projected increase in GDP and the simultaneous reduction in national debt, albeit modest, is likely welcome news for the Democrats and Republicans who brokered the deal with the White House.
The entire package, approved by the bipartisan senatorial group and the Biden administration, approves spending of $ 1.2 trillion over the next five years. The additional $ 579 billion includes more than $ 300 billion for transportation projects, while $ 266 billion would be allocated to investments in digital, disaster, environmental and energy infrastructure.
Biden is in the middle of a road show promoting the plan and told the Wisconsin crowds Tuesday that it will “make all the difference for families” in Badger State.
The deal will “ensure” [high-speed broadband] is available in every American household, including the 35% of rural families who currently forego it, “he added. The president is expected to travel to Michigan this weekend to further praise the deal.
Still, Biden’s transnational mission to generate support for the measure underscores the fragility of even bipartisan efforts to repair the country’s transport infrastructure. The president himself nearly doomed the deal last week when he said he would veto the infrastructure bill if it were not passed along with a larger bill backed entirely by Democrats.
He later withdrew from that promise when it became clear that the comments had angered Republicans.
The latest Wharton study comes months after the school analyzed the Biden government’s first infrastructure proposal, called the American Jobs Plan. This original plan included spending approximately $ 2 trillion over eight years and was estimated by Wharton to reduce economic output by 0.8% in 2050.
When asked why the bipartisan plan would increase GDP over the next 29 years while the original Biden plan would not, Huntley stated that the latest legislation does not include changes to the corporate tax rate and no minimum tax on book income.
By removing corporate tax hikes in the bipartisan plan, legislators have reduced negative tax distortions that would ultimately have reduced corporate investment incentives and household savings incentives.