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United States, president Biden’s major works

5/12/2021

What are the main priorities of president Biden’s investment programme?  How will it be financed?

TRANSCRIPT // United States, president Biden’s major works : May 2021

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François Doux: 2.3 trillion dollars, the equivalent of 10 points of US GDP. That is the size of President Biden’s proposed infrastructure plan. Spread over eight years, the plan will probably be financed through higher taxes. We are here with Jean-Luc Proutat to tell us more on this recovery plan. Hello Jean-Luc.

Jean-Luc Proutat: Hello François.

François Doux: Before diving into the details of this stimulus package, can you describe the US economic environment in spring 2021. How do things look?

Jean-Luc Proutat: The economy is very vibrant. For someone nicknamed “Sleepy Joe” by his predecessor, President Biden has hit the ground running as summer 2021 approaches and he completes his first 100 days in office. The 1.9 trillion dollar American Rescue Plan was approved in March, and it has already begun to have an impact on the economy just as the pandemic begins to ease. Now that nearly 50% of the population has been vaccinated, Americans are circulating more freely, with more money in their pockets, thanks to the stimulus checks many have recently received from the US Treasury. Households are also benefiting from tax credits. All of this has given consumption a big lift in the US, and full-year growth is estimated at 6% at the least. That said, President Biden will not settle for simply stepping on the gas to rev the engines. He also intends to strengthen and consolidate America’s economic growth engine. 

François Doux: Let’s talk more about this famous recovery plan to modernise the US economy. What all is in the plan? And do you think it will be effective?

Jean-Luc Proutat: This plan begins with the rather paradoxical observation that even though the US is one of the world’s wealthiest nations, it does not invest much in infrastructure.

The US does not score very highly on the OECD rankings on infrastructure or the energy transition, which is also advancing rather slowly. The infrastructure plan focuses on these two objectives: to strengthen and renovate infrastructure, notably for transport and utilities, such as water and electricity; and to promote green energy, including higher taxes on fossil fuels. Virtually two-thirds of the plan are devoted to these two areas. This leaves a non negligible part of the plan that is steeped in economic patriotism. It consists of promoting America’s strategic interests and to invest in America in areas where it is losing ground to Asia, and China in particular. A lot of money has been pledged to support supply chains for such things as semiconductors, batteries, wind turbines and active drug ingredients. And when it comes to their feasibility, the Federal government must absolutely count on the support of the local authorities, because the United States is built on a Federal system in which the power over infrastructure lies in the hands of the state, municipal and county governments. Their cooperation is vital if the plan is to succeed. Whereas the 1.9 trillion dollar American Rescue Plan was financed through debt and deficits, this time taking on more debt is out of the question. Instead, the plan relies on the contribution of companies, who should also benefit from the infrastructure programme.

François Doux: Getting companies to pay their fair share is the famous tax proposal of this stimulus plan. It will be hard to get companies to swallow this part of the plan.

Jean-Luc Proutat: That’s right. The plan starts with the observation that the corporate tax revenues have fallen considerably over the past ten years, especially after Donald Trump’s 2018 tax reform. The tax burden needs to be shared better. Several measures come to mind. The biggest is the proposed increase in the corporate tax rate to 28% from 21%. There is also the application of a 21% minimum tax rate on corporate earnings generated abroad. Of course, these measures mainly concern major corporations. The first that come to mind are the Big Tech companies, who will be hit hardest by this fiscal tightening. The reform is currently being debated in the US Senate. It will have to win unanimous support from the Democrats, which is far from certain. President Biden has already said that he is open to compromise. We will see what that really means, but one thing is certain, we have probably reached the beginning of the end of “whatever it takes” in the United States.

François Doux: Jean-Luc Proutat, thank you for this detailed analysis of the US infrastructure plan. We are sure to talk more about all this. We will be back in a moment to talk about the impact of this plan on the economies of Central America with Salim Hammad and our Chart of the Month.

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