The Infrastructure Investment and Jobs Act
Updated: Nov 12, 2021
The US House of Representatives passed President Biden’s $550 billion infrastructure plan – the “Infrastructure Investment and Jobs Act” – on November 5th. The Senate already approved the plan on a bipartisan basis back in August. However, Democrats in the House had been unwilling to vote on the infrastructure plan until the multi-trillion dollar Biden-sponsored social plan – “Build Back Better” – was also approved. The price tag on the Build Back Better plan had made it a very difficult sell within the Democratic party in the Senate. However, perhaps jolted into action by the recent gubernatorial elections in Virginia and New Jersey, the Democrats seem to have finally woken up and convinced enough of their progressive House members to back the infrastructure plan even though the social plan still does not have the necessary Democratic support in the Senate. Does this sound confusing? It is! But what is important is that the Infrastructure Investment and Jobs Act is likely to be signed into law by President Biden early next week.
I wrote an article in E-MorningCoffee about the infrastructure and social plans of President Biden back in April, and you can find that article here: Infrastructure and the American Jobs Plan. It is a rather detailed (albeit slightly dated) look at the combined infrastructure and social expenditures that were being proposed at the time by President Biden. The article provides good context as to America’s need to invest in its crumbling infrastructure, especially transportation. Getting this huge amount of spending approved in one go in Congress proved too challenging for President Biden, since the Democratic party is fractious and only narrowly controls the House and the Senate. For this reason, the Democrats decided to divide the plan into two parts – an infrastructure component and a social & environmental component.
If you want to learn more about the infrastructure plan in its current construct which is likely to become law in the coming days, you can read about the plan directly from The White House website here. If you want to see what the plan will cost, the Congressional Budget Office crunched the numbers for the plan, and you can find their conclusions directly on the CBO website here. Over 10 years, the CBO expects the $550 billion of incremental infrastructure investment to add around $256 billion to the US budget deficit, peanuts perhaps compared to the deficit in the 2020-21 year alone of $2.77 trillion.
The table below contains a concise and summarised breakdown of the infrastructure plan’s expected investments and offsets over the next five years, put together by Moody’s using data contained in the CBO report.
There is no doubt that the Infrastructure Investment and Jobs Act will provide a nice boost for the US economy in the coming years since it is fiscal stimulus. From a macroeconomics standpoint, government expenditures of this magnitude have a multiplier effect that has been estimated by various sources to be around 1.4x to 1.5x, meaning that every dollar spent on infrastructure boosts GDP by $1.40-$1.50. S&P Global (summary here) believes that the new infrastructure plan will increase US GDP by $1.4 trillion over eight years, will add 883,600 jobs by 2030, and will increase per capita income by 10.5% over the period (vis-à-vis what it would be without the investment). Government investment in infrastructure will undoubtedly draw in private sector investment alongside it as well, another benefit to the US economy although perhaps difficult to accurately quantify. Lastly, there are intangible and unquantifiable benefits associated with much-needed improvements to US highways, bridges, tunnels, ports, airports, power infrastructure, broadband, water infrastructure and so on.
If you are curious as to why the $550 billion plan is touted at times in the press and by President Biden as a much larger $1.2 trillion investment in infrastructure, it is because President Biden and some members of Congress are also adding in the funding that is normally allocated each year to infrastructure investment in the US anyhow. By including the expected annual expenditures alongside the new $550 billion of expenditures, the total spend over 10 years is $1.2 trillion.