Biden likely to cut about $700 billion from his infrastructure plan in compromise, Goldman says
- President Biden will likely have to trim his infrastructure spending plans, Goldman Sachs said.
- The firm sees Congress approving a $3.3 trillion measure, down from the $4 trillion Biden is reportedly pursuing.
- The corporate tax rate will rise to 25% instead of the 28% rate sought by Biden, Goldman added.
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President Joe Biden probably won’t get everything on his economic-recovery wish list, Goldman Sachs economists said Sunday.
Despite passing $1.9 trillion in new stimulus just one month ago, the White House is already prepping another massive spending effort. The president unveiled the $2.3 trillion American Jobs Plan in late March and is reportedly teeing up another package that would set the two plans’ combined price tag at roughly $4 trillion. Biden also proposed a handful of tax hikes set to offset the spending measures’ hefty costs.
The White House will be successful in pushing the proposals over the finish line, but the policies won’t look the same once they get there, economists led by Jan Hatzius said in a note to clients. Congress will pass nearly all of the “hard infrastructure” Biden has proposed, such as road and bridge renovation, updates to federal buildings, and clean water initiatives, they added.
Biden’s American Families Plan won’t be so untouched. The bank said Congress will likely approve the package — which is expected to include spending on education and child care — but only as a slimmed-down version. All told, it sees about $3.3 trillion in spending making its way back to Biden’s desk for his final signature, roughly $700 billion less than the president pushed for.
The Biden administration won’t see its tax plans come to fruition, either. Congressional Democrats will end up lifting the corporate tax rate to 25% from 21%, Goldman said, coming in shy of the 28% rate sought by the president.
The tax rate for long-term capital gains and qualified dividends will reach 28%, the team added. That compares to the 39.6% rate proposed by the White House. Revenue raised by international tax proposals like a global minimum corporate tax rate would likely be cut in half, according to the bank.
The smaller tax hikes and cuts to spending stand to garner additional support for the two plans, but Democrats are still most likely to lump the proposals together and pass them through reconciliation, Goldman said. The process was used for Biden’s stimulus plan and allows Democrats to approve legislation with a simple majority.
The bank’s most probable scenario sees Democrats skirting GOP opposition and passing a single package through budget reconciliation sometime between July and September. The plan will cost roughly $3.5 trillion over the next 10 years and will be partially offset by $1.5 trillion in new tax revenues over the same period, the team said.
“The risk in this approach is that some centrist Democrats might balk at passing such a large bill through the reconciliation process, which could delay or potentially imperil passage,” they added.
Other, less likely options include passing two separate bills through reconciliation and passing three measures through a mix of reconciliation votes and regular Congressional process. Pursuing regular votes would likely punt some bills into the fall as Democrats work to win Republican support, according to Goldman.
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