Bidens $2 trillion infrastructure plan would lift economy but higher taxes may hamper growth until projects roll out

President Joe Biden’s $2 trillion infrastructure plan could keep this year’s projected economic boon from slowing significantly in 2022 following the COVID-19 downturn, while boosting growth and productivity over the long term, economists say.

“It keeps the party going,” economist Troy Ludtka of research firm Natixis says of the infrastructure legislation.

Some analysts, however, say the blueprint could actually hinder the economy in 2022 before it begins to juice growth in later years. That’s because infrastructure projects will take a couple of years to roll out while higher taxes may dampen business investment and economic activity in the meantime.

Biden’s plan would rebuild the nation’s roads, bridges and rail service, support clean energy, provide universal broadband and construct millions of affordable homes, among other initiatives. Although Republicans are already denouncing the legislation, Democrats could seek to pass all or most of it with a simple majority vote in the Senate through budget reconciliation, as they did with the $1.9 trillion COVID relief bill earlier this year.

To pay for much of the plan, Biden is proposing increasing the corporate tax rate to 28% from 21% and boosting the minimum tax on U.S. corporations to 21%.

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Like many economists, Natixis expects growth of close to 7% this year – the most since the early 1980s – as coronavirus vaccinations spread and Americans flush with cash from federal assistance resume regular life in large numbers. Although solid growth is still forecast for 2022, the plan will mark a substantial pullback from this year’s pace as the effects of the government aid fade.

Biden’s infrastructure plan could provide a booster shot. Economist Ludtka reckons the economy will grow 3.3% next year but Biden’s proposal could push growth over 4%. Gregory Daco, chief economist of Oxford Economics, estimates the economy will expand by 3% next year and the Biden plan would tack on another half a percentage point.

President Joe Biden delivers a speech on infrastructure on March 31, 2021, in Pittsburgh.

While the $1.9 trillion COVID relief measure is putting billions of dollars in consumers’ pockets so they can splurge, upgrading the nation’s infrastructure is intended to increase productivity for the long run by bolstering crumbling transportation networks and investing in research and development projects, for example.

“If 2021 is the sugar high, 2022 is about a training plan to get fit for the long term,” says Daco.

Yet Mark Zandi, chief economist of Moody’s Analytics, says the projects won’t begin in earnest until 2023. He expects the economy to grow just 1.3% from the fourth quarter of 2021 to the fourth quarter of 2022, with the Biden plan adding nothing to the gains.

Joe LaVorgna, chief economist of the Americas for Natixis, predicts growth of about 3.5% next year but thinks the Biden plan could drag growth below 3% as higher corporate tax rates reduce corporate profits and investment until the infrastructure projects begin to lift the economy.

Over a longer period, Biden’s plan would be a big positive, economists say. Zandi expects it to add about a half a percentage point to growth in 2023 and 1.6 percentage points the following year. The blueprint, he reckons, would add about 1.4 million jobs in 2024 and 1 million jobs in 2025.

By 2030, the economy would be about $700 billion, or nearly 3%, larger than it would be without the upgrades and an additional 2.7 million Americans would be working, Moody’s figures shows.

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