The Biden Administration is moving swiftly from emergency stimulus support to longer-term infrastructure spending to keep the US economy stronger for longer. Bloomberg has more:
- An overall spending package worth between $2-4tr will be proposed.
- It will focus on roads and green infrastructure.
- It will be funded by tax hikes for corporations from 21% to 28% and higher personal taxes for $4ook+ earners and higher capital gains taxes for $1m+ earners.
Goldman has more on what this means for growth:
- Details on the next fiscal package are scarce. At this point we expect the White House to propose at least $2 trillion for infrastructure, though this could reach as much as $4 trillion if the proposal extends to other areas (e.g., child care, healthcare, or education). Increases in the corporate and capital gains tax rates look likely to finance a portion of this, though we believe it will be difficult for Congress to agree on more than around $1 trillion in such offsets.
- While the next major fiscal proposal might come with a large headline number, itis likely to have a much smaller impact on growth in 2021 and 2022, as the spending will be more evenly distributed over several years and some of it will likely reflect spending that would have happened in any case. Offsetting tax increases could also incrementally dampen the effects.
- As we now expect a somewhat slower drop-off in fiscal support in subsequent years, we have also raised our GDP growth forecast in 2022 by 0.6pp to +5.1%on a full-year basis (vs. +3.8% consensus) and by 0.5pp to +2.9% on a Q4/Q4basis (vs. +2.6% consensus).
I expect a big infrastructure package via the budget reconciliation process. So, Goldman is going to have to revisit these numbers upwards.
That is US growth above 6% in 2022 and above 4% for years after that.