As part of his infrastructure plan, President Biden is proposing to raise the federal corporate tax rate from 21 percent to 28 percent and broaden the corporate tax base. The administration projects the plan would raise $2 trillion over 15 years.

The CBO currently projects corporate tax revenues will be $3.5 trillion over the next decade. So Biden’s plan over its first decade would roughly increase corporate tax revenues 38 percent. In reality, his plan would not raise that much because corporations would respond strongly to avoid the increase, but this percentage gives a sense of the large size of the proposed hike.

Biden’s infrastructure plan promises to strengthen America’s competitiveness, but higher corporate taxes would do the opposite. The U.S. corporate tax rate is already higher than the global average, and Biden’s plan would make the rate even less competitive.

The chart shows data from KPMG for 2021. The U.S. federal rate is 21 percent and the average state rate is 7.5 percent. Taking into account that state corporate taxes are deducted against the federal tax, the current U.S. federal-state rate is 27 percent. The KPMG data also accounts for subnational corporate taxes in other countries.

The current U.S. corporate tax rate is higher than the average global rate for 173 countries of 23.7 percent. It is also higher than Asia at 21.6 percent and Europe at 19.0 percent. With Biden’s increase, the U.S. federal-state corporate tax rate would rise to 33.4 percent, far above the averages abroad.

President Biden has proposed a $2.3 trillion infrastructure plan. It moves entirely in the wrong direction by increasing subsidies and centralizing power. A better approach would be to end federal subsidies and decentralize infrastructure ownership and decisionmaking.

Biden’s infrastructure subsidies would go to: 1) federal government assets, 2) state and local government assets, and 3) private assets. The following summarizes Biden’s proposed subsidies for each type of asset and the better reform approach of freeing assets from federal control.

1. Federal Government Assets

Biden would subsidize Amtrak $80 billion. Instead, passenger rail should be privatized and de-unionized to reduce costs and increase flexibility to run the system efficiently based on consumer needs, not political directives.

The federal government should also privatize the air traffic control system, the U.S. Postal Service, the Tennessee Valley Authority, and its water supply infrastructure. All these assets would be better managed in the private sector supported by user charges.

2. State and Local Government Assets

Biden would subsidize highways $115 billion, public schools $100 billion, urban transit $85 billion, water systems $66 billion, and airports $25 billion. There is no need for federal subsidies for these state and local assets. The states should fund their infrastructure with taxes and user charges. Indeed, many state and local assets—such as airports, seaports, and water systems—should be privatized and subsidies ended. Some highways and transit systems should also be privatized.

The Biden plan says, “According to some rankings, no U.S. airports rank in the top 25 of airports worldwide.” But all major U.S. airports are owned by governments, whereas many abroad have been privatized, such as London’s Heathrow.

Private infrastructure funded by user fees is more economically efficient and environmentally sound than subsidized infrastructure. For example, water systems should be funded by user fees, and not subsidized, so that consumers bear the full costs and limit their consumption. Thus, Biden’s $66 billion in subsidies for water systems would be anti-green in effect.

3. Private Assets

Biden would subsidize manufacturing $300 billion, electric vehicles $174 billion, broadband $100 billion, electric power $100 billion, and technology facilities and commercial buildings by tens of billions. These assets are generally owned by corporations. Biden’s proposals are a strange political development because Democratic Party leaders often rail against corporate subsidies. Biden’s approach is doubly strange because he funds his plan by raising corporate taxes, which would reduce investment in the same private infrastructure that he proposes to subsidize.

The Tax Foundation found that Biden’s proposed tax increases would reduce private investment by more than $1 trillion. Biden’s proposed green and labor union regulations would further undermine infrastructure investment.

Corporations are already investing in activities favored by the Biden administration, such as electric vehicles, renewable energy, and broadband. Rather than subsidizing, Biden should focus on reducing regulatory barriers to infrastructure investment and cutting corporate taxes to increase investment incentives.

More thoughts on the Biden plan here and here.

President Biden’s proposed infrastructure plan includes $621 billion for transportation. It would spend $115 billion on accelerated road and bridge repairs, $20 billion for “vision zero” and other anti-auto programs, $85 billion for mass transit, and $80 billion for Amtrak’s backlog and expansion of Amtrak service. It also would spend $174 billion supporting electric vehicle manufacturers, $25 billion on airports, and $17 billion on inland waterways. That’s $104 billion short of $621 billion, but the White House press release doesn’t say where that $104 billion will go.

Non-transportation items in the plan include $111 billion on safe drinking water, $100 billion for high-speed internet service, $100 billion on the electrical transmission system, $10 billion on a Civilian Climate Corps, $213 billion on housing, including retrofitting homes to save energy, $100 billion on new schools, $18 billion on new veteran’s hospitals, $10 billion modernizing federal buildings in Washington DC, $400 billion on care for the elderly and disabled, $180 billion on research, $300 billion on manufacturing and small businesses, and $100 billion on workforce development. News reports call this a $2 trillion plan but by my count it adds up to at least $2.26 trillion.

Instead of calling this an infrastructure plan, the White House calls it “the American Jobs Plan.” This is ironic because the only reason why most unemployed people don’t have jobs today is the lockdowns enforced by mostly Democratic governors. End the lockdowns and there won’t be many unemployed people to take the jobs created by the Biden plan.

That should be okay because most of the plan isn’t really necessary. The money for road and bridge repairs isn’t needed because the condition of America’s roads and road bridges has been improving each year without a congressional rescue plan. However, Biden’s plan earmarks funds for some major bridges, which will please politicians representing the states those bridges are in. Although the White House press release mentions the cost of traffic congestion, it isn’t clear that any of the money will be spent actually relieving congestion.

The money for mass transit and Amtrak isn’t really needed either because the pandemic has accelerated the decline in the importance of these systems that was already taking place before 2020. Biden’s plan to double funding for transit and quadruple it for Amtrak rewards agencies for doing a lousy job of carrying few passengers. However, Biden’s plan earmarks funds for new Hudson River tunnels and other projects in the Northeast Corridor, which will please politicians in New York and New Jersey.

Electric vehicle manufacturers, airports, and inland waterways seemed to be doing fine either as private sector operations or with existing funds. But airports and dredging have always been sources of pork barrel and this bill will be no exception.

Biden proposes to spend part of the $213 billion housing funds bribing local cities to end so-called exclusionary zoning, which has been attacked as causing unaffordable housing even though housing is unaffordable in only a few states and relaxing local zoning hasn’t made housing more affordable. None of it will be spent encouraging states to end growth-management policies (restrictions on development of rural lands) that are the real cause of unaffordable housing.

I have less expertise on the other programs in Biden’s bill, but it strikes me that many of them—the electrical grid, high-speed internet, manufacturing, small businesses, and housing — are mostly private and don’t need massive federal subsidies (which will end up being accompanied by massive federal red tape and regulation). What they really need is for government to get out of the way.

While politicians will love it, the huge increase in federal spending proposed by the Biden plan is going to create a serious problem for private employers. Unemployment rates were extraordinarily low before the pandemic and they have quickly declined again in states that lifted lockdowns. Anyone employed with the dollars in the American Jobs Act will be one less person available to employed by private businesses. This will increase consumer costs and could contribute to an inflationary cycle caused by a combination of a labor shortage and printing of money to pay for the federal deficit.

Even the American Society of Civil Engineers admits that it was crying wolf when it claimed that America’s infrastructure deserved a D+ grade, having raised it to a C- in its latest report card. Personally, I would give transit and Amtrak a low grade but give most other infrastructure a B or B+. That’s why I think of Biden’s proposal as the Not-Really-Necessary Plan.

President Biden is introducing an infrastructure plan today costing $2 trillion. The plan is a combination of subsidies for corporations and subsidies for state and local governments. Both types of subsidies are unneeded and wasteful.

Biden wants $135 billion for highways and bridges, $111 billion for water supply, $100 billion for schools, $85 billion for transit, $25 billion for airports, $17 billion for waterways and seaports, and much else. State and local governments own these assets and can fund them with their own taxes and user fees. There is no economic reason for federal subsidies for any of these assets. Indeed, federal subsidies for state and local infrastructure creates unneeded bureaucracy and misallocates resources. Obama-era subsidies, for example, helped induce California to waste billions on a boondoggle high-speed rail project.

Even more troubling is Biden’s proposed money gusher for private-sector infrastructure. He wants $300 billion for manufacturing, $100 billion for broadband, $100 billion for electric utilities, $174 billion for electric vehicles, $180 billion for research, and much else. Much of this spending would subsidize big corporations.

Yet during the presidential campaign Biden said things such as, “we are going to have to have a major, major, major bailout package that we do not reward corporations, we reward individuals.” And his campaign website made claims such as, “Trump’s main manufacturing and innovation strategy is trickle-down economics that works for corporate executives and Wall Street investors, but not working families.” That sounds like Biden’s strategy.

Corporations are already investing in the activities that Biden wants to subsidize. AT&T, Verizon, and other corporations invest more than $50 billion a year in broadband. Big corporations such as GE, Siemens, and Mitsubishi already invest heavily in wind power. Tesla, General Motors, Volkswagen, and other corporations already spend billions on electric vehicles. Biden wants subsidies for EV charging stations, but Tesla has already built more than 2,500 of them. The private sector with its own money build America’s 136,000 gas stations, and it should do the same for EV charging stations, if that’s what consumers want. There is no need for the federal government to pump up the profits of corporations in these industries.

What is really perverse is that Biden is proposing these corporate subsidies at the same time he wants to jack up corporate taxes. During the campaign, the Tax Foundation estimated that Biden’s overall tax package would slash business investment by more than $1 trillion. So broadband, energy, manufacturing, and other industries would get billions in new subsidies from Biden, but they will be paying billions more in taxes. Biden’s plan would be a giant, wasteful circular flow of money from corporations, through Washington, then back to favored corporations.

As federal subsidies for the states have increased over the decades, state and local governments have become little more than administrative arms of a giant national government. Under Biden, the same thing may happen with American businesses. Lobby groups such as the U.S. Chamber of Commerce have been demanding more federal infrastructure spending, but what they will get is a government takeover of business investment decisions. America’s economy will stagnate as more investment decisions are based on political whims and less on actual consumer needs.

President Trump approved $900 billion in stimulus spending in December and President Biden approved another $1.9 trillion in March. Biden is set to propose a further $3 trillion on infrastructure, and Majority Leader Chuck Schumer is exploring ways to bend Senate rules to keep the spending flowing.

This gusher of spending is greatly damaging. This is not Monopoly money, but rather it represents real resources that will be confiscated from people when the bills come due. Even without an infrastructure package, the federal government will spend $6.8 trillion this year, or double the $3.4 trillion the government will collect in tax revenues. That means the politicians are putting us another $3.4 trillion in debt just this year. That is like a family earning $34,000 and then spending $68,000 with $34,000 on credit cards.

When politicians issue debt, it is a uniquely damaging and unfair policy action. In general, Congress cannot bind future Congresses, which is called “legislative entrenchment.” Congress can pass laws restricting civil liberties today, but we can always get future Congresses to repeal them and end the damage. But with debt, Congress binds future taxpayers. It creates irreversible damage, an anchor that drags down the standard of living of Americans for decades to come.

Today’s vast federal spending is particularly unjust to young people, who will have their own crises and costs to deal with down the road. Huge deficit spending may prompt a financial crisis, induce rising inflation and interest rates, and generate long-term economic harm. The average standard of living, or real GDP per capita, in Greece today is still 20 percent below the level reached prior to its government debt crisis a decade ago.

Washington’s reckless deficit spending has been building since the 1930s. From 1791 to 1930, federal politicians balanced the budget 68 percent of the years, but since 1931 they have balanced it only 13 percent of the years. Furthermore, deficits have become larger over time relative to the size of the economy.

The chart shows federal budget deficits as a percent of GDP since the end of World War II. The projection to 2031 is the CBO baseline from February plus the effects of Biden’s stimulus passed in March.

I have fitted a trend line on the chart, the Path of Fiscal Doom. The other day, the CDC director worried about “impending doom” from the coronavirus, but that is a problem that the private sector can, and will, solve. The scary thing about the Path of Fiscal Doom is that only the politicians can solve it, but most of them are super-spreaders of damaging fiscal ideas.

Back in 2009 President Obama famously proclaimed, “There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy.” And Vice President Biden chimed in: “Every economist, as I’ve said, from conservative to liberal, acknowledges that direct government spending on a direct program now is the best way to infuse economic growth and create jobs.” And the Cato Institute famously pointed out that those claims were false.

Now, as president, Joe Biden is at it again: “The American Rescue Plan … will generate economic growth for the entire nation. That’s why major economists — left, right, and center — support this plan,” he said Monday at the White House. And also last Friday: “Every single major economist out there — left, right, and center — supported this plan.” Obviously, he loves this claim.

And once again, with all due respect, Mr. President, that is not true.

It’s easier to claim this time that there’s widespread support for the actual Covid‐​related measures in the bill regarding testing, vaccination, and relief. But the $1.9 trillion wish-list of unrelated expansions of government, on top of another $4.1 trillion in the past year? There are plenty of economists opposed to that.

Start with Lawrence H. Summers, winner of the John Bates Clark Medal and former chief economist of the World Bank, Treasury Secretary for President Clinton, and director of President Obama’s National Economic Council. He wrote in the Washington Post that the total size of the package “is at least three times the size of the output shortfall” and thus six times the relative size of Obama’s 2009 stimulus bill. He warned that the massive injection of borrowed money into the economy might well spur inflation and would surely crowd out further Democratic wish‐​list programs.

And then we find major economists from left, right, and center also opposing the plan as proposed and passed. Like Greg Mankiw, chief economic adviser to President George W. Bush. And Olivier Blanchard, former chief economist of the IMF. Michael Strain of the American Enterprise Institute. David Henderson and John Cochrane of the Hoover Institution. Constance Hunter, chief economist at KPMG, and the vast majority of business economists. Tyler Cowen of George Mason University. Nobel laureate Eugene Fama. Even Jason Furman, former chairman of President Obama’s Council of Economic Advisers, while saying he would support the plan on a “yes or no” vote, warned that it risked triggering inflation and should be better designed.

The point of this post is not to lay out a critique of the bill, but my colleague Scott Lincicome published a pretty comprehensive one. My point here is just that President Biden should not make false claims. And it is false today, as it was in 2009, to claim that “every single major economist” supported this $1.9 trillion debt-financed, heavy-regulation plan. 

With the American Rescue Plan Act – not that we appear to need $1.9 trillion in “rescuing” – having taken shape, I’ve updated our K‑12 distribution estimate.

The main change from previous iterations is the addition of $2.75 billion that is to go to private schools, and diminution of what is available to public schools from earlier versions of ARPA.

Note that not all private schools will be able to access the new funding. There are important strictures, including that the money only be distributed by governors to “non-public schools that enroll a significant percentage of low-income students and are most impacted by the qualifying emergency.” I am also assuming that with the new money for private schools, those schools will not be permitted to receive “equitable services” funding. Finally, I changed the title of the last columns from “Biden” to “ARPA.”

These updates change the estimates of aid per public and private school student, as well as total K‑12 money for all federal COVID-19 relief legislation. Total K‑12 funds (not shown) is about $213 billion. Aid per public school student is $3,919, and per-private school student is $2,513. Of course, different students will get different levels of benefit based on the specific school they attend, where they live, etc., and some of the aid to states and localities, not factored in here, may also help schools and students.