Danske Research Team
Danske Bank A/S
Key takeaways
President Joe Biden’s infrastructure package costs USD2,250bn (USD2,650bn including Clean Energy Tax Credits) over eight years (1.4% of counterfactual nominal 2021 GDP (assuming the pandemic had not hit) per year if spending is equally distributed over the eight years). The package is fully financed over 15 years by higher corporate taxes (USD2,750bn or 0.75% of GDP per year).
This is the first package out of two. The next one focusing on health care and education is set to be presented soon. We expect the next package will cost in the range of USD1,000-2,000bn (likely in the middle of the range), financed by higher taxes on wealthy Americans.
While Democrats can approve both packages using budget reconciliation requiring only a simple majority, the negotiations are much more difficult than for the relief package, as Democrats have different priorities, which was not the case for the relief package.
We expect the total size of the two packages to be USD4,000bn only partly financed by higher taxes (approximately USD3,000bn). We expect the spending will be frontloaded in 2022-24 due to midterm elections in 2022 and the presidential election in 2024.
We see upside potential for US GDP growth in 2022 and onwards compared to our current expectation.
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