ECONOMICS Bloomberg Businessweek March 1, 2021
25PHOTO ILLUSTRATION BY 731: PHOTO: GETTY IMAGESa $2 trillion gap—which Biden’s proposal could
largely fill. Congressional Budget Office figures
show that $1.5 trillion would be equivalent to all
federal spending on transportation and water
infrastructure in the 14 years through 2017.
But the infrastructure plan could become
ensnared by a push from left-wing Democrats to
tack on a raft of other measures, such as creating
a government-run health insurance plan, easing
unionization drives, and establishing a pathway to
citizenship for undocumented immigrants.
Meanwhile, House moderates in swing districts
are facing the perils of redistricting before the mid-
terms and could insist on limiting the scope of the
bill to curtail its cost and limit partisan battles. Fights
could emerge over formulas for divvying up infra-
structure investment funds among states and cities.
Congressional Progressive Caucus Chair Pramila
Jayapal said on Feb. 18 that her large cohort of House
Democrats will be deciding in the coming weeks
which elements it wants to see included in the
recovery package, including whether to push for a
rollback of Donald Trump’s tax cuts for the wealthy.
Jayapal’s group was instrumental in attaching to the
pandemic relief plan an increase in the federal min-
imum wage to $15 an hour, which has become the
most controversial provision in the legislation and
may delay its passage. The CPC has proposed a
$2 trillion infrastructure bill and is advocating that
it provide for expanded child and elder care.
The question of how the new spending will be
funded, whether through higher taxes or increased
government borrowing, also looms large. Senate
Finance Committee Chairman Ron Wyden, a
Democrat from Oregon, is expected to propose
raising the capital-gains tax rate for those making
more than $1 million a year. He’d also change
international tax provisions in the 2017 tax law
and close the carried-interest loophole used
by private equity and hedge fund managers,
according to a Democratic aide. Some law-
makers favor raising the federal motor fuel
tax—now 18.4¢ a gallon, 24.4¢ for diesel—
for the first time since 1993, though Wyden
in 2019 expressed opposition to the idea,
calling it regressive.
Treasury Secretary Janet Yellen has
argued that the administration should
take advantage of historically low
interest rates to borrow money to
pay for much of the plan. Although
the yield on 10-year Treasury notes has
risen in recent weeks, to about 1.35% as
of Feb. 23, it’s still well below the 50-year
average of about 6.16%. In recent interviews,
Yellen also has voiced support for raising taxes to
pay for provisions that result in recurrent spending.
Despite all the hurdles, Biden has a strong hand.
Upgrading and maintaining infrastructure is a
potent stimulus, unleashing demand for equipment
makers, materials suppliers, and, most important,
workers. An even bigger payoff is the long-term
boost to productivity that may result from savings
on shipping and commuting costs when roads, rails,
and ports are improved, or avoiding the kind of
power grid failures on display this month in Texas.
“We cannot throw all fiscal discipline to the
wind, but it is the case that the standards for fiscal
prudence have changed with the decline in interest
rates,” says David Wilcox, a senior fellow at the
Peterson Institute for International Economics and a
former Federal Reserve and Treasury official. “If the
rate of return on an investment exceeds your bor-
rowing cost, it makes sense to do that investment.
And with lower borrowing costs, more investments
today can clear that bar.” —Christopher Condon and
Erik Wasson, with Laura DavisonTHE BOTTOM LINE The Biden administration is eyeing the largest
investment in public works since the New Deal. But a push by left-
wing Democrats to load other provisions onto the plan could sink it.Slapping the
Invisible Hand
○ Brazil’s pro-market economy minister finds
himself increasingly sidelinedPaulo Guedes joined the administration of Brazil’s
Jair Bolsonaro in 2019 as a superminister charged
with steering an ambitious program of privatiza-
tion, deregulation, and tax and spending cuts.
Two years later, it’s the president who’s increas-
ingly calling the shots and moving away from his
star minister’s market-friendly agenda, despite
publicly acknowledging that he has little knowl-
edge of economics.
Bolsonaro’s decision to replace the head of
state-controlled oil company Petrobras following a
disagreement over fuel price increases sent Brazilian
markets into a tailspin on Feb. 22, feeding specula-
tion that the Guedes era is drawing to a close.
Guedes’s political future is a matter of concern
for many investors who see the U.S.-trained econ-
omist and onetime investment banker as the“The genius
of the second
plan is that it
gives us the
opportunity to
punch GDP up
above the long-
term trend”