However, new infrastructure plans come at a price. The apparent $2 trillion does not include other costs, which may be very heavy.
The Senate and party leaders announced their opposition: money has been spent on electric cars, and there is no money to build roads and bridges.
Biden's plan describes investment in infrastructure projects in the next eight years, including creating millions of jobs and tackling climate change. So where does the money come from? The source of funds for this infrastructure project, including tax increase for enterprises, has been increased from the current 265,438+0% to 28%.
On June 1 Sunday, McConnell, leader of the US Senate minority (* * * and Republican Party), said that he would fight with all his might. Biden's infrastructure plan is expected to face great resistance because the Democratic Party has only a weak majority in the Senate.
* * * and party leader McConnell are particularly opposed to raising taxes on businesses and the rich. He described this as a "Trojan horse" of the American economy, which would ruin the American economy.
On June 5438+0, McConnell said that their proposal could not win the support of * * * and the party. "I think ... the last thing the economy needs at present is a substantial tax increase in the production sector of the American economy."
McConnell also ridiculed Biden's plan "to spend more money on electric cars than on roads and bridges". Frankly speaking, there is some truth in this sentence. There are too many charging piles, which is especially beneficial to new technology companies like Tesla. Relatively speaking, the investment in traditional roads and bridges is not much.
Although the Democratic Party controls the Senate and the House of Representatives, their majority status is fragile. Especially in the Senate with 100 seats, the party has 50 seats and the Democratic Party has 50 seats. kamala D. Harris, the vice president of the Democratic Party, can cast the key 1 vote in case of deadlock.
Usually, any bill must get at least 60 votes in the Senate to become a formal law. But sometimes, a specific proposal related to the budget can be passed by a simple majority. This is why Biden's nearly $200 million rescue plan was passed by the House of Representatives only with the support of the Democratic Party in March.
The Democratic Party hopes that this model can be replicated in infrastructure projects, but only if all members of the Democratic Party unite to vote again, including moderates who have expressed reservations about infrastructure projects, and almost no one can vote against it.
In the House of Representatives, the majority position of the Democratic Party is relatively stable. If there is no major evasion, House Speaker Pelosi hopes to pass Biden's plan in early July.
The us stock market may fall.
Another serious consequence of Biden's ambitious fiscal plan is that it may lead to a rise in long-term interest rates and a fall in the US stock market.
The recent trend of US debt interest rate is indeed upward. The interest rate of US 10-year Treasury bonds will climb from less than 1% at the end of last year to 1.50%. As a result, it rose to 1.77% this week, and many international financial experts predicted that it might rise to 2% in the next step.
Biden's infrastructure plan is very unfavorable to the financial market for two main reasons:
First of all, the financial plan is too big.
Even excluding the recently promulgated 1.9 trillion US dollars rescue plan and 2 trillion US dollars infrastructure plan, the International Monetary Fund (IMF) predicts that by the end of 20021,the ratio of total US government debt to US gross domestic product (GDP) may rise to 133%. This ratio has exceeded the government debt level of five European countries (Italy, Spain, Portugal, Ireland and Greece) when the European debt crisis broke out.
In the case that Democratic congressmen strongly oppose tax increases, such a huge spending plan cannot be supported by tax increases alone. Biden's infrastructure plan is expected to include a series of measures to raise taxes, including raising the corporate tax rate from 265,438+0% to 28%, and possibly raising the highest personal income tax rate from 37% to 39.6%. It is estimated that these proposals may collect 1 trillion dollars in taxes in the next decade; But it is hard to say whether it can pass Congress.
Secondly, judging from Biden's spending plan structure, interest rates are bound to rise.
Unlike the 20 17 Trump tax cuts, the main beneficiaries are enterprises and high-income families. Biden's rescue plan is aimed at low-and middle-income families, who are more inclined to spend extra money.
This means that the insufficient fiscal gap will be left to the bond market to fill. Whether the government will raise funds by issuing treasury bonds, thus pushing up the interest rate of 10-year treasury bonds to 2% or even 3% depends on how the Fed reacts.
If the Fed will resort to "yield curve control" (YCC), similar to what it did during the period from 1942 to 195 1, the purpose is to reduce the borrowing cost of the federal government during World War II and several years after the war.
The Federal Reserve may join hands with the US Treasury to curb the interest rate of government bonds, although Fed officials deny this.
In any case, if the Fed tries to set a ceiling on the interest rate of government bonds, it is doomed to fail, and the lifting of the ceiling will lead to higher and higher interest rates. This is exactly what happened when the Federal Reserve stopped pegging the interest rate of government bonds at 195 1.
Once the US 10 national debt interest rate rises to 2% or higher, it will have an impact on the stock market. The higher interest rate of treasury bonds and the higher yield relative to the US stock market will make the investment of US treasury bonds more attractive than that of US stocks.
As a result, US stocks may fall into a "callback". The word "correction" is not casually said. According to the traditional definition of Wall Street, the stock price has dropped 10% from the previous peak.
For many years, the U.S. government has been calling for large-scale investment in infrastructure, but this major investment always comes at a price, one of which may be that the interest rate of government bonds rises and the stock market encounters a correction.