Biden’s Infrastructure Plan: Where are the 2 Trillion Dollars Going?

Increased infrastructure spending has been one of the key promises of President Biden's campaign in 2020. With more details emerging about the administration's $2 trillion infrastructure spending plan, we want to take a look at sectors and industries that could play a role in Biden’s plan from an increased focus on the country's roads, bridges, and other infrastructure.

In April, President Biden introduced his $2 trillion plan for overhauling and upgrading the US' infrastructure.

The New York Times explains that "[...] the proposal’s combination of spending and tax credits would translate into 20,000 miles of rebuilt roads, repairs to the 10 most economically important bridges in the country, the elimination of lead pipes from the nation’s water supplies and a long list of other projects intended to create millions of jobs in the short run and strengthen American competitiveness in the long run."

According to the administration, this increased focus on the nation's infrastructure will position the country well for the future, and long-lasting benefits for economic growth are expected. Businesses and consumers in the US are projected to see lower transportation costs, lower commute times, better internet service, etc. According to the New York Times, this is the most ambitious infrastructure spending program in more than half a century. And, as the NYT further explains:

"If approved, the spending in the plan would end decades of stagnation in federal investment in research and infrastructure — and would return government investment in those areas, as a share of the economy, to its highest levels since the 1960s."

And yet, the American Society of Civil Engineers (ASCE) believes that a $2 trillion infrastructure spending program is not too ambitious at all. The group sees a need for investing in the country's infrastructure, which is why there might be additional infrastructure programs coming in future years, either under President Biden or his successor. Due to the fact that President Biden’s spending plans, overall, include more than $2 trillion, one could argue that Biden’s infrastructure plan isn’t ambitious enough. Experts in this field believe that investments in the country’s infrastructure should be even higher since the administration is willing to spend trillions of dollars on top of the proposed $2 trillion infrastructure plan in other areas. According to another recent article, the nation's infrastructure is sorely in need of repair, earning a C- score from the ASCE, which said an additional $2.6 trillion in funding is required over the next decade. But Biden is also pitching his plan as an investment to benefit communities of color, rural Americans and others burdened by decay or lagging modernization.

Renegotiations, or additional infrastructure spending plans in coming years, may resolve this apparent conflict between an even higher need for investments in infrastructure (according to experts, such as the ASCE), and the trillions of dollars that the administration plans to spend on other things. Also note that Biden’s proposed infrastructure plan will most likely be altered by Congress as it attempts to pass through the House and Senate in order to appease both sides of the aisle. The final infrastructure bill, if passed, could see many iterations as it seeks to gain bipartisan congressional support.

When government spending is bumped up, it naturally means that money that is being spent has to flow somewhere. In this case, with infrastructure spending likely rising in coming years, there is a wide range of potential beneficiaries. For those that seek broad-based exposure to companies that may gain from increased infrastructure spending, private equity funds and hedge funds with exposure to these industries may be an option.

While many of these infrastructure and infrastructure-adjacent industries should benefit from the passing of the proposal, much of the plan is still earmarked for areas that political opponents do not consider infrastructure. If the plan were to remain as is, $400 billion would be made available to bolster caregiving for aging and disabled Americans, including the expansion of Medicaid and increasing the wages of home health workers. Another $100 billion is aimed towards workforce development. Opponents of the bill note that these two areas, totaling 25% of the $2 trillion plan, are inflating the infrastructure bill and should not be included, advocating for a lower dollar amount to accomplish the necessary upgrades to the nation’s infrastructure.

It is worth noting that not everything that the Biden administration is planning to do will necessarily materialize. Political opposition to some of these themes, and potential issues when it comes to funding these investments may prevent some of those projects from coming to fruition. Indeed, Wall Street firm Goldman Sachs warned clients that more tax hikes are almost certainly coming if the White House does intend to pay for all — or most — of its proposals: “We still believe the White House will propose increasing capital gains and individual top marginal rates even though these were not in today’s plan,” wrote Alec Phillips, chief U.S. political economist at Goldman Sachs. These tax hikes can negatively impact companies in the sectors discussed above, which may neutralize the positive effects of the infrastructure bill.

It is also not guaranteed that the sectors discussed will benefit on a longer-lasting level, even if President Biden's infrastructure plans are enacted. In some cases, there may be short-term effects that wane over the years, as infrastructure spending could drop back towards the level of the last couple of years in the future. Finally, concerns of rising costs and inflation, which may be exacerbated by the plan’s price tag, may impact the bottom line of companies within these industries facing rising costs for materials like steel, as high prices and low supplies will receive even more pressure with more demand and infrastructure development.