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  • Aarushi Jain

What the Bipartisan Infrastructure Law Will Do

Biden’s $1.2 trillion Bipartisan Infrastructure Law, or the Infrastructure Investment and Jobs Act (IIJA), passed on November 15, 2021.

Here’s a breakdown of what the IIJA invests in:

  • Roads, bridges, and major projects

  • Public transit

- Will replace yellow school buses with American-made, zero-emission buses

  • Creates 700,000 new jobs a year

  • Eliminates dangerous lead pipes and expand access to clean drinking water

  • Ensures 100% of Americans have access to reliable high-speed internet

  • Climate crisis

- Creates network of Electric Vehicle chargers

- Investments in clean energy

- Protects against droughts, floods, and wildfires

- Addresses pollution

- Modernizes nation’s airports, ports, and waterways

Here’s a breakdown of different ways that the IIJA will be paid for:

  • Unused Covid funds

  • Delaying the Medicare Part D rebate rule

  • Unused enhanced federal UI supplement

  • Spectrum auctions

  • Expected economic growth from return on investment from long-term infrastructure projects

  • Cryptocurrency reporting

  • Fees on Government Sponsored Enterprises (GSEs)

  • Superfund fees

  • Mandatory sequester

  • Extending customs user fees

  • Sales from Strategic Petroleum Reserve

  • Reducing Medicare spending on discarded medicine

  • Interest rate smoothing for defined benefit pensions

The bottom line: these proposals to pay for the IIJA will not increase taxes for Americans.

Research suggests that infrastructure investment reduces the unemployment rate, and the IIJA authorizes $550 billion in infrastructure spending over the next five years. According to the Congressional Research Service, “Economists generally agree that this investment will produce small but positive gains to growth in the U.S. economy over the next decade.”

To break down the effects further, let’s first look at the impact the IIJA will have on economic output (usually measured by GDP). If the investment will be financed using deficit spending, then in the short-term, economic output will increase directly and indirectly as the government invests in infrastructure projects. About 60 percent of the IIJA is likely to be financed from deficit spending, according to the Congressional Budget Office. Meaning, in the short-run, the IIJA is economically beneficial.

The long-run effects on economic output are a little bit more difficult to assess. Usually in the long-term, “crowding out” of private investment occurs. To finance deficit spending, which is how 60 percent of the IIJA is predicted to be financed, governments need to borrow. Borrowing generally increases interest rates. As a result, private investment decreases. Meaning, in the long-run, the deficit-financed portion of the IIJA may impose costs to economic output by replacing some private investment.

What are the effects between economic output and employment? Okun’s Law suggests that increased economic growth leads to increased employment and vice versa. In the short-run, employment will increase. If economic output decreases in the long-run, then according to Okun’s law, employment should decrease. However, many economists agree on one thing: the IIJA will produce some long-term gains.

One analysis of the short-term and long-term macroeconomic effects of the IIJA performed by Moody’s Analytics (Figure 4 below) found that growth from the IIJA between 2020-2031 is small but positive. Meaning, if you apply Okun’s Law, employment should increase in the long-run.

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