Will the infrastructure plan help or hurt your portfolio? - Part 2

Sid Queler

May 10, 2021

Weighing the benefits of higher corporate tax rates and higher government spending.

In part one of this series, we discussed the American Jobs Plan which proposes spending $2.7 trillion on infrastructure investment over eight years, financed through corporate tax increases. Infrastructure and corporate taxes both affect US economic competitiveness. The AJP affects both, and it could have an impact on financial markets and investment portfolios.

The AJP may increase corporate taxes

President Joe Biden has proposed the biggest expansion of the federal government’s role in the economy since the 1960s. The American Jobs Plan (AJP) is being negotiated within Congress and between branches of government and the debate could extend over months. We view the current proposal as the Biden administration’s opening bid.

As it is currently written, the AJP would change the corporate tax structure in significant ways. First, the corporate income tax rate would increase. The current plan includes a 28% rate; however, that may be lowered in negotiations. Other provisions include:[i]

  • Establishing a 15% minimum tax for companies with $100 million in revenue,
  • Creating onshoring tax credits and eliminating offshoring deductions, and
  • Eliminating some fossil fuel tax deductions and credits.

The proposal also commits the US government to pursuing a universal corporate tax rate.

Company earnings and economic growth

Companies realize significant benefits from improved infrastructure, which is the justification for using corporate tax increases to pay for most of the infrastructure spending in the bill. In addition to spending on infrastructure, the AJP allocates funds for research and development, training and manufacturing, and other corporate support.

On the other, a major corporate tax increase would reduce after-tax corporate profits. Currently, we are in the midst of a profit boom. Earnings for companies in the Standard & Poor’s 500 Index are expected to grow 29% this year. Early forecasts for 2022 call for a further 13.5% rise.[ii] If the proposed corporate tax increases were fully implemented in 2022, the profit growth rate could be reduced by more than half next year.[iii] 

A lower growth rate could elevate concerns that equity market valuations are stretched. For instance, if earnings next year grow by 5% instead of the currently expected 13.5%, the price-to-earnings ratio would rise from 20.7x to 22.4x—a high valuation compared to long-term averages. (The valuation was calculated using S&P 500 data on April 30, 2021.)

While this would be a material change, there are mitigating factors. First, given the strength of the US economy, we suspect current earnings estimates for this year and next may need to be revised higher. Second, the corporate tax proposal is unlikely to become law as it as currently written.

Moody’s Analytics conducted a dynamic analysis measuring the impact of AJP tax hikes and government spending on the US economy. The short-term impact of AJP proposals include marginally lower growth since higher tax rates go into effect immediately and infrastructure requires planning.

However, the plan “…results in a stronger economy over the coming decade, with higher GDP, more jobs and lower unemployment…By 2023 and throughout much of the midpart of the decade the ramp-up in infrastructure spending significantly lifts growth.”[iv]

Supporters of the plan say that strong economic growth will improve productivity and create jobs, which ultimately benefits companies.

Portfolio positioning will be important

It’s difficult to know exactly how the economy, companies and share prices may be affected by the AJP until provisions are finalized, and a bill is written and signed into law. In the meantime, asset managers will adjust portfolios based on their expectations for the future.

We will pay close attention to the way tax and spending changes affect particular industries. For instance, a significant amount of infrastructure spending will find its way to the private sector. This could benefit traditional construction and engineering companies, as well as renewable energy-focused industries. On the other hand, higher taxes could be of particular concern multinational corporations, particularly large technology companies.

For questions about Congress getting closer to finalizing its tax plan and the potential effect of the plan on the economy and your portfolio, please contact me at or 617-531-6954.

Stay tuned—the next post in our series on pending tax changes will focus on the impact of higher capital gain taxes on equity market performance. If you’re eager to learn more right now, read A look at Biden’s (early) tax policy proposals.


Sidney F. Queler is the chief growth officer of CIBC Private Wealth, US. In this role, he leads the firm’s business development team, setting strategies and practices that broaden relationships with individuals, families, foundations and endowments. Sid also serves as a member of the CIBC Private Wealth US Operating Committee and as a member of the advisory team for the firm's oston office. In addition to leading national business development, he remains actively involved with client relationships.

The tax information contained herein is general and for informational purposes only. CIBC Private Wealth Management does not provide legal or tax advice, and the information contained herein should only be used in consultation with your legal, accounting and tax advisors.

[i] Tax Foundation, April 2021.
FactSet. April 30, 2021.
Based on a survey of analyses from Wolfe Research, Strategas, UBS and BCA Research following publishing of the proposal.
Moody’s Analytics, April 2021.