Biden is likely to cut about $700 billion from his infrastructure plan in compromise, Goldman says

• President Biden will likely have to trim his infrastructure-spending plans, Goldman Sachs said.
• It said Congress could approve a $3.3 trillion measure, down from the $4 trillion Biden's pursuing.
• Goldman thinks the corporate tax rate will rise to 25% instead of the 28% Biden is seeking.

President Joe Biden probably won't get everything on his economic-recovery wish list, Goldman Sachs economists said on Sunday.

A month after enacting a $1.9 trillion stimulus bill, the White House is already prepping another massive spending effort. The president unveiled the $2.3 trillion American Jobs Plan in late March and is reportedly teeing up another package that would set the two plans' combined price tag at roughly $4 trillion. Biden has also proposed a handful of tax hikes set to offset the spending measures' hefty costs.

The White House will be successful in pushing the proposals over the finish line, but the policies won't look the same once they get there, economists led by Jan Hatzius said in a note to clients. They said Congress would pass nearly all the "hard infrastructure" Biden has proposed, such as road and bridge renovation, updates to federal buildings, and clean-water initiatives.

Biden's American Families Plan might not be so untouched. The bank said Congress would likely approve only a slimmed-down version of the package, which is expected to include spending on education and childcare. All told, Goldman said about $3.3 trillion in spending could make its way back to Biden's desk for his final signature, roughly $700 billion less than the president pushed for.

The bank thinks the Biden administration won't see its tax plans come to fruition either. Congressional Democrats will end up lifting the corporate tax rate to 25% from 21%, Goldman predicted, coming in shy of the 28% rate sought by the president.

The tax rate for long-term capital gains and qualified dividends could reach 28%, the team added, while the White House has proposed a 39.6% rate. Revenue raised by international tax proposals like a global minimum corporate tax rate would likely be cut in half, according to the bank.

Smaller tax hikes and cuts to spending could garner additional support for the two plans, but Democrats are still likely to lump the proposals together and pass them through reconciliation, Goldman said. The process, used for Biden's stimulus plan, allows Democrats to approve legislation with a simple majority.

In the bank's most probable scenario, Democrats skirt GOP opposition and pass a single package through budget reconciliation between July and September. The team said such a plan would cost roughly $3.5 trillion over the next 10 years and be partially offset by $1.5 trillion in new tax revenue over the same period.

"The risk in this approach is that some centrist Democrats might balk at passing such a large bill through the reconciliation process, which could delay or potentially imperil passage," the economists added.

Less likely options include passing two separate bills through reconciliation and passing three measures through a mix of reconciliation votes and regular congressional processes. Pursuing regular votes would likely punt some bills into the fall as Democrats work to win Republican support, according to Goldman.