The first major tax legislation to emerge from the Biden era is likely to be a version of the Pandemic Incentive Act that is already in the congressional hopper. States and local governments will almost certainly receive some federal aid, although no one will be surprised if the GOP opposition and the compromise efforts of the moderates in both houses reduce the number.
But while governors, mayors, and other local government officials can’t help but vigorously seek immediate aid for their 2021 budgets, those numbers are a sucker compared to what could potentially be used to fund infrastructure. The federal dollars at stake in the Biden government’s upcoming infrastructure bill are likely to be five to ten times higher than the outstanding economic bill if intergovernmental public finance strategists play their cards wisely.
State and local heads of government and their political associations will therefore be wise to draw up and support their lobbying and advocacy plans for the Infrastructure Act immediately. To distract and refute newborn Congressional deficit hawks, a fallback tax plan to pay the federal stake will require both wisdom and moxie, and state and local lobbyists would do well to be in the room for those discussions, too.
To develop a successful strategy, it is important to understand how partisans in Congress think differently about – and feel about – the political framework for a federal infrastructure law. Democrats will typically focus on jobs for their union members, especially green projects. Traditional (pre-Trumpian) Republicans will typically focus on the impact of investing on intergenerational finance, as a corporate investor would: want pay-fors and assets to match new liabilities.
Here is the technical side of the problem: unlike state accounting for states and municipalities, the federal government does not have a capital account. Economists’ gross domestic product measures in relation to economic activity do not distinguish between the US government’s operational and capital expenditures or the deficits they demand. There is no macroeconomic category for “government investment” analogous to private investment. Infrastructure spending on roads, bridges, hospitals, aircraft carriers, and walls is extrapolated, as is tax audits for government employees and households who in turn consume and produce goods and services.
Likewise, there are no US government bonds on the capital markets that are intended and intended to pay for the infrastructure. A federal deficit for COVID-19 aid to citizens, businesses and communities in 2021 is no different from macroeconomists and government bond investors from federal infrastructure spending. For fiscal conservatives, however, the political difference is huge: investments produce long-lived assets that will benefit future taxpayers, while operating deficits in social spending are short-lived – they hurt the economy but leave nothing tangible for them. Conservatives prefer investing over redistribution.
These important conceptual and political distinctions help identify and figure out where the party-political differences and similarities will lie at the start of the upcoming national debate about how much and what type of federal funding Congress should initiate this year. Here are a few key points that you should understand, research, consider, incorporate, and remember:
America’s accumulated infrastructure deterioration is far more than Congress can pass in one bill. Back in 2017, the American Society of Civil Engineers carried out $ 4.6 trillion in projects to replace obsolete, run-down public works. Outdated civil and school buildings are excluded from this. About $ 2 trillion (plus local matching funds) in 2021 is a healthy, hefty start and much more politically marketable than a whopping, overzealous bill. Still, a second trillion dollar round during the Biden presidency will be warranted and structurally overdue. One strategy would be to now allocate 75 percent of federal funds for planning and planning a second wave of projects to be financed in 2023. After all, Rome was never rebuilt in a day.
Delays in implementing infrastructure policy are a partisan dilemma. When a bill is passed, funding applications reviewed and approved, contracts leased and concrete poured, we will face the 2022 midterm elections. Republican partisans will be wary of Democrats getting too much success just before the elections reopen, and such paranoia is justified. So it may be political logic to run the entire infrastructure initiative in two steps to make some of the projects groundbreaking after 2022.
The Green New Deal has a blue, but not a red, priority. Without contention, our nation must invest heavily and strategically, taking into account the environmental impact. One example is supporting schools in converting their bus fleets to low-carbon natural gas or electricity, as well as the necessary refill and charging facilities. Energy saving building codes are inevitable. However, political sensitivity to an overly ambitious bill earlier this year could bring the whole initiative to a standstill. A second bill could be approved later this Congress term that includes longer-term green initiatives that can withstand a bold push back.
Construction jobs will not reinstate unemployed restaurant workers. Most of the private sector hiring in 2021 will be independent of construction jobs. The housing industry is hot right now, so an unintended and ironic consequence of a major infrastructure bill in 2022 will be higher prices for new homes, driven by the rising cost of scarce labor in the sector. Protective helmets are blunt instruments.
“Free Money” by Uncle Sam invites you to waste. Unless recipient states and locations cover at least 25-30 percent of the total cost of grant-funded infrastructure projects, it is almost inevitable that bad decisions will result. State and local lobbyists need to promote tenable rules to ensure that only the best projects are selected and not those that would have been built without federal help. Otherwise, conservatives can argue that it is just a disguised pork barrel rescue.
We have the tax capacity to fully cover the infrastructure debt. At today’s low interest rates, debt servicing for Uncle Sam’s $ 2 trillion stake in a timely infrastructure program over the 30-year life of such projects would not require more than $ 100 billion a year. The income from a 10 percent income tax on a combined annual income of over $ 400,000, similar to the original 1969 alternate federal minimum tax, or a seamless, modernized AMT for fat cats would be enough to pay that bill. More aggressively, a 7 percent earmarked excise tax on company share buybacks, along with an uninterrupted, comprehensive financial transaction tax, could fully fund $ 5 trillion in infrastructure projects. When fiscal conservative politicians can no longer endure deficit financing for infrastructure, they have to face reality – or find the money elsewhere.
Governing’s columns of opinion reflect the views of their authors, and not necessarily those of the editors or management of Governing.
Girard Miller
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