Economy & Budget

Hopefully, conservatives’ infrastructure ideas fall on deaf ears

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Americans for Prosperity, along with a coalition of conservative groups, wrote a letter to the administration and Congress offering a set of principles for any legislation on infrastructure spending. The principles include focusing on roads rather than public transport, returning control of much decisionmaking to the states, requiring that projects fully pay for themselves over a 10-year window, limiting environmental review and repealing wage mandates.

The conservative intervention in the debate seems to be motivated by several considerations. First and perhaps foremost, the groups seem eager to avoid increasing the national debt or the size of government. Second, they want to curtail the use of federal money to promote what they would call “noncore” investment — anything that does not strictly improve roads and bridges. Third, more broadly, they want to prevent use of infrastructure spending to promote environmental or labor agendas, in contrast to the Obama stimulus.

{mosads}Let me begin with the deficit. Americans for Prosperity’s position derives from a strong ideological belief in small government. Leaving the philosophical issues aside, it seems relevant to say that the U.S. fiscal situation is not dramatic at this moment. The large federal deficits of 2009-10 — caused in part by the economic and financial collapse of 2007-08, as well as the appropriate spending programs enacted to prevent a repeat of the Great Depression — are a thing of the past. 


The main proof that we do not have a major short-term fiscal problem is a continued low interest-rate environment. Investors are willing to buy U.S. government bonds for almost nothing. In fact, these low interest rates and the lack of growth in wages — despite the nearly full economic recovery — suggest that the government could increase its borrowing (increase the deficit) in the short term without stirring up significant inflationary pressures or causing a noticeable spike in interest rates.

This is the short-term situation. Over the next five to 10 years, however, the U.S. does face more serious fiscal issues. The Baby Boomer generation is due to retire in greater numbers as we move towards the mid-2020s. This will increase both Social Security and Medicare expenditures substantially if nothing is changed.

In an ideal world, Congress would take steps to deal with this now. My favorite proposal would be to put Social Security on a better path by raising the ceiling on income subject to Social Security tax (currently $127,200) and possibly to increase the tax rate slightly over time.

Parenthetically, the idea that “Social Security is bankrupt” is a complete non-sequitur. The program is not a self-contained entity, but instead, a system by which current workers pay taxes that fund current retirees’ Social Security. Additionally, some money has been put away in the Social Security Trust Fund to help deal with the upcoming increase in retirements.

Such a scheme can finance as much or as little as we as a country choose. Those talking about bankruptcy are actually saying they don’t want to pay the taxes that allow Americans of modest means to have a stable, reliable source of income in retirement that keeps them from utter poverty.

The Medicare issue is certainly more fraught, wrapped up in the healthcare debate that continues to rage on Capitol Hill and around the country. That debate is at least as much about taxes and who pays for what as it is about medicine. The cry that “ObamaCare is unsustainable” is much more a cry that “we don’t want to pay the taxes” than it is a statement about healthcare costs. Or, as Warren Buffett put it, ObamaCare repeal is a tax cut for “guys like me” — millionaires and billionaires.

In short, the infrastructure debate must be put in the context of U.S. fiscal issues, including tax reform. This may be the main motivation for Americans for Prosperity’s letter: They may fear that the administration will push through a combination of infrastructure spending and tax cuts that massively increase the deficit. After Presidents Reagan and George W. Bush, it is hard to say that the Republican Party really has a problem with large deficits.

Like many on the conservative side, Americans for Prosperity opposes tax increases. It is very hard to see any other reasonable solutions to America’s fiscal problems with increased revenue off limits. Americans for Prosperity does not approve of using revenue generated by a deal on taxation of U.S. companies’ global income, one of the few points of agreement between some congressional Republicans and Democrats in this area.

The statement’s position on environmental and labor issues is equally hard-line. The conservative letter opposes spending on public transport and opposes greenhouse gas reviews. These proposals go in exactly the wrong direction. Any infrastructure discussion should include funding for the infrastructure of the future, relying more, not less, on public and non-fossil fuel transportation, on sustainable energy production and smart grids that can lower energy waste.

The conservative approach to infrastructure is part of an onslaught against any kind of government role in protecting Americans from the harsh consequences of this virulent new Social Darwinism and climate-change denial. I deeply hope that Americans for Prosperity’s letter falls on deaf ears.

Evan Kraft specializes in the economics of transition, monetary policy and banking issues as a professor at American University. He served as director of the research department and adviser to the governor of the Croatian National Bank.

The views expressed by contributors are their own and not the views of The Hill. 


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