Crumbling infrastructure is a hidden tax on all Americans

Crumbling infrastructure is a hidden tax on all Americans
© Thinkstock

The need for reinvestment in infrastructure is great. The cost could be as high as $4.5 trillion. But we can do better than fix what is broken.

Improving infrastructure could unlock enormous growth in productivity and could reduce the hidden tax on our lives from aggravating delays at airports and on the rails and long commutes to work. 

ADVERTISEMENT

Improvements could make the distribution of electricity more resilient in the face of natural and possibly human-made disruptions; it could bring robust broadband internet services to more rural areas creating new possibilities for economic and employment growth in those areas, and it could make the water serving millions safer. 

The magnitude of the annual hidden tax of inaction is estimated at $3,400 per family in a study by the American Society of Civil Engineers. The impact will only grow, threatening U.S. economic vitality and America’s future. 

Infrastructure appears to be one of the few areas where the prospect of bipartisan cooperation might be realistic.  The most significant barrier is finding a way to finance the costs, particularly considering the exploding deficit.

One approach to the funding issue would be an increase in fuel taxes, which have not been raised since 1993.  The federal gas tax today is 18.4 cents per gallon, but adjusted for inflation, the rate should be 32 cents. 

Although undoubtedly controversial, a sizable increase in the gas tax might not be quite as much of a “third rail” as it has been in the past, particularly considering plunging oil prices.

Indeed, the Chamber of Commerce proposed an increase of 25 cents in January of 2018, well more than the 14 cents-a-gallon increase merely to adjust the existing federal tax for the inflation that has occurred since 1993, and it has reiterated its support for such a raise this year. 

Another approach is a separate carbon tax, perhaps in addition to a fuel tax increase. If significant infrastructure improvement revenues were dedicated to rural areas, so the president could argue that he has not turned his back on “his people,”  the prospect for a modest carbon tax might not be dead on arrival. 

Whether it is an approach that Republicans would embrace is highly uncertain, but companies should be prepared to evaluate their positions and hone their arguments — for or against. 

For some, the attraction and benefits of vigorously attacking the infrastructure deficit might overcome the general aversion to higher taxes and a carbon tax. The “yellow vest” movement in France underscores the challenge that such a proposal would face.

Another approach is a value-added tax (VAT), partially offset by a cut in corporate taxes. A VAT, particularly coupled with a corporate tax offset, could help to improve the competitive posture of U.S. manufacturers, since the VAT would be levied on all products sold in the United States, no matter where manufactured, whereas foreign manufacturers can escape most U.S. corporate taxation. 

Further, no VAT is charged on exports. Despite the “leveling” effect of a VAT, the imposition of a VAT would be a noticeable tax increase borne by consumers. A partial offsetting reduction in corporate tax rates or credit might address businesses’ concerns, but it is unlikely to assuage consumers’ concerns. A partial offset on the worker contribution to Social Security, limited to the first $40,000 or so in wages, could help.  

A bipartisan compromise would likely include public-private partnerships along with the more traditional government project model. The role of such partnerships probably would be to augment, not supplant, the more conventional government project model. 

To be workable, there must be revenue sources for the private party to tap — be they tolls, bills for water, public subsidies or some other source or a combination. 

Creative thinking on how to finance public-private partnerships and how to address concerns about the prices that might be charged while providing adequate incentive to draw in private investors is necessary. 

A comprehensive infrastructure package could include proposals for streamlining of environmental reviews under the National Environmental Policy Act (NEPA) and of permitting. 

ADVERTISEMENT

The administration is already in the midst of a review and revision of regulations, but an infrastructure package could also include legislative changes. 

Careful monitoring of legislative proposals and, where necessary, engagement will be required to ensure that any legislative changes would contribute to an infrastructure revitalization that best serves the country. 

Infrastructure renewal is desperately needed and would pay huge dividends in employment and increased productivity. How to finance any such initiative will be a great challenge.

The failure to act, however, is generating a substantial hidden tax on Americans today, and the continued failure to act would threaten the future position of the United States in the world. 

Bob Taylor is senior counsel at Hogan Lovells, which represents multiple companies that would likely compete for contracts in the event that an infrastructure reinvestment program is adopted. He is a veteran of the Department of Defense (DoD), where he served as principal deputy general counsel (PDGC) of DoD from 2009 to 2017.