How to think about infrastructure funding
Once again, it is infrastructure week in Washington. While policymakers rarely agree on anything anymore, there is almost universal agreement that our country’s infrastructure is in need of an overhaul. And they are right. From crumbling roads and bridges, to an outdated electrical grid and overloaded telecommunications networks, knowing what to spend money on isn’t the hard issue. How to pay for it is.
There will be plenty of arguments for why not to pay for the bill: “Don’t worry,” some will say. “It will pay for itself. Republicans didn’t pay for their tax cuts, why should we pay for our spending?”
“Infrastructure is just too important to pay for,” others will argue. But running a country like two divorcing parents trying to buy their kids love isn’t good for the kids or the country. It is important, and things that are worth doing are worth paying for.
The first step in crafting a successful and economically beneficial package will be to include truly important priorities, but not litter it with lawmakers’ pet projects. The multi-trillion-dollar price tags that have been being tossed around are truly massive and should not be accepted lightly. Even when dealing in billions and trillions, policymakers need to aim to ensure that each and every dollar is spent wisely.
One idea would be to rely on outside experts for more guidance on what, where and how to spend the money — where are we most in need of modernization, where are the greatest security risks and what investments will have the highest returns? The pressure on lawmakers to think in terms of bringing home goodies for their own state rather than for investment and development for the nation as a whole is just too immense when the dollars are this large.
President Biden and political leaders seem to be committed to paying for the new infrastructure — which is particularly important as we are poised to surpass the national debt/GDP’s historic high level in this country. This will serve as a disciplining mechanism for the package to prevent a snowballing price tag, since every new component will come with a price tag for taxpayers.
On the how to pay for it side, there should be a very rich and healthy debate about the best offsets. Some will want the well-off and corporations to foot the bill, with some combination of higher marginal income tax rates, changes to capital gains and a wealth tax.
Others will prefer infrastructure related measures, such as a gas tax, a vehicle miles traveled tax or a carbon tax.
And still others will want to do more to cut spending as an offset so that these new investments don’t lead to a larger government but rather reflect shifting priorities away from consumption and towards investment.
All of these are legitimate options and should be compared, debated and, ultimately, compromised on.
And if Congress cannot agree on sufficient offsets, then the appropriate solution is to reduce the cost of the package until they can. That, in fact, is what budgeting is.
Updating our infrastructure can definitely help our economy, but not if it increases the country’s already massive levels of debt. Both the Congressional Budget Office and the Penn Wharton Budget Model suggest that returns on debt-financed infrastructure investments could well be negative.
Governing is about making choices. If we care about the future health of the economy, then we must be willing to pay for our priorities now.
Maya MacGuineas is president of the bipartisan Committee for a Responsible Federal Budget.