For some people, just the word “infrastructure” makes their eyes glaze over. They slip into a soporific stupor as you prattle on about potholes and waterways.
Then there are those like yours truly, who, based on our recognition of the importance of public goods and the cost of underinvesting in them, have the opposite reaction. Our pulse quickens at the thought of greater investment in our roads, bridges, public transit, airports and more.
With that typology in mind, perhaps person-type #2 (me) can tell person-type #1 (maybe you) about candidate Hillary Clinton’s new infrastructure proposal in a set of painless bullet points.
What’s the plan? It’s to raise and spend $275 billion over five years on infrastructure investment, with $250 billion in direct spending on new and improved infrastructure and $25 billion on a private/public infrastructure bank (which I’ll explain below).
Why do we need it? The share of our GDP devoted to infrastructure investment, already low in international terms, has fallen by half over the past 35 years, from about 1 percent to 0.5 percent (the Clinton campaign does the weird “China’s gonna eat our lunch” thing here to motivate their plan … I continue to believe that setting up China as our opponent in the race for the future is misguided; the Obama team does the same thing to sell their trade deal).
We could also use the higher-than-average-quality jobs such spending creates (13,000 jobs per $1 billion of infrastructure spending; so more than 3 million jobs over five years from the direct spending part).
The campaign makes a smart point here: We pay a shadow “tax” by failing to make these upgrades.
Our deteriorating roads result in a hidden “pothole tax” that takes over $500 per year out of American families’ pockets because of extra car maintenance. Rush-hour commuters waste hours in traffic annually — costing them nearly $1,000 per year in fuel and other expenses, giving them less time to spend with their families, harming our environment, and damaging public health. Air travelers find themselves delayed and stranded, as more than one in five American flights is either delayed or cancelled altogether. Consumers pay more for everything from food to furniture because of freight congestion in our highways, waterways, and ports. And too many Americans are living in opportunity deserts — finding it difficult to get and keep a job because getting to work means traveling for an hour or more using unreliable, indirect transit systems.
Yes, this stuff costs money. But “not this stuff” costs money, too.
Direct spending on what? The plan calls for direct investment in a wide variety of public goods, i.e., spending private firms are unlikely to undertake as they cannot typically get back a return on investment (ROI). The plan includes road and bridge maintenance (“nearly one in four bridges requires significant repair”), public transit, reducing freight bottlenecks, airports, including “NextGen” air traffic control “that would move our national airspace system from groundbased radar to satellite-based navigation, improve digital communications, and enhance information management,” passenger trains, digital access buildout, and dam and levee maintenance.
What’s the “payfor?” They just say they’re going to pay for this by closing corporate tax loopholes (“business tax reform”). Not much to go on there, but what’s interesting is that this implies they’re proposing revenue-positive tax reform versus revenue neutral. That’s important and necessary.
What’s an infrastructure bank? It’s an “independent, government-owned … bank with a bipartisan board of highly qualified directors authorized to make critical investments in building 21st century infrastructure.” The idea is to bring private capital in from the sidelines to support public infrastructure, so the bank would guarantee loans, provide below-market-cost credit, and issue subsidized bonds (e.g., the feds pay some of the interest on a municipal bond issue thus lowering the cost to the municipal borrower or raising the return to the lender).
This implies both government subsidies as well as user fees to spin off some degree of ROI to investors.
That’s one way to do it, and this may be a worthy idea; it’s certainly worth trying. But the risks are non-trivial (“bipartisan, highly qualified directors” … in the Trump administration??) and there are lots of projects not amenable to user fees. Really, it’s admitting that we can’t raise the revenues we need to support our infrastructure, so let’s craft a scheme to get investors into the game. I prefer the more direct route, but one must recognize political constraints.
On the other hand, advocates correctly argue that such a bank could operate across government silos in efficiency-enhancing ways. My experience in this corner of government work was that it’s much more complicated than it should be to plan for and build, say, a bridge that has a rail line on it.
Is it big enough? The Clinton plan has been criticized for being too small. The American Society of Civil Engineers argues that we need a lot more than $275 billion to close our infrastructure gap — more like four times that amount by 2020. That’s more in the spirit of candidate Bernie Sanders’s plan. In fact, the progressive Campaign for America’s Future provides a useful side-by-side of the two Democrats’ plans, asking “Why So Little?” of the Clinton plan. I suspect the answer lies in our terribly cramped tax debate, as I discuss here; her pledge to raise taxes only on households above $250,000 is likely a constraining factor. Which brings me to:
Does Clinton’s (or Sanders’s) plan have any chance of actually coming to fruition? Historically, partisans have worked together on this stuff, as constituents of varying political stripes tend to support world-class infrastructure. But Clinton’s plan, and even more so Sanders’s, gets trapped by the fact that revenue-positive tax reform is virtually disallowed in our current politics. If we can’t raise new revenue, we can’t add to our infrastructure. We can’t even really maintain it, as seen in the problems with the Highway Trust Fund, supported by an 18.4 cent/gallon tax on gasoline that hasn’t moved (in nominal terms!) since 1993.
As noted, Clinton’s payfor comes from business tax reform and there’s definitely bipartisan interest in that, but many reformers will insist the new plan must be revenue neutral. The Obama folks have an interesting hybrid plan where business tax reform is revenue neutral in the long run but there’s a one-time transition fee — which raises a similar amount to what Clinton proposes here — that’s invested in infrastructure. However, you can be sure others will insist on using this money to shave something more off the rate (which doesn’t make sense, by the way, since a one-time, transitional slug of revenue can’t pay for a permanent tax cut).
The idea that we can expand or maintain public goods in an advanced economy without raising tax revenue is the type of magical thinking we either have to abandon or live with the resultant decline in our productivity, safety, and comfort.
One final point. In comparison to what’s passing for policy discourse these days in the campaigns, you’ve really got to appreciate the detail with which Clinton’s plan was drawn up. This is an evidence-based approach to policy making, and I urge you to compare that to what we’re hearing from the Republican camp on infrastructure: cut the gas tax to allow states to innovate (Rubio, Kasich), “rebuild our infrastructure” with no plan (Trump), “remove barriers to developing and approving additional national pipelines” (Cruz), and approve Keystone (Bush).