If Washington were a rational place, a major measure to rebuild roads, bridges, ports and airports would be a slam-dunk.
Few doubt the need. The U.S. has underinvested in infrastructure: It was ranked 12th in the World Economic Forum’s Global Competitiveness Report for 2014-2015. Road repair needs are pervasive, a quarter of bridges require upgrades, the fast- rail system falls further behind other countries every year.
There is a broad consensus that infrastructure investment is a significant job-creator. It is embraced by the Chamber of Commerce, the AFL-CIO and many governors and mayors of both parties.
Republican congressional leaders want selective big accomplishments to prove they can govern. President Barack Obama wants a few more successes in his final years. Infrastructure is one of the very few areas where they’re on roughly the same page.
Moreover, the Highway Trust Fund, which finances federal transportation projects, expires in May.
Yet there is little reason to be sanguine. There likely will be a short-term fix for the highway fund. But the necessary longer-term systemic investments will be kicked down the road, a casualty of partisan gridlock.
The logical approach to extending the fund would be to raise the 18.4 cents a gallon gasoline tax that is dedicated to transportation. It hasn’t been increased in more than two decades and gasoline prices today are at a five-year low. It was the patron saint of low taxes, Ronald Reagan, who lauded these kinds of “user fees.”
Yet today’s Republicans recoil at any tax increase. And Democrats fear that it would be used against them (Obama ducked it in his budget). And they worry that working and middle-class citizens would be hardest hit by the tax, though there are ways to soften that impact.
The president’s budget proposed a one-time 14 percent tax on the almost $2 trillion in foreign earnings that U.S. companies hold overseas. Obama would use those proceeds for infrastructure. Additionally, he proposed a 19 percent tax on future foreign earnings as part of a reform of corporate taxes.
Privately, the administration acknowledges that this is an opening bargaining position and that it would have to accept a lower rate to get Republicans on board. Last year, House Ways and Means Committee Chairman Dave Camp had a proposal with an 8.75 percent top rate.
Two complications to any compromise: First, the administration hoped the proposal would draw support from businesses, which are currently subject to a top rate of 35 percent when foreign earnings are repatriated. But with interest rates so low it’s much cheaper to borrow at home than it is to bring back assets and pay a 14 percent tax.
Second, Republicans who might buy into this proposition want to devote the revenue it would raise to corporate tax reform, enabling them to sharply cut rates without increasing the deficit.
With glaring needs and the prospects for congressional stalemate, other avenues are being explored. Two prominent Democratic economic policy experts, Roger Altman and Alan Krueger, soon will propose an expansion of the federal Transportation Infrastructure Finance and Innovation Act, which provides loans or guarantees for transportation projects. They would increase the amount of annual credit available to $10 billion from $1 billion and expand eligibility to include ports and aviation projects. This 16-year-old initiative hasn’t cost the government any money.
The improving fiscal situation of state and local governments, which fund many infrastructure projects, may produce some results. But a really robust undertaking requires action by Washington.
“By doing nothing, we are hurting our economy, endangering our public safety and diminishing the quality of life of our citizens,” warns Ed Rendell, the former governor of Pennsylvania, a co-chairman of the bipartisan infrastructure coalition along with former New York City Mayor Michael Bloomberg (founder and majority owner of Bloomberg News’s parent company) and ex-Transportation Secretary Ray LaHood.
Albert R. Hunt is a Bloomberg columnist.