Speaking just outside Pittsburgh on the heels of a $1.9 trillion stimulus package, President Joe Biden announced the first of a two-part, multitrillion-dollar push to revitalize America’s infrastructure. One can’t help but wonder if there is any limit to what might be included and how the whole shebang will be funded.
Part one, the “America Jobs Plan,” pegged at $2 trillion, is financed with a “Made in America Tax Plan.” It focuses on what may be called physical capital — roads, bridges, transportation systems, power generation, clean energy, advanced auto manufacturing, the provision of energy-efficient housing, and broadband infrastructure. Part two, which may run another $2 trillion, will eventually address ways to improve human capital infrastructure — such things as healthcare, subsidized insurance, fully funded pre-K through community college education, expanded elder care, and employment for union workers.
There’s a lot to digest here, with plenty of big questions to leave for another day. For now, here are two: Will the packages make it through Congress? And if so, can an accelerating economy handle the spending increases without developing a serious case of fiscal indigestion, which is to say high inflation and tough adjustments from the Fed?
Getting things passed intact is unlikely, but some form will surely make it. As for the economy, what happens depends on the speed with which the programs and spending develop. Stimulus checks can be spent tomorrow; infrastructure spending will require years of planning and contracting. Depending on the pace, what else is going on, and how wisely it’s implemented (which is no given) the economy might run with it.
A leading research-based, new-economy powerhouse, Pittsburgh was an appropriate setting. Almost phoenix-like, 21st-century Pittsburgh arose transformed from its steel, aluminum, and heavy machinery era when pollution was once so severe that street lights were turned on in daylight. With some of the nation’s leading research universities, think tanks, and high technology firms, the city shows what improved infrastructure (physical and human) can look like.
The scope of this proposal looks more like former President Franklin Roosevelt’s New Deal or former President Lyndon Johnson’s Great Society than, say, former President Bill Clinton’s Transportation Equity Act for the 21st Century, infrastructure legislation that still managed to cover a whole lot more than transportation. Economist and Nobel laureate Joseph Stiglitz seems to agree; he says the bill, if passed, will create a “new world.”
That’s the hope, and the optimistic perspective, anyway. But in a more immediate sense, our two questions have the same answer: It’s about getting the political grocery cart packed just right so that it will roll by the congressional cash register.
Both Democrats and Republicans like the idea of doing something about crumbling roads and bridges. Other interest groups focus on climate change, and still others are dedicated to expanding a national nanny state that calls on the federal government to tell us which colleges, health insurance, automobiles, appliances, food, drink, and clothing are best for us. The political fog thickens when the words “jobs” and “infrastructure” are used, perhaps making it possible to take care of these and other favored projects.
But wait a minute. How will it be funded? Unlike the stimulus bill, Biden calls for the infrastructure bill to be funded with actual tax dollars, apparently recognizing that there are at least some limits to how much money Washington should print out.
Biden indicates funding will come from higher corporate taxes along with higher taxes levied on high-income (greater than $400,000 annually) individuals. Of course, we’d best remember that other politicians want to impose annual wealth taxes on some of the same billionaires targeted for an infrastructure haircut. The IRS can fleece sheep many times, but it can only skin them once.
Some of those individuals, who can afford lawyers and tax shelters, are practiced at finding ways to avoid higher taxes when there’s more than a haircut in store. Perhaps worse, they may decide that the game is not worth the candle, relax a bit, and produce (and hire) less. If that happens, we may have lots of new infrastructure but a stagnating economy.
Meanwhile, we’ll see what becomes law and whether the economy can swallow the increased taxing and spending without getting derailed.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and a dean emeritus of the Clemson University College of Business and Behavioral Science. He developed the “Bootleggers and Baptists” political model.
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