President Trump and Democratic leaders have discovered the only policy that unites Washington: spend money we do not have. Yet their bipartisan commitment to spend an additional $ 2 trillion on infrastructure over the next decade will face serious challenges for these leaders to responsibly improve our infrastructure.
First, Washington should only spend what it is willing to compensate with other economies. Putting $ 2 trillion on the national credit card would increase deficits already underway and exceed $ 2 trillion a year in a decade, mainly because of acquired rights.
These deficits are expected to bring annual interest above $ 1 trillion. And if interest rates only return to 1990 levels, interest on debt will become the largest part of the budget. Yet Democrats are already demanding $ 40 trillion in new spending over the decade, and Republicans have just cut taxes by $ 2 trillion. Something must give.
At the same time, $ 2 trillion is too much to fund taxes. The cost of $ 1,500 per household per year would require either raising the federal gas tax from 18.4 cents to $ 1.53 per gallon, or raising all income tax rates by 2, 2 percentage points. A different approach is needed – one with a much lower price that is also offset by spending cuts.
Legislators should also drop the illusion that the infrastructure will provide an economic stimulus. Speaker of the House of Representatives Nancy Pelosi recently said that this initiative is about "jobs, jobs, jobs". Yet, with an unemployment rate already at 3.6% – the lowest since the 1960s – there is no significant slowdown in the mobilization of the economy. All the government can do is transfer capital and jobs from one sector of the economy to another.
As noted by the Congressional Research Service, when the economy is at full employment, "the net impact on road construction is economic. . . could be canceled or even negative. "
Nevertheless, a stronger infrastructure may eventually increase the long-term growth capacity of the economy. Public spending on infrastructure remains close to the average of the last 40 years, but political mismanagement has created a delay in maintenance and needed improvements.
One problem is the bureaucratic bureaucracy. Nearly a century ago, the Empire State Building was built in 410 days. More recently, the Boston Big Dig took 25 years, from planning to completion. Today, saturated high-speed trains in California are expected to take nearly 40 years between planning and completion, while maintenance of basic infrastructure remains unchanged.
Another problem: politicians have long diverted federal infrastructure projects, which have been redirected to less important priorities, such as high-speed train (with high cost overruns), museums and bike paths . Politicians also prioritize new, expensive projects over cheaper repairs to existing infrastructure. After all, repairs do not bring ribbon cutting ceremonies. Thus, potholes proliferate, while Washington invests in vanity projects of politicians and bridges to nowhere.
Washington's recent experience in moonshot infrastructure initiatives does not inspire much confidence. The $ 68-billion "infrastructure" component of the 2009 "stimulus package" was widely condemned for its waste, mismanagement and political micromanagement at the Solyndra – President Obama later admitting that "the construction loan was not as ready as expected. "
In this latest round, Trump and Democrat leaders pledged to reach a specific level of funding – $ 2 trillion – and then determine infrastructure needs and priorities later. It's exactly backwards.
The solution is not mismanagement by the federal government of $ 2 trillion. Instead, Washington should move away and allow states and local governments to define their own infrastructure priorities.
Specifically, Congress should significantly reduce the federal gas tax and reserve federal infrastructure spending on federal lands and major interstate projects. Then let the states raise the gas tax and decide the best projects themselves, without getting involved in Washington.
States can also follow the Canadian and British trend to include more public-private partnerships. Canada and Europe have also taken steps to privatize air traffic control and airports.
Non-transport infrastructure (such as energy, utilities and telecommunications) is often best left to governors, mayors and regional commissions. Washington's role should be limited to genuine national projects, such as interstate waterways and interstate telecommunications.
But do not hold your breath for common sense reforms. After all, Washington's real goal is to invest $ 2 trillion in political favors, pork, press releases and inauguration ceremonies – and then have our children pay for the bill. .
Brian Riedl is a senior member of the Manhattan Institute.