Where the Rubber Meets the Road on Infrastructure Funding

There is a certain Alice’s Adventures in Wonderland aspect to watching some normally tax-averse Republicans pushing for President Biden to index the gas tax to inflation and impose a user fee on electric vehicles as part of the infrastructure package. While lawmakers in both parties surely have reasons to support or oppose those policies on the merits, some on the GOP side sure seem to be trying to entice Biden to break his pledge of not raising taxes for those making less than $400,000 a year.

For his part, Biden seems to be digging in his heels, knowing that if he were to go along on this hike, he would never hear the end of charges that he had broken his promise, a la George H.W. Bush. But Biden is fighting both the gas-increase and mileage-fee proposals tooth and nail, not a usual occurrence for Democrats who are rarely morally opposed to tax hikes. The reality in modern times is that there have been two major parties—a tax-and-spend party, which would be Democrats, and a borrow-and-spend party, obviously Republicans.

The $4 trillion Biden proposal consists of the $2 trillion American Jobs Plan and the $1.8 trillion American Families Plan, on top of the $1.9 trillion American Rescue Plan passed by Congress and signed into law in March. The two current packages are to be paid for via $3 trillion in tax increases, with the remaining $1 trillion put on the tab, as required by budget law. (Whenever I type the word “trillion,” I recall a senior Obama administration adviser telling me that they had gone to great lengths to keep program costs to the level that starts with a “B” and not a “T.”)

To be sure, there is no question of the need to rebuild the nation’s long-deteriorating public works: Its highways, bridges, tunnels, mass-transit systems, rail lines, and airports have been chronically underfunded for decades. Witness the closure since May 11 of the I-40 bridge from Memphis to the Arkansas side of the Mississippi River. According to the Bureau of Transportation Statistics: “Less than 44% of the Nation’s 618,456 highway bridges are rated in good condition. More than 45,000 bridges (5.2% of total) are rated as being in poor condition.” Ironically, the I-40 bridge was not even on the list of bridges in poor condition.

Adjusting for inflation, the 18.4-cent-per-gallon gasoline tax (24.4 cents for diesel), unchanged since 1993, now has the buying power of about a dime a gallon compared to those early days of the Clinton administration.

The economy has shown solid growth for nearly a year now. Real GDP growth plummeted 31.4 percent in the second quarter of 2020, then jumped up 33.4 percent in the third quarter. Since then, we’ve seen growth of 4.3 percent in the fourth quarter, and 6.4 percent in the first quarter of 2021. The early June consensus forecast from a survey of around 50 top economists by Blue Chip Economic Indicators was for an increase of 8.6 percent in the third quarter, with some estimates as high as 10 percent.

So, the purpose of the packages will no longer be to stimulate overall economic growth; indeed, there increasingly seems to be more danger of it overheating than slumping anytime soon. Former Clinton Treasury Secretary Larry Summers’s warnings of a spike in inflation looks more and more prescient, despite his many critics on both the Left and the Right.

The administration must now lean into another raison d'être for the spending: to rebuild the country and help people who have been left behind economically—without the inflationary pressures that we’ve managed to avoid for about a generation.

This is why compromise with Republicans and the few remaining centrist Democrats may have an ancillary benefit for Biden and congressional Democrats. More and more, it looks like if Biden had gotten the whole $4 trillion enchilada through, that inflationary spike would be much more likely and, to mix culinary metaphors, his and his party’s goose would be cooked in the midterm elections. In effect, he may get saved from himself.

This article was originally published by the National Journal on June 22, 2021.