Editor’s Note: Aaron Klein is a senior fellow in Economic Studies at the Brookings Institution. During the Obama administration, he served as the deputy assistant secretary for economic policy at the Department of Treasury. The opinions expressed in this commentary are his own. View more opinion at CNN.
“Our country’s outstanding highway system was built on the user fee principle — that those who benefit from a use should share in its cost. It is appropriate that we rely on this same concept now.” - President Ronald Reagan
Today’s Republican Party shares less and less with Ronald Reagan, who raised the gas tax to pay for substantial investments in America’s highway and public transit systems. The bipartisan consensus that Reagan and Democrats in Congress achieved is still alive today among the American public, who overwhelmingly support greater infrastructure investment even if it means increasing some taxes. Among those Americans are half of all Republicans. The question is: Do their elected representatives?
President Joe Biden is wise to see if there are enough Republican members of Congress still in the party of Reagan and Eisenhower, not the party of Grover Norquist, the anti-tax zealot who, repudiating Reaganomics, said: “A gas tax is an attack on middle-income America.” If none of those Republicans remain, then Biden should keep going and see if Democrats are able to break the generation-long gridlock in Washington on infrastructure by sticking together.
Republicans and Democrats can find the money to pay for the infrastructure to rebuild America if the political courage exists.
The easy part is coming up with a plan for investing in American infrastructure. Done properly, infrastructure makes our lives better, creates quality jobs and fosters prosperity. The trick is how to pay for it. When you boil it all down, there are only three options: raise revenue, borrow or fake it.
Traditionally, infrastructure has been paid for at the federal level by user fees: the gas tax for highways; the harbor maintenance tax for ships; universal service fees on telephones. Aligning the cost of building and maintaining an infrastructure network with those who benefit from it makes political and economic sense.
Biden’s plan to pay for his infrastructure package avoids this historical direct connection, but indirectly links the two. Biden proposes raising the corporate tax to 28%. Corporations benefit from many aspects of infrastructure, although not as directly as specific users. Republicans, and some Democrats, have balked at this. The question is whether they are just against higher corporate taxes specifically – or against any and all tax increases to pay for infrastructure.
There are many other ways to pay for infrastructure. Instead of having corporations pay directly, their owners could pay a tiny amount when they buy or sell corporate stock or debt. Increasing the federal financial transaction fee by 0.001 cents per dollar (10 cents per $100 traded) would generate $777 billion over 10 years. This fee increase comes with the added bonus of reducing some of the high frequency trading on Wall Street and discouraging short-termism among speculators (imagine if the GameStop frenzy produced a windfall of new money to fix potholes!).
The traditional system of infrastructure funding still works. The federal gas tax has not changed since 1993. Back then, it was almost 20% of the price of a gallon of gas. Today, it is around 7%. Raising the gas tax back to that level and indexing it to inflation thereafter would raise a projected $512 billion over the next 10 years.
Borrowing is another way to do it. With interest rates near historic low levels, the federal government can afford to borrow to invest in infrastructure and still end up better off. Republicans in Congress supported racking up what would be an additional $100 billion in debt-financed discretionary military spending increases in just the first three years of the Trump administration.
Prioritizing tanks over roads is political – and not new (or wise) – but offers a path for infrastructure advocates to consider. Linking infrastructure to national defense is how former President Dwight Eisenhower succeeded, just look at the title of the law: The National Interstate and Defense Highways Act, for the purpose of defense, not commerce.
The final alternative is to fake it. Congress can pretend it is either raising revenue or incentivizing others to pay for infrastructure. Republicans in Congress have started to fixate on finding a way to capture lost gas tax revenue for electric cars as a potential solution. This is like looking for a penny in the seat cushion when you need $1,000.
There were almost four times as many Ford F-150 trucks sold in 2019 (almost 900,000) as all electric vehicles combined (242,000). The average car on the road is 12 years old, so think about how few are electric. Scoring gimmicks to hide federal spending or pretend there is new tax revenue may avoid breaking no-new tax pledges, but just result in greater deficits or less infrastructure. Either is hardly a solution.
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Biden is choosing the politically courageous route of paying for what he’s preaching: rebuilding America’s infrastructure better than it was without sticking future generations with the tab. The question is whether Republicans will rediscover the small ‘c’ conservative principle that freeways are not free and that those who benefit from infrastructure ought to pay for it.
There are many roads that get us to where we want to go. Will Republicans go along for the ride or keep us all stuck in a multi-generational traffic jam?