While full details have yet to be released, taxpayers should be somewhat encouraged that a bipartisan group of senators reached a deal with the White House on infrastructure that is trillions of dollars smaller than President Biden’s original plans. Unfortunately, the proposal remains too large, as it would add $579 billion in new spending, bringing total infrastructure spending to more than $1.2 trillion over the next eight years. While some of this spending is dedicated to high-priority needs like roads, bridges, and highways, much is spent on questionable, wish-list projects that should not be funded at a time when our leaders need be focused on restoring our nation’s fiscal solvency following the trillions of dollars that were spent to address the pandemic. Further, while the proposal includes more than $584 billion in offsets, many of these provisions are budgetary gimmicks that save money on paper, but fail to actually reduce government spending.
Additionally, taxpayers should be concerned by comments from President Biden and Congressional Democrats that suggest the bipartisan deal will only be enacted into law if Congress simultaneously passes trillions of dollars in additional “infrastructure” spending.
Below we analyze the spending proposals and offsets in the bipartisan agreement.
Spending Should Be Further Pared Down to Address Highest-Priority Projects
Hard Infrastructure. According to the White House Fact Sheet, this portion of the plan totals $110 billion. It is also clear that this funding matches the Senate Environment and Public Works Committee-passed “Surface Transportation Reauthorization Act,” which NTU opposed during the markup process. While there should certainly be some new investments made to repair outdated, unsafe infrastructure nationwide, it is unlikely that this level of funding would be sufficient to meet the existing infrastructure needs of our country, given the extreme rules and regulations imposed by the government.
The best way to revitalize the United States’s infrastructure and modernize the transportation system isn’t simply spending taxpayer dollars, but must involve streamlining the process to make building more efficient and less expensive without sacrificing safety. If more money is to be allocated towards fixing and building American infrastructure, maximizing the value of each dollar spent on these projects should also be prioritized. That means enacting National Environmental Policy Act reforms, procurement reforms, labor reforms, and revenue reforms. This approach would modernize and expand our nation’s infrastructure through regulatory reform and ensure more projects come online faster and cheaper -- which means a better deal for taxpayers, infrastructure users, and builders.
Amtrak Funding: The bipartisan plan also invests nearly $70 billion into the failing government-owned rail company Amtrak, which hasn’t had a profitable year since it began serving passengers fifty years ago. This appears to be a no-strings attached bailout with no substantial reforms to get Amtrak on the track to profitability. While the plan would address some backlogs that exist, the vast majority of this funding would likely be used to finance the construction of new routes to connect new markets that are likely to be unprofitable. Though the plan is scarce on details for exactly which purposes this spending would be used, Congress must address the structural mismanagement of this broken agency. Tens of billions of taxpayer dollars should not be spent without any assurance that Amtrak won’t simply use these funds to pursue even more wasteful and unnecessary boondoggles. Additionally, Amtrak has received billions of taxpayer dollars through the numerous COVID relief bills passed in 2020, as well as $1.7 billion in the American Rescue Plan Act earlier this year. Amtrak must be reformed and held to account, not be showered with more money on a failed subsidy scheme.
Public Transportation: The plan also allocates almost $50 billion for public transit upgrades to things like subways, buses, and street cars, among others. Mass transportation systems run by transit authorities are typically a state and local priority, and are often funded through user-fees, or tax dollars by citizens living in certain jurisdictions. The COVID-19 pandemic has caused extreme financial hardship for many of these authorities, which have high fixed costs (labor, benefits, debt servicing costs), and were hit hard by a sudden dropoff of ridership as commuters no longer were needed in a physical office. As a result, the federal government took unprecedented actions to help. The Federal Reserve stepped in to buy debt from some major transit authorities, while the Congress provided $27 billion to transit agencies in COVID-19 relief supplemental packages. Included in the American Rescue Plan was $30 billion for transit agencies. All-in-all, Congress provided over $57 billion to local authorities to shore up their finances, with state and local governments coming to their aid to fill the remaining void. It would be irresponsible to provide yet another significant sum after the wild spending of the past fifteen months.
Funding to reduce carbon emissions: Included in this plan is $15 billion to boost electric vehicle infrastructure and encourage the uptake of electric vehicles (EVs) in general, with $7.5 billion for EV charging stations and $7.5 billion for the procurement of electric buses and transit vehicles. While it is encouraging to see a reduction in the $174 billion President Biden requested for EVs in his infrastructure plan, the federal government should not be in the business of tilting the scales of the free market in favor of specific segments of the automotive industry over others. The free market should dictate which cars automakers produce and how private companies deploy charging technology, not the heavy hand of the government. Given the precarious budget situation of the federal government, and what is likely to be a significant decline in both general revenues and gas tax revenues, this is not the time for the federal government to spend billions on Green New Deal-type pet projects.
Unknowns: There are other items listed that should also concern taxpayers, but unfortunately the details are scant and are likely to be made available weeks from now when the legislative text is finalized. For example, the plan lists “$73 billion investment in our nation’s power infrastructure,” “$45 billion to bridge the digital divide,” and “$47 billion for cyber resilience” and weatherproofing. These categories are purposefully broad, so it is hard to know exactly what will be filled in over the next several weeks. It is of course concerning that lawmakers have already determined a number even before they know what will be funded. Instead, lawmakers should focus on maximizing taxpayer dollars over a specific dollar amount at the start.
Proposed Pay-Fors Require More Thorough Analysis, Scrutiny
The bipartisan group of Senators and President Biden have proposed around $584.3 billion in pay-fors to offset the increased spending under the infrastructure deal, but initial details about these financing mechanisms deserve significant scrutiny from other lawmakers and from budget and taxpayer watchdogs.
The two largest pay-fors are from efforts to reduce the tax gap ($100 billion) and a combination of public-private partnerships and bond expansions ($100 billion). Together these two efforts will net $200 billion in revenue, or 34 percent of all proposed pay-fors ($584.3 billion).
Two notes of caution of the tax gap efforts:
One is that the group’s estimated return on investment (ROI) for Internal Revenue Service (IRS) efforts to close the tax gap, at $3.50 in revenue for every $1 invested, is more optimistic than last year’s estimate from the Congressional Budget Office (CBO). CBO estimated that $40 billion in increased funding for IRS enforcement would increase revenues $103 billion over 10 years, netting $63 billion total. The negotiators here are estimating $40 billion in increased funding for IRS enforcement would increase revenues $140 billion, netting $100 billion total. This is a significant gap, and lawmakers and the Biden administration must account for their more optimistic projections.
A second note of caution is that NTU has called for numerous guardrails and IRS reforms that should precede or accompany any increased budgets for enforcement. Enhanced IRS funding will go to waste if it allows the agency to double down on failing or outdated practices, or if the IRS fails to address a growing backlog of recommendations from government watchdogs. NTU encourages lawmakers to include our recommendations in any serious effort to reduce the tax gap.
Overall, we are skeptical that the IRS - given its history of wasteful spending and mismanagement - can meet lawmakers’ expectations for ROI. We would encourage lawmakers to require the IRS to provide proof of concept on reducing the tax gap through enforcement before relying on phantom dollars as a financing mechanism for an expensive infrastructure bill.
It is unclear how lawmakers proposed to bring in $100 billion in offsets by leaning on public-private partnerships and bond expansions, but the lawmakers and administration owe their colleagues in Congress and the American people a full accounting of those estimates as well.
Another $80 billion of pay-fors goes toward repurposing unused COVID relief funds. This is encouraging to hear, as NTU recently called for a number of American Rescue Plan Act (ARPA) reforms and clawbacks to help pay for a plan that would vaccinate the world. We tallied more than $300 billion in spending offsets from ARPA, which would go a long way toward paying for this infrastructure package and replacing some of the more dubious pay-fors (mentioned above and below).
Lawmakers estimate they can net $72 billion from “Integrity” efforts. This is extremely vague and the negotiators should provide significantly more detail. The negotiators are estimating a $9:$1 ROI for what we presume are program integrity efforts, but much like the tax gap estimates this is subject to considerable uncertainty and scrutiny. A proof of concept on program integrity would put taxpayers on safer ground.
Another $58 billion will come from “Dynamic Scoring.” As we have written previously, dynamic scoring -- or macroeconomic impact analysis -- is a critical tool that helps lawmakers understand the impact legislation will have beyond just the spending and revenues of the federal government. It can also highlight how the economic behavioral impacts of legislation can in turn impact government revenues and spending. However, like the tax gap and integrity portions of the pay-for sheet, negotiators need to show their homework here. How do they estimate dynamic scoring will save taxpayers $58 billion?
Some of the smaller pay-fors, unfortunately, are straightforward gimmicks. More than $9 billion would come from extending the mandatory sequester, something Congress has already done five times since 2013. NTU explains more in this paper from January. As we wrote back then:
These gimmicks also represent a complete lack of fiscal discipline - rather than “I’d gladly pay you Tuesday for a hamburger today,” it’s “I’d gladly pay you one-fifth the price of a hamburger by fiscal year 2029 for a hamburger today.”
Congress should stop extending the mandatory sequester. A more acceptable pay-for would be strengthening the mandatory sequester by eliminating the dozens of carve-outs in the process.
There’s $6.1 billion from adjusting customs user fees, which NTU Foundation’s (NTUF) Demian Brady noted in 2018 is a go-to gimmick:
The BBA [of 2018] would temporarily extend the authority to assess certain customs user fees that are currently set to expire in 2025 and 2026. User fees are normally intended to cover the costs of the goods or services provided through a federal program. Extending the customs fees far in advance is an oft-repeated gimmick to increase offsetting receipts years out from now in order to “offset” current year spending hikes.
Ditto the $6 billion in Strategic Petroleum Reserve sales, which reporter Phil Mattingly wrote is “an old faithful pay-for” and which NTUF’s Brady has noted is a classic gimmick:
In order to boost revenues, the BBA [of 2018] would sell off stockpile in the reserve by 30 million barrels of crude oil in FY 2022 through 2025, and by 35 million for the next two years. The Reserve was established as an emergency stockpile but has often been used as a political tool to manipulate oil prices. This drawdown was also employed in the Bipartisan Budget Act of 2015.
Taxpayers deserve better. NTU recently offered $300 billion in potential offsets from ARPA, none of which would involve money that has already gone out the door. If President Biden and Congressional Democrats are completely opposed to reopening ARPA, then lawmakers could explore a menu of $800 billion in potential offsets from the NTUF-U.S. Public Interest Research Group (U.S. PIRG) Education Fund “Toward Common Ground” report from 2020. And NTU’s “Budget Control Act of 2021” paper combines some of the Toward Common Ground offsets and more to propose $3 trillion in deficit reduction ideas with the potential for bipartisan support, some of which could be used as offsets for an infrastructure package.
Conclusion
Lawmakers can pay for a roughly $500 billion or $600 billion infrastructure package without resorting to highly uncertain revenue estimates or classic budgetary gimmicks. They can also pay for the package without some of the harmful tax hikes that the Administration has proposed before. We encourage the negotiators to go back to the drawing board on potential pay-fors, and to certainly show their colleagues and the public their homework on estimates for the tax gap, program integrity, and dynamic scoring.