A Harris Economist Grades President Biden’s Infrastructure Plan

The American Society of Civil Engineers (ASCE) recently graded the country’s infrastructure, awarding the United States an overall grade of C-, with sector grades ranging from a B in rail to a D- in transit. Now with Day 100 under the Biden administration’s belt, how might we judge its infrastructure proposal, the American Jobs Plan?

Scope

The plan itself is ambitious, aiming to invest $2.3 trillion over the next several years in the nation’s infrastructure. Expanding and upgrading facilities in the transportation, energy, water, and telecoms sector will raise productivity and standards of living, as these long-lived assets deliver services over many years’ time. But other plan elements—like directing $400 billion towards the “infrastructure of our care economy,” $213 billion towards affordable housing initiatives, or $100 billion towards workforce development programs—have little to do with infrastructure per se, even if the ideas themselves deserve consideration. Grade: B-

Priorities

Some plan components seem well aligned with the administration’s stated priorities such as combatting climate change, pursuing environmental justice, and advancing equity. For example, the plan would allocate $45 billion towards removal of lead service lines currently in use by water utilities throughout the country, which would eliminate a significant health risk now faced by too many vulnerable individuals and communities. Additional investments such as $100 billion to improve broadband access nationwide and billions to increase resiliency of the power grid promise to improve economic opportunities and productivity nationwide. Grade: B+

Revenues

Finally, the AJP proposes to raise corporate income taxes to pay for the investments, thus avoiding the need to borrow money and add to our historic levels of federal debt. On one hand, this approach deserves an A: the administration does not shrink from the challenge of raising revenues needed, and the rationale for using current tax revenues to pay for current spending is generally sound.  But on the other hand, to support investments in long-lived assets that raise productivity, we should be unafraid to borrow funds and repay them from general tax revenues in the future, when incomes will be higher.  Further, the funding proposals fall short on two other key points:

First, despite separate administration commitments to value greenhouse gas impacts of federal policy using a revised “social cost of carbon” approach, the AJP does not rely on carbon pricing to incentivize investments that contribute to a cleaner, more resilient economy. This is a tremendous missed opportunity.

Second, for some types of infrastructure, particularly in transportation and utilities, user charges or fees can and should provide significant funding since the assets deliver significant private benefits to individual users. Consider, for example, the Highway Trust Fund’s Highway Account, funded by federal excise taxes on fuel and used to defray costs of investments in roads and highways. The Trust Fund is essentially insolvent, with annual outlays now running about $10 billion higher than revenues, with the gap projected to double in the next 10 years, absent any change in policy. As the use of electric, hybrid, and more fuel-efficient vehicles increases, these fuel tax revenues cannot be expected to rebound and replenish the Trust Fund – so why not move aggressively in the direction of road use charges or other fees? Grade: B-

The Biden administration should be commended for developing a comprehensive infrastructure proposal so soon. While negotiations with other stakeholders will ultimately determine what, if any, legislation is actually passed, the American Jobs Plan gets a B- grade overall.

Paula R. Worthington is a Senior Lecturer at Harris Public Policy. Her research interests are in state and municipal fiscal policies, and she is actively involved with efforts related to good governance and responsible financial policies at Harris’s Center for Municipal Finance and local civic organizations such as the Metropolitan Planning Council (MPC) in Chicago. She currently co-chairs the MPC’s Transportation Committee, serves on Cook County’s Independent Revenue Forecasting Commission, and is also a member of the state of Illinois’s Budgeting for Results Commission