As President Trump and Speaker of the House Nancy Pelosi meet this week to discuss a potential infrastructure deal, there are plenty of reasons to remain optimistic that a bipartisan deal can be made which would renew America's crumbling infrastructure base and to some extent, help keep America's 3 percent growth expansion on track.
An infrastructure bill should not be viewed as stimulus despite critics who argue that a boom (as opposed to a recession) is an inappropriate time for more government spending. Rebuilding America's shared roads, bridges, railroads, airports, waterways and broadband networks is not just a noble goal, it's a necessity, and the state of America's infrastructure base is at a critical low.
While some are skeptical that a bipartisan infrastructure deal can be made, some form of infrastructure legislation will have to be passed before the end of President Trump's first term, as Congress faces a Sept. 30, 2020 deadline for when the Highway Trust Fund is projected to become insolvent as current authorization expires. Gas taxes that fund the trust haven't been raised since 1993. Meanwhile, gas tax revenue growth has been hurt by vehicles becoming more fuel efficient and requiring less gasoline.
The president unveiled a $1.5 trillion infrastructure proposal last year and the Democrats released their own counter $1 trillion plan.
Democratic proposals that require rolling back tax relief from the Tax Cuts and Jobs Act (TCJA) of 2017, such as increasing the corporate tax rate, will undoubtedly be a non-starter and rightly so, given the surge in private sector fixed investment in job-creating plants, property and equipment in 2018.
There would also be Democratic proposals to include environmental standards which could be negotiable however could prove toxic if taken to anywhere near the level of the Green New Deal (eg. retrofitting every building in America).
The president's plan which includes hundreds of billions for public-private investments often have caused distaste from Democrats, however, Speaker Pelosi hopefully could change some minds within her own caucus.
Some ideas have included building an infrastructure bank which has been championed by former Rep. John Faso, R-N.Y., that would act as a privately managed, federally chartered infrastructure bank to supplement infrastructure projects run at the federal, state and local level with loans at favorable interest rates. Unlike many other developed market countries, the U.S. does not have such an entity that can attract domestic and foreign capital to invest in infrastructure projects.
The infrastructure bank idea aside, any idea to smooth infrastructure spending over time should be welcome. It shouldn't be the case that America should have to wait for a recession (which on average happen every seven or eight years in the post-war era often with unpredictable timing) and an accompanying infrastructure-laden stimulus bill for repairs.
Absent a major infrastructure overhaul, something will have to be done by next election given the insolvency of the Highway Fund. Given the political challenge of being unable to raise the gas tax (1993 was the last time it was increased), there will likely have to be another way to get funding. Former Rep. Bill Shuster, R-P.a., offered an innovative idea to fund the Highway Trust Fund by assessing a fee based on the number of miles a vehicle travels, though that is also an unlikely possibility.
While interest rates are still relatively low compared to historical norms, why not borrow to finance spending which would otherwise be inevitable? Bailing out the Highway Trust Fund with the General Fund and issuing more Treasury debt is perhaps the more realistic alternative.
Bailing out one government trust fund with another has lots of precedents. In October 2015, Congress passed a bill to shore up the insolvent Social Security Disability Insurance program with $150 billion in revenues over the next three years from the Social Security Old-Age and Survivors Insurance (OASI) Trust Fund. At the end of the day, all U.S. government money is fungible, plus debt and taxes always remain on the table.
While some might argue that the debt is high as it is, infrastructure spending is inevitable and a $1 trillion infrastructure renewal project is negligible compared to the long-run challenges posed by entitlement spending. Just like with fiscal costs of tax reform, there was a long-run fiscal challenge associated with entitlements regardless of whether the $1.6 trillion TCJA was passed.
Simply bailing out the Highway Trust Fund and not passing a broader, more comprehensive infrastructure renewal plan would be a missed opportunity.
Both the president and Speaker Pelosi have a shared goal of improving their own legislative victories. In President Reagan's first term, he worked with then-Speaker Tip O'Neill on passing the Tax Equity and Fiscal Responsibility Act of 1982 to close tax loopholes and close a narrowing budget deficit. In 1983, they also made a deal to reform social security including raising the retirement age, cutting benefits and beginning to collect contributions from government employees.
Similarly, toward the end of President Clinton's first term, he worked with then-Speaker Newt Gingrich on passing welfare reform in the Personal Responsibility and Work Opportunity Reconciliation Act in 1996.
These were not easy legislative accomplishments, to say the least. However, in both cases, Speakers of the House put the interests of the American people above their own political goals of obstructing a president from an opposing party. Speaker Pelosi should remember this in wanting to make an infrastructure deal with the president.