On Infrastructure, Talk is Both Cheap and Expensive

Prices are rising across the country, sparking concerns of spiraling inflation. However, when it comes to talking about infrastructure in DC, all it costs is giving one’s two cents.

According to NPR, the White House has reached out to more than 500 lawmakers and staff about infrastructure. Already this week, President Biden talked on separate occasions at the White House with Senate Environment and Public Works (EPW) Committee Chair Tom Carper (D-DE), Senator Joe Manchin (D-WV), and Senator Kyrsten Sinema (D-AZ). Today, Biden is talking with House Speaker Nancy Pelosi (D-CA), House Minority Leader Kevin McCarthy (R-CA), Senate Majority Leader Chuck Schumer (D-NY), and Senate Minority Leader Mitch McConnell (R-KY) on the congressional agenda, including infrastructure. Tomorrow, Biden will talk with Senate EPW Ranking Member Shelley Moore Capito (R-WV) and other Senate Republican committee ranking members about an infrastructure bill.

Biden isn’t just talking about infrastructure with lawmakers, including moderate Democrats and Republicans, because he wants to (although he surely enjoys talking). He’s talking with them because he has to. Democrats don’t have the votes as of now to roll Republicans like they did with the American Rescue Plan (ARP).

This is a function of uncertainty about what can pass muster with the Senate parliamentarian in a budget reconciliation bill and what can get the sign off from moderate Democrats. So as Democrats deliberate amongst themselves, they are also talking with Republicans, particularly in the Senate. After McConnell last week put a cap on infrastructure spending at $600 billion over five years, he amended his position to $600-$800 billion over the weekend. Capito released a $568 billion infrastructure proposal that included roads and bridges, public transit, rail, road safety, water infrastructure (drinking, wastewater, water storage), ports and inland waterways, airports, and broadband. The American Jobs Plan (AJP) calls for about $948 billion in spending for the relevant provisions in Capito’s proposal (the AJP surface transportation numbers are adjusted as the plan says it’s in addition to baseline spending, whereas Capito’s proposal includes the new baseline).

If the GOP is willing to go up to $800 billion, the bid-ask between $800 and $948 seems bridgeable. But the devil is in the spending details. The two sides could probably reach an agreement on spending for roads and bridges, but there are serious differences on spending for public transit. Then there are the policy differences. The two sides could probably agree on a broadband investment number, but how they want to invest in broadband is another matter. Biden is also leaving a lot of his $2.7 trillion AJP off the table in negotiating with Republicans, not to mention the $1.8 trillion from the American Families Plan (AFP). It’s still an open question if Republicans would go along with a bipartisan infrastructure bill knowing Democrats would move ahead with an additional budget reconciliation bill. It’s also still a question whether enough Democrats in Congress would allow Biden to cut a deal with Republicans on infrastructure, knowing it could leave many of their priorities out and possibly make it more difficult to get enough votes for a separate budget reconciliation bill.

Finally, while infrastructure talk is cheap, the spending is expensive. Notably, a $800 billion infrastructure bill already has some dedicated revenue from the gas tax for big spending components on highways and public transit. But the gas tax revenue does not fully cover the spending, with the Congressional Budget Office (CBO) estimating the Highway Trust Fund (HTF) will have a cumulative $70 billion shortfall over five years. That’s at baseline spending, with adjustments for increased spending likely pushing that shortfall to around $100 billion. The HTF cannot run a negative balance. This $100 billion shortfall does not include all the other spending which doesn’t have a dedicated revenue source. Congress in 2015 was able to find about $70 billion in budget gimmicks for the FAST Act to plug the revenue shortfall in the HTF. There may be only so many budget gimmicks this time around, requiring a real pay-for. The problem is that there’s a clear impasse between the two sides on how to pay for any new infrastructure spending.

To that end, the House Ways and Means Committee’s Subcommittee on Select Revenue Measures will hold a hearing today titled “Funding Our Nation’s Priorities: Reforming the Tax Code’s Advantageous Treatment of the Wealthy.” The hearing’s name implies where the Democrats are focused. But Biden’s tax agenda is not sitting well with the entire rank-and-file. This subcommittee includes Democrats like Rep. Tom Suozzi (D-NY), who is a leading advocate for restoring the full SALT deduction. It also includes Rep. Suzan DelBene (D-WA), who is the chair of the centrist New Democrat Coalition. It will be important to watch what Suozzi and DelBene say to get a sense of the temperature for new taxes among Democrats. While this is a subcommittee hearing, committee chairs often make an appearance and statement. To that end, it will be important to see if House Ways and Means Committee Chair Richard Neal (D-MA) participates. What Neal says (and doesn’t say) will be an important marker of where tax negotiations stand among Democrats. He’s been pushing for Democrats to embrace further deficit spending, trying to frame the AJP and the AFP as an economic investment that is worth putting on the government’s tab, especially when borrowing costs are low. With all this talk, Democratic leadership hopes that going through this regular order process will eventually get Democrats like Manchin and Sinema on board to support another budget reconciliation measure if/when the impasse becomes too great to reach a bipartisan deal with Republicans.

Made In Chicago | Policy Research @ Beacon Policy Advisors | Cookie Monster loosely based off of my life

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