Today’s Gaps, Tomorrow’s Opportunities, and the Need for Federal Investment

House Budget, America’s Infrastructure: Today’s Gaps,  Tomorrow’s Opportunities, and the Need for Federal Investment, September 25, 2019

Ways and Means, Our Nation’s Crumbling Infrastructure and The Need for Immediate Action, March 6, 2019 

Our comments rely on my experience as a program analyst in the District of Columbia Office of the City Administrator. The City Administrator is an ex officio member of the Chief Financial Officer’s capital projects operations.  

Please see Attachment One for a detailed description of our tax reform proposals. The Carbon Value Added Tax would fund discretionary aspects of the Green New Deal, thus reducing the need to fund these activities with an Invoice VAT. The CVAT may or may not subsume gasoline tax, which is the primary funding source for highway infrastructure. 

The Net Business Receipts/Subtraction Value Added Tax (SVAT) would fund any income redistribution to families (which is also part of the GND). The Income and Inheritance Surtax would fund any reimbursement to the Highway Trust Fund, in the event it ever contains a long-term positive balance. 

For most states and localities, infrastructure is funded with federal fuel taxes, state fuel taxes, tolls and property taxes for neighborhood roads. Many states have increased their fuel taxes to fund infrastructure deficits. States that belong to the Legislative Exchange Council are less likely to take this step, which is perilous. Our federal system allows states to mess themselves up, so we will not address this problem except to say that states who do not charge adequate taxes do not deserve an extra subsidy from federal funds because of their folly. 

In the short term, tolls could be considered for states who will not responsibly increase their fuel taxes. The nature of these projects precludes their adoption on a national basis.  Their use is hardly universal. Local High Occupancy Toll or HOT lanes are created using local entrepreneurs, however are virtually empty most of the time.  

HOT lanes have become transportation for the wealthy, leaving the working class to deal with the crowded main highway system. While HOT lane providers do upgrade the infrastructure to adjacent lanes as well, their rush hour pricing and general disuse will not maintain public favor for long. These roads may help fund immediate infrastructure deficits, their pricing structure may not return promised revenue, which will end their usefulness.  

The use of income surtaxes may be used against separate short-term borrowing, which is how HOT lanes are financed, with these funds guaranteeing the debts if projects fail to achieve revenue goals, so backstopping such projects with taxes on the wealthy is justified, but it should not be the normal way of funding this aspect of the GND, which should provide adequate infrastructure funding for everyone. 

As the title of this hearing emphasizes, our need is urgent. Bridges are about to start tumbling down according to the reports of most highway engineers. It is amazing that more have not collapsed. 

For the present, the answer must be higher fuel taxes (or a Carbon VAT). They must also remain a direct excise rather than a proportion of fuel prices because prices vary from state to state. This would violate Article I, Section 8's prohibition requiring equal national excise taxes, although individual states could explore the idea. Regardless, the coalition for a higher national excise collapsed long ago, causing our infrastructure crisis. 

The reason for this collapse is the end of earmarking. The late Senator John McCain (God rest his soul), was a driving force in the elimination of this funding tool, while Congressman Bud Schuster was its champion.   

Earmarks lost favor because of the bad publicity on Alaska's Bridge to Nowhere, which was necessary to reach a vital airport destination. Ironically, the road to the bridge was built and became the road to nowhere because it was part of the overall plan. Governor Sarah Palin's lack of courage in defending the project led to the downfall of earmarks and the coalition for higher fuel excise taxes.  

Earmarks simply codified agreements by the local members of Congress and the Senate, the Federal Highway Administration and state and local government to plan specific projects rather than leave their planning solely up to the Department of Transportation. Without these constituencies, the natural constituency for higher fuel taxes could not hold out against general anti-tax sentiment. In essence, government stopped doing its job to represent the interest of society rather than its vocal anti-tax minority. 

Bringing back earmarks and projects will go forward and fuel taxes can be raised with little heartburn.  

Like HOT lanes, local road funding also has a race and class bias, with higher income neighborhoods often getting better roads due to the linkage of road repairs to property tax levels. This reflects the general inequality in society. 

Reducing general equality is beyond the scope of this crisis, although it will solve our infrastructure problem in the long term. Establishing personal retirement accounts holding index funds for Wall Street to play with will not help. Accounts holding voting and preferred stock in the employer and an insurance fund holding the stocks of all such firms will, in time, reduce inequality and provide local constituencies for infrastructure improvements and the funds to carry them out.  

Employee-ownership can be part of the solution in terms of smart growth and infrastructure funding. See Attachment Two for more about this topic. 

Employee-owned firms could fund local infrastructure in neighborhoods which are located adjacent to their facilities and would join with neighboring cooperative firms to own both local utilities and build improved smart highways. Such highways would be controlled by a central computer, provide electricity and control to operate vehicles through an overhead deck (with different roadways for trucks) and would be funded by payroll lines of credit or employee spending accounts. They would essentially be HOT lanes for everyone. 

State and local governments, as well as automobile manufacturers, would be partners in these consortia and would trade stocks and bonds with other consortium members as their stake in these enterprises. These will be the ultimate earmarks. 

Attachment One - Tax Reform, Center for Fiscal Equity, September 13, 2019 

Attachment Two

A. Employee-Ownership, March 7, 2019

B. From Hearing on the 2016 Social Security Trustees Report