Infra. Policy • Senate Democratic Bill (Jan. 26)

Yesterday, Senate Democrats unveiled a new, $1 trillion plan to rebuild the nation’s infrastructure plan, one they believe is a bolder and more productive approach to infrastructure than what Donald Trump has so far sketched out. Presented by Sen. Chuck Schumer, Sen. Bernie Sanders, and six other Senate Democrats, the plan aims to create more than 15 million jobs over a ten year period.

While the Senate Democrats and President Trump appear to see eye to eye in the importance of investing in our infrastructure, their plans are not the same, with Democrats opting for a more economically productive and politically compelling plan.

The plans are compared and critiqued below.

Best,

Dana

_______________________________

The Senate Democratic infrastructure proposal introduced yesterday broadens  the standard set of sectors l, reaching beyond traditional projects such as  building and rebuilding roads, bridges, and pipelines to include schools, hospitals operated by the VA, and the national broadband network.

What comes first, jobs or taxes?

Rep. Bill Shuster of Pennsylvania, chair of  House Transportation and Infrastructure:  “We have an opportunity going through this tax reform that’s a high priority not only for the president but for the Congress, if we can find the dollars to put it forward, to do a significant infrastructure bill.”

If the dog is tax reform, suggests Senator John Thune chair of Senate Commercez, the tail is infrastructure which “could hitch a ride perhaps on some tax reform bill.  But I think at this point that’s probably a preliminary discussion to have.  We’ve got a very focused agenda, things that we want to get done in the next 200 days… How infrastructure plays into that, we’re not sure yet.”

Here are the main differences between the two plans:

Size/Scope of Projects

While the two plans have the same estimated cost, they differ in range and scope. The plan presented by Senator Schumer would cover more ground in regard to infrastructure projects. The Senate Democrats have added the call for building and improving schools, hospitals run by the VA, and the nation’s broadband network, which was an issue that Barack Obama often spoke about as America’s internet speeds were falling far behind other developed countries.

The plan also aims to invest in renewable energy, airports and seaports, and expanded bus and railroad lines which is promising for cities with failing subway and metro rail systems.

Infrastructure Choices/Industrial Policy

While these infrastructure plans talk about creating jobs, one of their main focus would be to invest in the construction and manufacturing sectors, as both plans have claimed that they are looking to work with materials made in the U.S. and invest in American owned companies. Donald Trump’s private sector approach, however, would leave investors and private sector companies with a lot of freedom over their operations, where they might attempt to minimize cost by buying products and raw materials from foreign companies.

The Senate Democrats’ bill would control where the federal spending goes and would provide a better stimulus for the construction and manufacturing sectors. The Democrats’ plan will require compliance with “Buy American” and the Davis-Bacon Act, which requires paying prevailing wages. Trump’s plan has no such requirements.

The two plans have an estimated cost of $1 trillion, but they differ in their financing mechanisms.  President Trump’s plan mainly assumes that the private sector will decide to invest in infrastructure to take advantage of favorable tax benefits; there is a real chance that the plan simply gives companies money for investments they would have made anyway

Paying for Infrastructure

The GOP his gambit has not impressed Democrats, some of whom have argued that the hundreds of billions of dollars in tax credits will be nothing short of a massive hand out for large companies. Democrats also fear that the program will not have enough investors and will fall short on job creation and bettering American infrastructure.

Per Americans for Tax Fairness:   “Trump wants to give big tax credits to Wall Street investors to encourage them to build infrastructure projects that generate a steady stream of toll or other user-fee revenue. Charging expensive tolls and user fees to earn big profits for Wall Street investors just hurts the pocketbooks of average taxpayers. It also ensures projects will be developed where they can generate the most profits for investors, not where they are most needed.”

The argument for direct federal spending as opposed to private-public partnerships is that this program will give taxpayers more bang for their buck, as they don’t have to worry about increased tollroad rates that investors would implement to maximize returns on their investment.

Timing:  Taxes Take Precedence

Rep. Bill Shuster of Pennsylvania, chair of  House Transportation and Infrastructure:  “We have an opportunity going through this tax reform that’s a high priority not only for the president but for the Congress, if we can find the dollars to put it forward, to do a significant infrastructure bill.”

If the dog is tax reform, suggests Senator John Thune chair of Senate Commercez, the tail is infrastructure which “could hitch a ride perhaps on some tax reform bill.  But I think at this point that’s probably a preliminary discussion to have.  We’ve got a very focused agenda, things that we want to get done in the next 200 days… How infrastructure plays into that, we’re not sure yet.”

Deficit Impact, Political and Fiscal

Congressional Democrats and Donald Trump both claim that their plans will not add to the deficit.  Both plans have a different approach to avoid any budget deficit increase. Donald Trump’s plan relies on private investment incentivized by large tax credits and public private partnerships, which Wilbur Ross and Peter Navarro argued would pay itself off because it would be revenue neutral. This was widely criticized by many economists – Larry Summers callez their research paper the equivalent of “creationism for economics.”

But Democrats argue that the $1 trillion in federal spending will be made up by closing tax loopholes, thus increasing tax revenue.  While increasing tax revenue might provide a scenario where the government raises an extra trillion dollars to pay off the infrastructure plan, the Democrats have been unclear about which loopholes they would close and how to go about closing them.

Strategic Value of Schumer Bill 

A clear advantage to an infrastructure plan would be the betterment of what many have deemed a crumbling system. The main notable advantage from a massive infrastructure investment program is rooted in increasing economic output and productivityIt is not clear, however, if the U.S. economy is in need of such a massive stimulus, as the country now hovers around full employment and the Federal Reserve is in the process of raising interest rates.

The stimulative impact of a large infrastructure plan could be reduced or even nullified by the Federal Reserve raising rates. Chicago Fed President Charles Evans warned that an investment of this size is untimely as we approach full employment. A disadvantage with this project is that, realistically speaking, both plans will add to the government’s budget deficit.

Politics of Infrastructure

One goal of the Senate Democrats’ infrastructure plan is to create tension between the Republicans in Congress and the Trump administration. Senator Schumer stated that it was Trump’s Democratic issues that he campaigned on that earned him enough blue collar votes to push him to victory, making it clear that these infrastructure proposals are not in the interest of the GOP.

Donald Trump also seems unconstrained by concerns about adding to the deficit, as he has introduced proposals that require large amounts of federal spending, which coincide with tax reduction proposals. If Trump does go along with the Democrats plan, there would be a clear shift in Republican Party’s approach to investment programs and federal spending.

Conclusion 

Even if Schumer’s proposal goes nowhere in congress, it symbolizes the direction that the Democratic Party hopes to take in the field of infrastructure and a starting point in legislative negotiations going forward.