That $2T Infrastructure Price Tag

SMITH BRAIN TRUST – Surprised by the high price tag of President Biden’s proposed infrastructure facelift? You really shouldn’t be, says Henry Lucas, Robert H. Smith Professor of Information Systems Emeritus.

Prior to his emeritus designation, Lucas directed an undergraduate Honors Program seminar he created, “Formulating U.S. Science and Technology Policy.”

“One of our topics was infrastructure, and a civil engineering professor joined me in the discussion with our students,” says Lucas.

“Aside from experiencing decrepit roads and bridges, I learned just how bad our infrastructure really is. There was a lot of infrastructure investment after WWII with a lifetime of 50 years or so. We are now at 75 years and it is past time for new investment.”

The Biden package includes a proposed increase in the top corporate tax rate, to 28% from the current 21%, to generate $2.5 trillion over 15 years to offset hundreds of billions of dollars in allocations: home/community care ($400 billion), affordable housing ($213 billion), electric vehicles ($174 billion), roads and bridges ($115 billion), high-speed broadband ($100 billion), power grid/clean energy ($100 billion), public transit ($85 billion) and railways ($80 billion).

Support is widespread for such improvements – the sticking point is how they should be paid for. Lucas counters the concerns about increasing both taxes and the national deficit: “Since 2000 the U.S. budget deficit has grown dramatically from wars, efforts to prevent a depression, and large tax cuts,” he says. “The good news is that interest costs are extremely low so that financing the deficit is not a crushing budgetary burden, as of yet.”

Critics argue that the low corporate tax rate, currently among the lowest among the G7, is essential in a competitive global economy, and without it, they warn, companies will fail to grow or will pick up stakes and go elsewhere for a more competitive tax profile. Lucas doesn’t think so. “The economy was doing very well before the huge 35% to 21% cut during the Trump administration, and it appears to be improving with the United States getting out from under the COVID-19 pandemic."

Infrastructure "benefits every individual and especially businesses, he says, adding that some corporations "pay far less than the nominal tax rate by moving profits to other countries with lower tax rates or taking advantage of many favorable provisions of the tax code." He points to a recent report which found that 55 large U.S. corporations had zero federal tax liability in 2020, including Nike, FedEx and Dish Network. "In fact, these companies received a combined federal rebate of over $3 billion giving them a negative tax rate," he says. "It is certain that all 55 of these corporations benefited in numerous ways from the U.S. infrastructure."

Lucas further notes that the United States has the world’s largest economy but ranks at No. 13 globally on infrastructure. And, the American Society of Civil Engineers gives a corresponding breakdown in its 2021 Infrastructure Report Card: aviation (D+), bridges (C), dams (D), drinking water (C-), energy (C-), hazardous waste (D+), inland waterways (D+), levees (D), public parks (D+), ports (B-), rail (BC+), roads (D), schools (D+), solid waste (C+), stormwater (D) and transit (D-).

“Of course, civil engineers have a great deal to gain from investments in infrastructure,” Lucas acknowledges. “One could name any new infrastructure legislation the ‘Civil Engineers Full Employment Act.’ But even if their report card suffers from grade deflation, the picture it paints is not pretty.”

The civil engineers’ “report card” website, he adds, “goes into details on just how bad our infrastructure is; 43% of public roads are in poor or mediocre condition, there is a water main break somewhere in the U.S. every two minutes, and so on.”