Infrastructure is a topic that claims to have bipartisan support, as well it should. Not only does infrastructure spending yield positive returns, but our nation’s infrastructure is in terrible shape. The nation must establish an infrastructure capable of taking us into the next century as well as reestablish manufacturing and localize our supply chains. A tall task no doubt requires a large price tag, but how big and how it is paid will be the key point of contention as the Biden Administration begins rolling out details.
As per the New York Times, the initial proposal would spend heavily on infrastructure improvements, clean energy deployment and the development of other “high-growth industries of the future” such as 5G telecommunications, as well as money for rural broadband, advanced training for millions of workers and 1 million affordable and energy-efficient housing units.
To build a plan to receive support by moderate Democrats and moderate Republicans, investments in manufacturing and advanced industries will be combined with about $1 trillion in spending on the construction of roads, bridges, rail lines, ports, electric vehicle charging stations and improvements to the electric grid and other parts of the power sector.
However, the question of how this will be funded looms over the entire proposal. The administration is floating paying for spending by raising taxes on corporations, including increasing the corporate income tax rate above the current 21 percent as well as measures designed to force multinational corporations to pay more tax in the United States on income they earn abroad. That notion seems dead on arrival to the Republican caucus as well as industry groups such as the US Chamber of Commerce and National Association of Manufacturers, which support a $2 trillion infrastructure package.
It is important to note that the notion of a vehicle miles traveled (VMT) tax has been gaining some traction. However, The American Transportation Research Institute (ATRI) released a new report detailing the costs of deploying and operating a national VMT. It was found that replacing the federal fuel tax with a VMT tax that is assessed on 272 million private vehicles could result in collection costs of more than $20 billion annually, or 300 times higher than the federal fuel tax. The central reason for this large increase in costs is the shift in collection points, from a couple of hundred fuel terminal operators to every registered motor vehicle in the US.