Tax reform and infrastructure can significantly boost the American Economy and create real job and wage growth, but both present serious challenges, politically and substantively
By Ed Rendell
With the failure of the healthcare bill, Congress will now turn its attention to tax reform and infrastructure. Both reviewed as being an initiative that can significantly boost the American Economy and create real job and wage growth, but also present serious challenges, both politically and substantively. This makes legislation enacting them not a sure thing. I strongly believe that the best opportunity to enact good initiatives dealing with both of these important issues is by combining them. There is real synergy between them and combining them would give both sides some significant political cover. To hopefully start that discussion to that end, I wrote the following op-ed piece for the New York Daily News:
I consider myself a strong, partisan Democrat, but I am an American first. As an American, I hope that the Trump Administration and the Congress can come together and get things done. It is my belief that if the Administration were to reach out to Democrats, many would respond in good faith to help resolve the problems facing our country.
I believe there is a great opportunity for this type of bipartisan cooperation if we look at the two challenges of tax reform and infrastructure as one package. The Administration has indicated that it intends to commit only $200 billion over a 10-year period in federal investment towards an infrastructure revitalization program. It hopes that this would encourage sufficient private and state investment to make up the trillion-dollar plan that then-candidate Trump promised during the campaign. That’s simply unrealistic. Twenty billion dollars a year in federal investment is not nearly enough to make a dent in our problem. The American Society of Civil Engineers said that we needed to spend $2 trillion over the next 10 years to just give the U.S. infrastructure a fair grade (this year’s ASCE report gave it a D+). The President is right that the states must do their part, but 22 states have already raised their gas tax in the last five years, and fourteen more are considering or have considered such legislation this year.
The President is also right that private investment can be a part of a revitalization plan, but it is unrealistic to think that it can provide a substantial portion of our needs. For example, there are 60,000 structurally deficient bridges in America that urgently need repair, and less than 100 of them could generate enough traffic so that tolling them would give private investment a reasonable rate of return. That would leave the other 59,900 bridges in need of government investment.
There is an idea out there that would work to provide considerable funding for infrastructure, and it could only succeed if we make infrastructure part of a tax reform plan.
The President’s tax reform proposal contains, what he calls, a substantial tax cut for middle class Americans. Assume for a moment that that tax cut would provide the average middle class family a $2,000 to $3,000 reduction in federal taxes. Then we would adopt the bipartisan Corker-Murphy proposal, which would raise the federal gas tax by 10 cents a gallon and index it to inflation. There could hardly be taxpayer ire over a gas tax increase that would cost the average driver $140 a year, when that driver would be getting a tax cut worth thousands of dollars. It would make an increase of the gas tax politically palpable. This increase would provide at least $150 billion over the next 10 years.
Next, the tax reform package should include a repatriation of U.S. companies’ offshore revenue at a 10 percent tax rate, with 100 percent of the money going towards infrastructure investment. I believe this idea would receive significant business support. Tim Cook, the CEO of Apple, recently endorsed it. This could produce somewhere between $300-400 billion in revenue which could be spread over the next decade. This level of real federal investment from the increase and indexing of the gas tax and repatriated funds could attract Democratic support, and when combined with the Presidents original proposal would generate between $650-750 billion over 10 years. Though it is still not quite the level of investment candidate Trump promised, when combined with significant increases in state funding and private investment, it would be an excellent start for an infrastructure plan that American sorely needs.
Infrastructure has traditionally been a bipartisan issue. It’s time our policymakers in Washington come out of their partisan corners and start working together.
Edward G. Rendell, Pennsylvania’s 45th Governor, began a second term of office on January 16, 2007, following a landslide re-election victory. As Governor, Rendell served as chief executive of the nation’s 6th-most-populous state and oversaw a $27.5 billion budget. He currently serves as co-chair for Building America’s Future Educational Fund (BAF Ed Fund), a bipartisan coalition of elected officials dedicated to bringing about a new era of U.S. investment in infrastructure that enhances our nation’s prosperity and quality of life.