Will $2.3 Trillion Solve the US’ Infrastructure Problem?

One might wonder why the world-leading power with so many economic resources still has roads with many potholes, where railway accidents are common, and bridges that collapse due to lack of maintenance.

Repairing and upgrading its infrastructure will have implications for the US’ competitiveness, future, and security, according to the VisualPolitik video report.

The VisualPolitik video explains and tackles America’s “multi-million-dollar ruin,” referring to its aging and crumbling infrastructure, the enormous amount it will take to repair its infrastructure, and where to get the funds needed for its repair, upgrades, and maintenance.

According to the video, most of America’s infrastructure was built between the 1950s and 1970s, and when it comes to aging, the networks are in the same time frame.

The estimated repair and upgrade cost of transport infrastructure to make safe again is $786 billion, and this estimate excludes the cost of capacity expansion.

According to ASCE, transport infrastructure’s poor condition is also costing motorists US$130 billion each year for vehicle repair and adds to their expenses.

Previous US presidents, including President Obama and Trump, have been calling for a national infrastructure plan, a plan that must be comprehensive enough in term of funding to address all of America’s infrastructure problems. But before the budget could be released, it needs approval from Congress.

There are two major political parties in the US – the Republicans and the Democrats and each party have differing views on where infrastructure funding should be spent.

The Republican party wants to improve and build roads and highways so people could go to places easily with their cars. In contrast, the Democratic party wants to promote a good rail system and public transportation networks.

The differing views on infrastructure spending become a constant debate between individualism and collectivism, freedom vs. sustainability, and clashing political agendas.

For some, promoting public infrastructure means a socialist approach and the government’s way of controlling people’s movement.

For others, they see this as the future of sustainable mobility, so the debate continues and affects agreement in the budget and making a comprehensive plan, according to VisualPolitik.

Another challenge that hinders the country from fully repairing its infrastructure is funding and where to get it.

According to the report, the United States faces a severe budget imbalance that has led the government to increase its taxes since 1993. 

Source of Infrastructure funding in the US?

There are two sources where the US gets its highway maintenance and construction – the Federal government, sourced from the Highway Trust Fund, and the State and Local authorities.

The Highway Trust Funds gets its funding from the federal fuel tax from gasoline (18.4 cents per gallon) and diesel (24.4 cents per gallon).  The problem with this funding arrangement is the fixed amounts that have stayed the same since 1993 and only amount to half of today’s actual taxable value.

The emergence of fuel-efficient cars and electric vehicles also reduces fossil fuel consumption; hence the fuel tax collected.

Because of the significant reductions in fuel tax revenues, the federal highway has to get money from the Public Treasury, which is insufficient compared to the intended funding system created in 1956 that resembled a pay-as-you-go scheme.

State and local authorities finance their roads and highways through three primary sources:  state or local fuel tax – which is an additional surcharge on top of the federal tax, from tolls, and contribution from the federal government, which is gradually decreasing. 

So, when states have insufficient funds, they either raise taxes or tolls or do less and less maintenance on their roads.

Biden’s $2.3 Trillion Infrastructure Plan

Climate advocates welcomed the $2.3 Trillion Infrastructure Plan announcement by the present administration because of its generous budget allocations for electric vehicles and EV charging infrastructures across the states.

It would seem that the $2.3 trillion infrastructure would be the solution to the US’s transport infrastructure woes, but the details tell a different story.

According to the report, only US$621 billion of the $2.3 trillion would be for transportation infrastructure, and only US$115 billion would go to repairing roads and bridges, which is less than 1/6 of the expert’s estimate of $786 billion needed to repair roads and bridges.

Where is the rest going? According to the report, the rest of the budget will go to investments in electric vehicles, thousands of charging stations across the states, electric buses, the transition of the federal fleet to electric cars, improvements in the electricity network and water networks, and expansion of the internet network.

To fund this investment plan, Biden plans to pay it through 15 years of corporate taxes by increasing the tax from 21% to 28%, and when the other government sub charges are added, it will make the US the country with the highest combined corporate taxes among OECD nations.

The present administration says that these infrastructure investments will create many jobs and support a quick transition to a cleaner and low-carbon economy to justify the tax increase.

An alternative model of paying for infrastructure repairs

Is there another way to pay for infrastructure without resorting to a tax hike?

Yes, and it is demonstrated in Australia through an incentive model to finance their infrastructure.

By selling its infrastructure assets like roads and bridges to private companies to update and operate it, it becomes possible for the Australian government to build new infrastructure and renovate existing ones without raising taxes.

But is there a downside to this? If private companies own the infrastructure, won’t they collect tolls from users at a profit to recover their investment?

Will this be costly to users having to pay the toll each time they use the roads and bridges? Or will users prefer that their governments use their taxes for critical infrastructure?

There are no easy answers to the funding of large infrastructure networks – they are expensive to build, operate, and maintain. 

The debates in society about the most appropriate infrastructure funding mechanisms will continue, but doing nothing or ignoring the issue also comes at higher costs to society.