Spending Cuts Looming so Obama Shops for Infrastructure

The walls of the Oval Office probably seem a little closer together these days. The GOP is adamant about spending cuts, and is threatening to trim as much as $100 billion from President Obama’s budget request. Given the president’s imminent fiscal reprimand, we have to give him credit. With all signs pointing to a smaller budget, Mr. Obama has decided to do some serious shopping.

In back-to-back speeches last week, the president laid out his ideas for infrastructure spending. America’s infrastructure is on its way to being irretrievably “broken,” just like our health care and immigration systems. Our resulting descent to third world status will be discussed endlessly in the weeks to come, as the president pushes for new spending that will save us money:

The costs to business from outdated and inadequate infrastructure is enormous. And that’s what we have right now — outdated, inadequate infrastructure.1

The president is promoting spending for highway, high-speed rail, and broadband as our ticket to being globally competitive, even though we already commit billions to infrastructure every year. In 2007, $356.4 billion was spent on transportation and water infrastructure.2 The Recovery Act allocated over $48 billion for transportation, including highways and rail.3 $7.2 billion was made available to the Departments of Commerce and Agriculture for broadband programs.4

Highway projects are a great way to spend money, but the economic gains have declined since we built the Interstate System.5 The Highway Trust Fund continues to be a financial black hole.6 The Fiscal Commission did not recommend that we increase highway spending, but instead insisted that we control the outlays:

Before asking taxpayers to pay more for roads, rail, bridges, and infrastructure, we must ensure existing funds are not wasted. The Commission recommends significant reforms to control federal highway spending.7

A massive high-speed rail project would fare even worse. The Congressional Budget Office concluded that investment in “high-speed rail corridors” would be so expensive that tax increases, spending cuts, or an increase in the deficit would be necessary to make the plan affordable.8 The report concluded that:

The big losers would be current and future taxpayerswhose taxes would go up to pay for the increased subsidiesand other modes of transportation, from which federal funds would probably be diverted.9

Mr. Obama is putting a lot of effort into promoting a plan that is doomed, given a Republican House that is not going to buy into the expense or the inevitable public sector expansion, including the proposed $10.7 billion broadband-based public safety network.

During his February 7, 2011 speech to the U.S. Chamber of Commerce, the president emphasized the private sector’s responsibility to step up to the plate:

But ultimately, winning the future is not just about what the government can do for you to succeed.  It’s also about what you can do to help America succeed.10

He also had a figure in mind for how much money businesses had stashed away:

So if I’ve got one message, my message is now is the time to invest in America.  Now is the time to invest in America.  (Applause.)  Today, American companies have nearly $2 trillion sitting on their balance sheets.11

A number of ideas are being floated to reap revenue from infrastructure, but the Congressional Budget Office was frank about where the dollars will come from:

… the funds to pay for highway infrastructure are ultimately drawn either from users of that infrastructure or from taxpayers in general.12

The Department of Transportation has already investigated vehicle miles-traveled (VMT) fees, and has estimated equipment costs of $10 billion.13 The FCC’s National Broadband Plan includes tax provisions alluded to by the president:

By selling private companies the rights to these airwaves, we won’t just encourage private investment and expand wireless access; we’re actually going to bring in revenues that lower our deficits.14

Mr. Obama claimed during the Chamber of Commerce presentation that regulation is necessary and good for business. His stance is perplexing, given that he has also vowed to cut regulations that hamper business.  The plan for infrastructure spending will inevitably create regulations, mandates, and revenue generators crafted so that the spending can be promoted as not adding to the deficit.

There are many ways for the private sector to be regulated by our government. Some regulations require that those being regulated incur great expense, others do not. In the event that the president manages to finesse his infrastructure plan into reality, the accompanying regulations are unlikely to be of the inexpensive variety. After all, businesses have $2 trillion sitting on their books, doing nothing.



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