On Monday, the White House announced its support for a House bill that fills a shortfall in the Highway Trust Fund. The legislation will ensure that infrastructure projects across the country will continue as planned, saving thousands of jobs. But the final bill is a short-term patch that does nothing to ensure the long-term viability of infrastructure investments.
The Highway Trust Fund is an infrastructure fund that provides states with money for road, bridge, and mass transit projects. Traditionally, it has been funded by the gas tax. But that tax was never indexed for inflation, so the real value of its revenues fell over time. Since 2008, Congress has transferred $54 billion from the Treasury’s general fund to make up for the shortfall. That was only a short-term patch, though. Now, the Fund faces a $12 billion shortfall in 2015 and $164 billion over the next decade.
In theory, this isn’t a hard problem to fix. Economists and policymakers have long agreed that the people using the roads—drivers—should pay for them. That’s why gas tax revenues were used as a funding source. Economists on both sides of the aisle still agree that drivers should pay for road construction and maintenance. But policymakers have gotten squeamish about this logic.
Obama, for instance, proposed replenishing the Fund using revenues from corporate tax reform. On Monday, the White House’s Council for Economic Advisers (CEA) released a report to promote this proposal, emphasizing the economic importance of infrastructure investment. “This country needs a long-term transportation solution in order to grow the economy, create jobs, and support everyday Americans,” it reads. But Obama’s proposal is a short-term fix. In a few years, Congress would once again have to find a way to fill a funding gap. Why has Obama put forward only a short-term fix? Proposing a long-term solution, like raising the gas tax and indexing it to inflation, would break his promise not to raise taxes on the middle class.
The Republican proposal is, if anything, even more shortsighted. It uses an accounting gimmick called "pension smoothing" to offset the cost of filling the funding gap. But this fix won’t even last a year. Sometime next spring, Congress will be in the exact same situation. Policymakers put forward a few other ideas during the past few weeks as well—all of them bad.
Of course, a short-term fix is better than no fix at all. Without such a fix, infrastructure projects across the country would be delayed, or cancelled, costing thousands of jobs. As the CEA report points out, the unemployment rate in the construction industry is still 9.9 percent. A major infrastructure investment would not just help rebuild our cracked roads and broken bridges, but would get those construction workers back to work.
But Congress’s failure to pass a sensible bill in the aftermath of the financial crisis will likely go down as one of the great policymaking failures. Interest rates at that time were at historic lows, construction workers were out of work, and our infrastructure needed significant maintenance. If there ever was a time for a deficit-financed infrastructure package, it was then. But it's not too late; in fact, many of the conditions that made an infrastructure bill attractive still exist. To be fair, Obama has been trying; he has made almost annual proposals to undertake such investment in infrastructure (albeit, not deficit-financed), but Republicans defeated them every time.
That’s not what the current debate around the Highway Trust Fund is about, though. This isn’t about making a long-term investment in our infrastructure. It’s about not cutting the current, inadequate funding levels. And the only way Congress could avoid complete failure is by resorting to a last-minute, short-term patch.