Joe Biden's next big plan

Joe Biden's next big plan

By Matthew Yglesias for Slow Boring.com

April 2, 2021.

A lot of great ideas — also some transportation infrastructure

It’s infrastructure week at last!

Joe Biden has revealed the American Jobs Plan, which I would call the second of a proposed three-part legislative agenda. The White House, however, says the Rescue Plan was part one and now there is a part two — building back better — which itself comes in two parts, of which the Jobs Plan is part one. Got it? Well the logic is a bit tortured, and that’s kind of how I feel about this plan; it contains a lot of great ideas, but I’m nonetheless kind of skeptical of it in terms of its construction and prioritization.

The top line, as you’ve probably heard by now, is about $2 trillion in spending.

It’s also “paid for” in the congressional political sense by increases in taxes on the rich and corporations. In economic terms, though, what you really have here is $2 trillion in temporary spending that’s projected to go out over an eight-year time horizon. Then you have tax increases that are smaller in scale than the spending, but permanent. If you arbitrarily score the tax increases over a 15-year time period, then the revenue raised equals the money spent. But that’s a very political way of thinking about it. The policy here is a tax increase to reduce the long-term budget deficit, and then a separate surge in temporary spending.

These tax hikes on the rich poll very well, and the White House’s calculation is evidently that they’ll get more votes with a fiscal prudence frame than without it. But my basic assessment is that it’s going to be hard to get this done — not because there are any huge poison pills in here, but simply because they are operating with essentially zero margin of error in Congress.

Stumbling into infrastructure

If I were in charge of everything, Democrats would have taken a totally different approach to this issue.

I would have quietly sent an emissary to Roger Wicker and Sam Graves, the ranking members on the Senate and House transportation committees, and told them that Biden is really eager to get a bipartisan infrastructure bill done. He has a few specific priorities related to clean electricity and clean water that he’d like to get in there, but he served long enough in the Senate to understand how this works — a bipartisan infrastructure bill is a win for Biden, so if he wants that win he needs to defer to Republicans on the substance. Whatever they are up for spending money on, and however they want to offset it, the White House will give a lot of ground to congressional Republicans if that’s what it takes.

Then you just don’t say too much more about it, and leave it to the members of Congress to negotiate quietly amongst themselves or not.

Biden could then turn to the idea of raising taxes on the rich and using the money for stuff like making the refundable Child Tax Credit permanent and fulfilling campaign promises on healthcare, Title I education funding, and housing subsidies.

As best I can tell, the problem here is this:

Moderates think it’s better to talk about infrastructure than to talk about welfare state expansion.

Moderates also think it’s better to pay for things rather than have them financed with more borrowing.

Moderates also think it’s better to stick to popular ideas rather than unpopular ideas, like raising the gas tax or imposing a new Vehicle Miles Traveled tax.

I agree with all three points, but they lead you to “raise taxes on the rich to fund infrastructure spending” which means your infrastructure bill has to be highly partisan.

And I think a highly partisan infrastructure bill is tough. With welfare state expansion, you’re really just moving quantities up and down — members on the left want more, members in the center want less. It basically just amounts to finding a number Joe Manchin is comfortable with and running with it.

Infrastructure is much more multi-dimensional in a way that makes things harder. And even though it’s in some sense popular, improving transportation seems to be a very low priority for the public.

The SALT dilemma

Back when Trump was in office, Republicans passed a giant regressive tax cut that was partially offset by some tax increases. One such increase was capping the State and Local Tax Deduction (SALT) at $10,000.

In the specific context of using the funds thereby raised to cut the corporate tax rate, one can make the case that capping SALT was regressive. But viewed in isolation, rescinding the SALT cap is way more massively regressive:

graph comparing percent change in after-tax income of a SALT Cap repeal vs. TCJA organized by percentiles

But a bunch of members of Congress from the New York City area, led by moderates like Tom Suozzi but including progressives Mondaire Jones and Jamaal Bowman, are leading the charge to demand that any tax changes include rescinding the SALT cap.

This is a bad idea, but if you did it in the context of a bill with an overall point to tax the rich in order to spend money on Section 8 vouchers, healthcare subsidies, and a refundable Child Tax Credit, it would still be a good bill. In the context of Biden’s $2 trillion proposal, getting the SALT change made means taking something out. And the Suozzi crew is saying they’ll kill the bill unless they accomplish that. We’ll have to see what they manage to cut. But because Biden’s proposal is a big mix of spending ideas, some of which are much better than others, it really matters to me what exactly you take out.

Of course, it may also matter to other members. There are some folks for whom the rural broadband money is essential, and others who don’t really care.

More to the point, David Sirota and Andrew Perez argue that progressives should emulate Suozzi and threaten to sink the bill if they don’t get their own priorities in it.

Where’s the fire?

Sirota and Perez, as I understand it, think progressives should have played that kind of hardball with the original Rescue Plan.

I think that would’ve been kind of nuts since it would have greatly raised the odds that a really good piece of legislation fails completely. And by the same token, while moderates made some changes to the ARP, they didn’t go to the mattresses over anything either.

But one key thing is that the Rescue Plan had a real sense of urgency to it. Democrats had been fighting since well before the election to get the HEROES Act done. Then Biden won, and they agreed to $900 billion worth of spending with Mitch McConnell. Then Democrats won two Senate races in Georgia, so they took HEROES minus the $900 billion, and that basically became the Rescue Plan. ARP has some odd features like $300 billion in state/local aid money that mostly isn’t needed. But the reason for that is because at the time HEROES was written, Democrats genuinely believed that there was about to be a state budget crisis.

That assumption was never fully reevaluated, but it reflects the fact that Democrats felt a huge sense of urgency around ARP. Biden inherited a crisis, ARP was his crisis response measure, and even though only a minority of ARP money directly addresses the crisis, that was the frame governing the whole thing.

The atmosphere around the Jobs Plan is different. Nobody expects this to be done before Congress goes on its summer vacation. And unless something incredibly bad happens, we should expect a series of good job reports this spring and summer as people get vaccinated and go back to work. That encourages the kind of brinksmanship that Sirota and Perez are calling for and that has swiftly evolved into calls from the left to do something much bigger.

This dynamic is what makes me pessimistic about its passage. I’m committed to trying to quantify things, so I’m saying 60% chance that no infrastructure plan at all passes this Congress. Absent a sense of crisis, it’s just too hard to get the near-unanimity that Democrats need on this issue. And even though the moderates’ three-step logic seems sound, it leads to what I think is most likely going to be a kind of death by circular firing squad.

Is this a good idea?

Note that thus far, I’ve largely avoided discussing whether this package is a good idea on the merits. But that’s exactly in keeping with the main theme of this post. The proposal Biden has put on the table includes some very good ideas, but it isn’t necessarily so amazing that I’d scream at anyone who dares to tinker with it.

The good:

There’s a proposal to create a competitive grant program to incentivize states to adopt anti-NIMBY land-use reforms.

It includes the CHIP Act plan for a $50 billion investment in semiconductor production capacity, plus a new $50 billion program to try to get ahead of future production bottlenecks in other aspects of the supply chain.

There’s money for electric school buses, which has surprisingly high cost-benefit.

I’ve been convinced by the pandemic that throwing a lot of money at broadband expansion makes sense, and there’s $100 billion for that.

There’s also $100 billion for clean water stuff which is great, including replacing 100% of lead water pipes which is amazing.

The housing section also includes money for lead paint cleanup.

There’s $100 billion for the grid, which is important for decarbonizing — see my uncle Paul’s article about this.

There’s climate-focused R&D money, which in my opinion we can’t possibly spend too much on.

But all this is less than half the bill, the core element of which is a $650 billion increase in surface transportation spending — roads, ports, airports, and transit systems.

I’m not against this, but to be blunt, I think it’s a bit of a zombie idea left over from the Obama administration. Obama took office with the economy in a steep recession in which the original crash came from a collapse in house prices and a collapse of the homebuilding sector of the economy. Spending a huge sum of money on re-employing construction workers to undertake transportation projects was a very natural fit for the circumstances — so natural that under the circumstances, I would not have fussed that much about the average quality of the project. Unemployment is very wasteful, so as long as anything good at all got done, a big transportation construction binge would’ve been great.

That was then, though.

What do we get for our $650 billion?

The White House fact sheet notes that “delays caused by traffic congestion alone cost over $160 billion per year, and motorists are forced to pay over $1,000 every year in wasted time and fuel,” implying that one of the main points of the transportation spending proposals here is to reduce traffic jams.

But this is not really how traffic congestion works. Pumping a bunch of extra money into roads that aren’t funded by gas taxes or user fees is going to do much more to increase vehicle miles traveled than it’s going to do to reduce congestion.

This also seems, frankly, like a weird time to be assessing the country’s congestion needs when we don’t really know what post-pandemic commuting patterns will look like.

There’s also money for mass transit, which I like, and for Amtrak.

But as Slow Boring readers know, these are not the world’s greatest agencies that we are talking about pumping money into. And there’s not really a lot of hints of reform in this proposal. I’m not necessarily a “you don’t get one red cent until you reform” kind of guy, but a lot of the highest-value transit investments you can make in America really don’t work absent reform. Public transit is not a mainstream mode of transportation in most of the United States, and you can’t will it into being mainstream by throwing money at it. What you can do is improve the speed, frequency, and reliability of transit in the cities where it is relevant.

Money is helpful here. You can’t send MARC commuter trains into Virginia and VRE commuter trains into Maryland without upgrading a particular bridge and building some higher station platforms. But this is only really worth doing if you are also modernizing operations to reduce fares, facilitating intermodal transfers, and otherwise providing S-Bahn levels of service. I’m not saying Biden won’t do those things — Secretary Mayor Pete is a smart guy, and maybe someone will introduce him to Alon Levy — but the plan doesn’t call for that.

I don’t really know what you can say about Amtrak, which is just not a serious institution. They draw lines on maps.

Look, a serious investment in real high-speed rail in the northeastern United States would be welcome. It would reduce problems in very congested airspace, reduce CO2 emissions, and support economic development in a bunch of smaller cities. There’s a case for some other routes if you can get the planning right. But a low-speed connection from Oklahoma City to Wichita doesn’t make any sense. There’s some alternate universe in which this reflects a pork barrel logic. But building a little spur out to Cheyenne isn’t going to make senators from Wyoming support a Biden infrastructure plan. It’s just dumb. This is an agency that doesn’t know how boarding trains work.

Hopefully something good will happen

I feel kind of down writing a Debbie Downer post about this. The American Rescue Plan was super-exciting, spent a bunch of money on useful stuff, and should help get the economy rapidly back to full employment.

I should also say that when I first heard Biden was proposing $1.9 trillion that I assumed it was just an “opening bid,” and Congress would end up doing way less than that. So I may be underestimating the White House’s legislative savvy here.

But my first read is that there are hundreds of billions of genuinely really good ideas in here, but also hundreds of billions in kind of meh stuff. The focus on infrastructure theoretically has more bipartisan appeal than a focus on welfare state expansion, but in practice, party unity plus the tax increases ensure no Republicans will support it. So now you’re stuck herding cats over a plan that has no real deadline or limiting principle in terms of its conceptual scope. And I fear it’s likely to suffer a death by a thousand cuts that will leave a lot of promising and important ideas un-implemented.