Congress is considering a $550 billion increase in federal infrastructure subsidies. The subsidies and related new regulations will be damaging for many reasons, as Randal O’Toole and I have noted.
If Congress wanted to raise highway and transit spending, it could have done so with a one‐page bill, but the bill being considered is 2,702 pages. What is in all those pages? Likely, many new mandates and red tape that will reduce the freedom and autonomy of states, businesses, and individuals. Infrastructure bill supporter Senator Rob Portman (R-OH) claims that the bill will speed project permitting, but any such benefit will be likely outweighed by the costs of regulations attached to new subsidies for highways, the electric grid, and other facilities.
Perhaps the bill’s supporters think that more regulations are an unavoidable cost to gain the benefits of new spending. But most of the new spending will be for infrastructure owned by state and local governments. Those governments can fund their infrastructure with their own taxes and user charges without any new top‐down rules from Washington. Senator Portman claims that the new federal spending will boost productivity and growth. But if new spending on, say, highways in Ohio would have such good effects, why doesn’t the Ohio legislature do it?
Perhaps supporters think that the states are short of funds. But the opposite is true—the states are enjoying a revenue gusher. The chart shows that while state and local tax revenues dipped during the early pandemic, they have since rebounded strongly. Estimated second quarter 2021 tax revenues of $542 billion are up 10.6 percent over the pre‐pandemic $490 billion in the first quarter of 2020. On top of rising tax revenues, the federal government pumped hundreds of billions of dollars of emergency aid into state coffers during the pandemic.
In sum, new federal infrastructure aid to the states makes no sense because the states are entirely capable of funding their own facilities.
More on infrastructure here, here, here, here, here, here, here, here, and here, and more on the effects of federal aid here.
Note: The chart data is from BEA Table 3.3, but with one estimate added. BEA data for second quarter corporate tax revenues is not released yet, so I assumed they will be the same as first quarter revenues. (Corporate taxes represent just four percent of total state‐local taxes). Also, BEA presents data annualized, so I divided by four to show the actual quarterly revenues.
