On Wednesday, President Biden announced a massive $2.5 trillion "infrastructure" package. But calling it an "infrastructure" package is misleading, because a lot of the money won't be spent on infrastructure. For example, it will spend money on "the care economy to aid health workers," notes The Hill. And it will "allocate $400 billion for expanded access to home and community-based services."
Biden is proposing "major tax increases" to fund this package, such as raising the corporate tax rate to 28% from 21%. But raising the corporate tax rate could backfire and result in America collecting less tax revenue. That's because high corporate tax rates in the U.S. spur companies to move their headquarters to other countries with lower tax rates. That results in fewer companies paying taxes to the U.S., and America losing some jobs to foreign countries. Most countries now have corporate tax rates lower than the 28% Biden is proposing. Europe averages around 20%.
The infrastructure package will increase unemployment in additional ways. It contains the Protecting the Right to Organize (PRO) Act, modeled on a California law that wiped out the livelihoods of thousands of independent contractors. It also would "allow the federal government to stomp out" the right-to-work laws in 27 states "that forbid unions from forcing non-members to pay a share of union dues," notes Reason Magazine. States with right-to-work laws add jobs faster than other states, and right-to-work laws helped lure foreign automakers into setting up car factories in the Sun Belt, creating thousands of jobs.
The infrastructure bill will be funded by tax hikes. Those hikes, combined with the labor and green regulations Biden wants to impose, will damage infrastructure, not help it.
The key to infrastructure policy is recognizing that the private sector owns most of it. In 2019, the nation had a massive $40 trillion in nondefense, nonresidential fixed assets, which is a broad measure of infrastructure. The private sector owns 65% of it, including power stations, freight railways, pipelines, factories, broadband networks, and much else. State and local governments own 30%, including highways, schools, and airports. The federal government owns just 5%….Private industry invests in infrastructure to earn profits, so when the government reduces profits with regulation and tax increases, businesses cut investment, and infrastructure suffers.....Because private infrastructure is so huge, seemingly modest changes in tax rates can have a large effect. The Tax Foundation estimated that Biden’s tax increases would reduce investment in fixed assets, including infrastructure, by more than $1 trillion.
Federal laws already greatly increase the cost of infrastructure through regulatory requirements. Biden's infrastructure plan will make those requirements even more costly and onerous.
Federal meddling in local infrastructure projects radically increased the cost of highways since the early 1970s, notes legal scholar Walter Olson. Spending per mile on interstate highway construction more than tripled, after taking inflation into account. Federal laws passed in 1970, 1972, and 1973 made it easier for citizens and special-interest groups to “contest infrastructure projects, driving up their cost and delaying their implementation and completion.”
The federal government delays local infrastructure projects with all sorts of unnecessary rules that other countries reject as wasteful and expensive. Construction of public infrastructure is slow and costly in the United States compared with Europe. New York City subways are a famous example: The Second Avenue line now being partially constructed — a century after it was originally proposed — costs six times as much as a comparable subway line in Paris. Dutch road crews built an entire highway overpass over a single weekend. Such rapid construction seldom happens in the U.S.
Biden’s infrastructure plan will make things much worse, by imposing burdensome labor and energy regulations on infrastructure projects that drive up costs. Biden wants “union jobs” for highways, transit, energy, manufacturing, railroads, airports, broadband, and water systems. He plans to require all federally assisted projects to have “project labor agreements,” which require hiring workers through unions, paying union wages and benefits, and using union work rules. But only 13% of U.S. construction workers are currently unionized. As Chris Edwards notes, "Union‐backed Davis‐Bacon rules already raise wage costs on highway projects by about 20%, and PLAs will likely raise costs further. Thus, under Biden’s plan, taxpayers will get less bang for their buck in terms of new infrastructure facilities built with their money.”
Tax increases won't cover the full cost of Biden’s infrastructure plan, because of things like companies moving overseas to escape higher taxes. Moreover, the Biden plan relies on funny accounting, covering spending for just 8 years with 15 years of tax increases.
So Biden's plan will increase the national debt, which is already skyrocketing due to the earlier passage of Biden’s $1.9 trillion “COVID relief” package. Both liberal and conservative economists said that package was too costly, and will hurt the economy in the long run by driving up the national debt.
“The existence of the debt saps the rest of the economy,” noted economist Efraim Berkovich.
Hans Bader practices law in Washington, D.C. After studying economics and history at the University of Virginia and law at Harvard, he practiced civil-rights, international-trade, and constitutional law. He also once worked in the Education Department.