New Haven Register (New Haven, CT)
How to pay for a $3.5T infrastructure proposal
When I was a kid growing up in D.C., finding a soda bottle that I could return to the local convenience store for the 5-cent deposit was like winning the lottery. Back in those days, 5 cents could buy you a candy bar. Two decades later, when I worked at the Carter White House on the Council of Economic Advisers, I remember my boss, the legendary chairman of the CEA, Dr. Charles Shultz, often quote Sen. Everett Dirksen (R-Ill.): “A billion here and a billion there, and pretty soon you are talking real money.” Now we are talking trillions.
Congress is debating a $3.5 trillion infrastructure bill that is difficult to put into perspective or comprehend. With $3.5 trillion you could buy 7 billion round trip tickets to L.A. from Hartford. With $3.5 trillion, we could buy health insurance for every American family for two years. With this $3.5 trillion, the Biden administration plans on rebuilding the infrastructure of the United States. The questions on the table are how are we going to pay for this and who is going to pay for this?
Congress is divided on these two questions and Sen. Joe Manchin of West Virginia has already come out opposed to the $3.5 trillion plan. This plan, however, is a bargain if the money is spent as planned.
We tend to think of government spending as the same regardless of whether it goes to a Social Security recipient or for infrastructure. Biden pointed out last week in his address to the nation that we spent over $300 million a day for a total of $1.1 trillion in Afghanistan since we killed Osama bin Laden. All government spending is not the same. Some, like Social Security, is money transferred from one citizen to another and largely disappears as consumption spending. Some, like military expenditures literally explodes in death and destruction. Infrastructure spending is more like investment spending. A road, a bridge, an airport, public wi-fi systems are consumed over decades. And like all investments, public or private, there should be an expectation of a financial return on that investment.
For too long, we have neglected our infrastructure, and as a result we have ended up with an economy that cannot perform at its fullest potential. Any homeowner or business owner knows that if you do not replace the systems, your home or business will decline. We need to make this investment in order to continue to have the economic growth we need to keep us from each other’s throats in a zerosum game.
The question of how to pay for this investment is inextricably linked to who should pay. And who should pay should be tied to who benefits. First and foremost, all Americans should pay something for this investment in the quality of their lives.
According to the Federal Reserve, there is $137 trillion in household wealth in the U.S. economy. Household wealth grows every year because much of it is invested in assets that are growing in value. Most of this wealth is not in the form of cash, or what economists call liquid. However, a 1 percent tax on household wealth, which everyone should pay, would generate enough cash over three years to pay for the $3.5 trillion infrastructure bill.
The logic of paying for this investment with wealth taxes instead of traditional income taxes is overwhelming. Every American would benefit from building a better more sustainable American infrastructure. The wealthy should contribute the most because they will benefit the most.
Democrats in Congress are focusing on raising income taxes on American individuals earning more than $400,000 per year or dual earners making more than $450,000. There is a case to raise income taxes, but income taxes are not the only option and may not be the best option for this effort, given the investment nature of infrastructure. This public investment will benefit all citizens for decades.
According to the Brooking Institution, the typical African American household has approximately $17,000 in household wealth. Their wealth tax of 1 percent as I propose to finance the infrastructure bill would be $170. The typical white household has $170,000 in wealth. Their infrastructure tax bill would be $1,700. An American billionaire with $1 billion in net worth would pay $10 million a year for three years.
Sounds unfair, until you consider that wealth grows. In 2020, according to the Federal Reserve, household wealth grew by 3.8 percent. Even if it grows at 3 percent, the average African American household will see its wealth grow from $17,000 to $17,510. The billionaire will see wealth grow by $30 million, more than enough to pay their infrastructure tax bill and still put an additional $20 million in their pocket.
Investing in infrastructure will make it possible for all Americans to become wealthier. We cannot rely on the already wealthy and their representatives in Congress to make these decisions for Americans who are simply trying to build a sustainable economy that will provide for their children, now and in the future.
What about the wealthy who have their wealth in illiquid assets like land or real estate? How will they get the cash to pay their wealth tax? Not to minimize this issue, but this is a financing problem, which is one of the reasons we have banks and financial consultants.
We are a rich country. We must stop thinking like a poor one and stop trying to run our economy on the cheap. We can do this, and it makes sense to make the $3.5 trillion investment and pay for it with a small wealth tax, limited to three years. We will all be better off, and we can all say we paid our fair share.