Most Americans received a cut in federal taxes, and most taxpayers don’t seem to recognize the savings, according to polls. Some are upset by lighter refunds and withholding issues. And my neighbor was perturbed about something else–the street in front our building needs repaving. But that seems like most streets in most neighborhoods in most places USA. We’re told the economy is “great.” Inflation is low, unemployment is a relative blip. Wages are increasing at a slightly improved rate, finally. But where is the benefit of lower taxes? Why doesn’t the average American feel more prosperous during what is less of a peak and more of an extended economic plateau? And why aren’t the streets getting repaired and why are subway systems falling apart? Is there a connection maybe?
I started writing about infrastructure 12 years ago. It was obvious then that the U.S. had underfunded transportation infrastructure spending for decades—basically since the end of interstate construction in the 1980s. The lion’s share of Federal subsidies for sewers and water treatment had ended then too. More of the funding burden would fall on states and local governments. The Reagan years were the beginning of starve-the-beast, federal tax cuts, which we were told would lead to greater prosperity. But tax cuts required window-dressing reduction in spending on items like infrastructure and deficits ballooned anyway since there remained a political mandate to fund defense, Social Security, Medicare and most other really expensive programs that the electorate has come to expect.
At this point we have underfunded infrastructure by several trillion dollars at least. Forget our local streets, the interstate system needs rebuilding, reaching the end of its 50-year lifespan on many highways. Our airports, railroads, and mass transit fall further behind the rest of the world. And let’s not even bring up crumbling dams. Sorry I just did. In any case at this point, we have been surpassed and then some, including by China and much of Europe, in state-of-the-art transport networks and facilities.
All the attention in the press is about federal tax cuts. But when the Feds cut taxes, states and local governments get less from Washington and either they tax more or let services slide, services like funding road and sewer repair. In the early years when roads and sewers were newer, we didn’t notice the impact of the funding gaps. With every passing year, we become more aware as upgrades or replacements become more necessary and expensive to complete. In many places, officials raise property or sales taxes to try to make up some of the difference. Fees at parks increase. Some states finally raise their gas taxes and New York has finally enacted congestion pricing in Manhattan to fund mass transit repair. Rents rise partly due to higher property taxes, taxis charge more because of local tax impositions, bus fares increase, and sales taxes get hiked. We are hit by extra taxes in phone and utility bills too. The federal tax rate may decline, but we get dunned anyway out of necessity. And we are still not paying enough or at least the big earners, who get the max out of the federal tax cut savings and loopholes, haven’t been.
In the infrastructure world, the questionable answer to the funding gap has been public private partnerships. Get corporations, pension funds, and sovereign wealth funds to invest and make up the difference in return for charging fees, tolls or various other payment mechanisms backed by users and taxpayers. Part of the PPP sell is that private entities will build and manage more efficiently than governments, because of the profit motive. But in the end, the taxpayer must pay just as much and maybe more because of that same profit motive—those private entities and their investors want to juice returns as much as possible inevitably at user and taxpayer expense.
It’s not rocket science. We need to pay more, because we haven’t been paying enough.
It’s a choice—higher taxes and user fees or more congestion and costly breakdowns. We pay one way or another. There is no avoiding it.
The views expressed here are the author’s own and not that of ALM’s Real Estate Media Group.