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Ultimate Resource For Biden’s Infrastructure Plans

Biden Is Betting His Whole Climate Agenda On Infrastructure. Ultimate Resource For Biden’s Infrastructure Plans

With the latest round of stimulus, clean energy advocates have been told yet again that it’s not their turn.

Candidate Joe Biden rode into the White House promising to build back the economy after the devastation of Covid-19 with cleaner energy and a lower carbon footprint. The $1.9 trillion American Rescue Plan that President Biden signed into law today, however, does little in the way of fulfilling that pledge.

That makes this the sixth pandemic stimulus package in roughly 12 months to put off significant action on clean energy and climate change mitigation, yet another sign of what many advocates now conclude is an opportunity wasted. The White House and Democratic leadership in Congress have said that low-carbon energy policy is still very much on the agenda, but that they’re aiming to load much of that into an infrastructure bill the Biden administration will put forward next.

Dividing the two priorities is risky, however, because an infrastructure bill with a heavy emphasis on climate mitigation could be even more contentious than the stimulus package. Polls showed widespread enthusiasm for this round of relief, yet the bill garnered not a single GOP vote in either chamber.

“Democrats felt very clearly that it was important to move quickly on rescue and that the contents be logically connected to the Covid crisis,” said Benjamin Salisbury, director of research for Height Capital Markets, a firm that does policy analysis for institutional investors. “They estimated that the risk of slowing or disrupting the rescue bill by adding other priorities was greater than the risk of waiting.”

Sen. Sheldon Whitehouse—one of the strongest advocates for climate action among Democrats in Congress—called the upcoming infrastructure bill “our primary opportunity to move green priorities. Green infrastructure and low-carbon technologies have enormous potential to create jobs.” The White House didn’t respond to repeated requests for comment on the stimulus bill.

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China Outspends US When It Comes To Building The World’s Infrastructure

The US Should Lead The World On Climate Change

In 2009, with the nation in the midst of its deepest recession since the Great Depression, Congress passed the American Recovery and Reinvestment Act, which delivered an $840 billion capital infusion to the U.S. economy, including $90 billion for renewable energy and other climate-friendly businesses. That investment has been credited with driving a rapid expansion in the sector, led by federal loan recipients such as Tesla Inc., and the creation of 3.4 million jobs.

As vice president, Biden presided over the implementation of that legislation, and those who were on his staff at the time say that the program’s success inspired his campaign promises on clean energy and job creation.

The idea that Covid stimulus packages would provide a once-in-a-generation opportunity to also address climate change took hold early in the pandemic. But despite lofty rhetoric, a recent study from the University of Oxford and the United Nations Environment Programme found that of the $14.6 trillion in spending announced by the 50 largest economies in 2020, only 2.5% has been for green activities.

House Speaker Nancy Pelosi held off on putting investments in green infrastructure into two relief bills last spring, especially given then-President Donald Trump’s hostile posture toward clean energy.

The stimulus bill passed in December is the only one to include major gains on climate, including an extension of tax credits for wind and solar projects and $35 billion in new spending on energy research and development programs. That measure also directed the Interior Department to allow more renewables on public lands and included an agreement to phase out hydrofluorocarbons, chemicals used in refrigeration and air conditioning that contribute to global warming.

Even that fell far short of the comprehensive investment in infrastructure and new clean power generation that would allow American to transition to a carbon-free electrical grid, a goal Biden has promised to achieve by 2035.

A June 2020 study from the University of California at Berkeley and GridLab, an energy consultancy, estimated it would take $100 billion in investments in transmission infrastructure alone to get the grid to 90% carbon-free electricity by 2035. Once completed, that would result in wholesale electricity costs 13% lower than today.

The power failures during February’s winter storm in Texas reignited calls from progressives for Congress and the White House to follow through on creating sustainable infrastructure. The devastation “highlights the need to transition to a renewable energy economy while investing in infrastructure and our communities,” tweeted Rep. Pramila Jayapal, chair of the Congressional Progressive Caucus, in late February.

Many environmental advocates point out that the new stimulus package isn’t entirely devoid of upside for the climate. It includes $100 million for the Environmental Protection Agency—half for environmental justice grants and activities to help communities disproportionately burdened by pollution, and half for air quality monitoring grants and other purposes.

There’s also more than $30 billion for mass transit systems that have seen ridership and revenue collapse amid the pandemic, plus an additional $1.7 billion for Amtrak.

That’s “enormously important” from a climate perspective, said J. Peter Byrne, faculty director of the Georgetown Climate Resource Center, an event for the university’s law school on Tuesday. “When we go back to traveling, we need to be attracted to public transportation in order to reduce emissions,” Byrne said.

Kevin Book, an energy analyst with investor research firm ClearView Energy Partners, said that the fiery partisan opposition to the Green New Deal explains Pelosi’s decision to punt again on including significant new energy transition funding. “Energy has become so polarizing that they had to leave it out” if they wanted stimulus to move swiftly, he said.

In spite of this latest missed opportunity, clean-energy advocates remain in lock-step with the administration’s strategy—largely, they say in private, because they have no alternative.

A coalition of nearly a dozen environmental advocacy groups, including the Natural Resources Defense Council, the Environmental Defense Fund, and the Sierra Club sent a letter to senators earlier this month supporting the stimulus bill that now awaits Biden’s signature.

But they also emphasized that the legislation was just a “first step” in the process of making the U.S. economy “stronger, more equitable, and more sustainable.”

Now It’s Biden’s Turn To Schedule Infrastructure Week

Like his two predecessors, the president may discover that building useful new stuff is harder than it seems.

With the American Rescue Plan signed into law, President Joe Biden appears ready to pivot to his next big idea: a recovery plan focused on infrastructure. And while the perennial concern about how to pay for it is already rising on Capitol Hill, members of Congress might want to worry a bit less about the how a bit more about the what and why.

Under President Barack Obama, for example, the federal government invested significantly in new streetcars, which now exist in many U.S. cities. These modern trolleys look cool. And because they don’t require tunnels, viaducts or other grade separation, they are relatively easy to build.

But in virtually every case, Obama-era streetcar lines got built by foregoing dedicated lanes. This avoided offending politically influential car owners while still allowing mayors to attend ribbon-cuttings and the Transportation secretary to tout the jobs created by all the new made-in-America trolley tracks.

Unfortunately, when you make a streetcar run in mixed traffic, all you’ve really created is an expensive bus. Except unlike a bus, a streetcar can’t go around obstacles. So as an actual transportation service, a streetcar is an inferior product to the humble bus, and drastically inferior to the cheap-but-controversial step of creating a dedicated bus lane.

The great difficulty of infrastructure projects isn’t just getting the politics right. It’s that the technical design details matter enormously, and tradeoffs are difficult to avoid.

Years ago, Washington embarked on the construction of the new Metro line, which after many delays and cost overruns will soon actually extend out to Dulles Airport. These kinds of airport connector projects are often a high priority for elites, who tend to travel a lot and thus have airport-centric views of the different cities they visit.

But these connectors tend to underperform in ridership, because linking an airport to a central business district doesn’t actually serve the most plausible market: the people who work at the airport and have to go there five days a week. According to one analysis, the AirTrain projects at JFK and Newark airports cost about $100,000 per weekday rider. At that price, the government could just buy each of them an electric car.

The real problem in Washington, however, isn’t the cost of the line to the airport. It’s that there is only so much capacity in the tunnel under the Potomac River. Adding the new trains has made it necessary to run less frequently the other trains that use the tunnel. That means this huge financial investment in transit — $5.8 billion and counting — has already resulted in worse service for some people.

Highways pose fewer technical challenges of network design, and the U.S. is consequently better at building them. But America has been building highways for a long time, which means that the highest-value routes were all built long ago. Incremental investment in highways now means marginal, sprawl-inducing extensions.

America would get more value from maintaining and upgrading existing infrastructure. But federal funding flows through state transportation departments, and governors like to cut ribbons on new roads, bridges and the like. A moderate increase in the pace at which potholes get filled doesn’t make for a good photo op.

None of this is to deny that the country has genuine infrastructure needs or that an injection of federal money could help with them.

A By-The-Mile Tax On Driving Gains Steam As A Way To Fund U.S. Roads

President Joe Biden’s drive to increase electric car use may unintentionally thwart his other urgent priority to restore the nation’s roads, bridges and transit systems by undercutting federal gasoline tax receipts.

That’s got U.S. Transportation Secretary Pete Buttigieg taking a serious look at an idea that’s drawn fierce opposition from privacy advocates and others: funding highway projects with a fee based on how many miles someone travels instead of how much gasoline they pump.

“Maybe more than at any point since the gas tax was instituted, it feels like so many different possibilities are on the table,” Buttigieg said in a recent speech to the American Association of State Highway and Transportation Officials.

Biden has promised to roll out a large infrastructure package that is expected to incorporate ideas to boost the nation’s transportation and clean energy sectors now that Congress has passed his Covid relief bill.

“It not only creates jobs, but it makes us a hell of a lot more competitive around the world if we have the best infrastructure in the world,” he said after a March 4 meeting with Democratic lawmakers on the infrastructure topic at the White House.

Transportation is expected to be a big part of — but not all of — the likely infrastructure plan and mileage fees are being raised as a way to pay for some or all of that in a way that accommodates the rise of electric vehicles that Biden also hopes to see.

A vehicle-miles-traveled fee has been studied in the nation’s capital for years though previous versions have encountered resistance about forcing drivers to place transponders in their cars to keep track of mileage. But states that have experimented with pilot programs have found ways around that by letting motorists report odometer readings electronically or in-person, using plug-in devices or recording mileage with a smartphone app.

With the Biden administration preparing to begin a push for an infrastructure package that is expected to dwarf the just-passed $1.9 trillion Covid-relief bill in size, transportation advocates in Washington are more hopefully than ever that the idea’s time has come.

“People are talking about it more than have in the past, which is a good thing,” Jim Tymon, executive director of the American Association of State Highway and Transportation Officials, said in an interview.

“The vehicle fleet is trending toward electrification and the Biden administration is going prioritize this,” he said. “That’s going to force their hands a little bit because you’re not going to be able to collect the same amount of revenue as you do from gas and diesel vehicles.”

A vehicle-miles-traveled program also would help close the yawning gap in federal highway funding that is estimated to be as high as $16 billion this year. That’s because the Highway Trust Fund, which pays for roadway and transit systems, is financed primarily through the federal gas tax, currently 18.4 cent-per-gallon.

That only brings in $34 billion per year while federal spending has topped $50 billion annually and has had to be supported by transfers from the general fund.

Last year, Highway Trust Fund receipts from the gas tax were down 9.4% over the previous fiscal year due to a reduction in driving because of the pandemic. The gas tax has not been raised since 1993, and there is little appetite in Washington for increasing it.

The push for plug-in cars is an additional complicating factor because fully electric vehicle drivers do not pay any gas tax. Several carmakers have pledged to produce all-electric fleets by the end of the current decade.

“The President’s made a commitment that this administration will not raise taxes on people making less than $400,000 a year,” Buttigieg said during an appearance on Bloomberg Radio’s “Sound On” show. “And so that rules out approaches like the old fashioned gas tax.”

During Buttigieg’s Senate confirmation hearing in January, he was asked how the administration would pay for an infrastructure program and mentioned a per-mile fee as one option.

“If we are committed to the idea of user pays, part of how you might do that is vehicle miles traveled,” he said. “But that raises concerns about privacy and there remains some technological questions.”

Washington has been mostly spinning its wheels on infrastructure spending for half the past decade, due in part to a reluctance to raise gas taxes.

A five-year, $305 billion transportation funding law was set to expire in 2020 but was extended until next year. The House passed a five-year, $494 billion surface transportation bill in July 2020, but the measure was not been approved by the Senate.

Greg Regan, president of the AFL-CIO’s Transportation Trades Department, said there is “more political will” for the Biden administration’s push for a robust infrastructure bill and there’s growing interest in an alternative to the gas tax.

“It’s a user-fee model that encapsulates electric vehicles, so it’s perhaps more equitable than the gas tax,” he said. “The headwinds haven’t changed. There’s still privacy concerns, but it’s not like isn’t being done in various states around the country. There are models that work.”

Phased In

Regan said any mileage fee program that’s included in Biden’s infrastructure bill will likely have to be phased in after another infusion of cash from other areas of the federal budget for the beleaguered Highway Trust Fund.

“You have to phase it in, maybe in three-to-five years after a one-time transfer,” he said. “The last time the gas tax was raised, it was part of a big budget bill. You’re not going to get a standalone vote on something like that.”

Representative Sam Graves, of Missouri, the top Republican on the House Transportation and Infrastructure Committee, said a mileage-fee could easily be substituted for the gas tax without using techniques that raise the thorny privacy issues that tanked prior versions of the proposal.

“It can be done right now with the technology that we have,” Graves said last month during an appearance at an American Association of State Highway and Transportation Officials conference.

Pump Formula

Graves suggested that for gas- or diesel-powered vehicles, a per-mile tax can be assessed through a simple formula at the pump.

“We take whatever you come with as the national average for miles-per-gallon, multiply that by whatever the VMT is going to come up to, let’s say a penny, and we just calculate it at the pump,” he said.

“It doesn’t take any new technology,” he said. “This isn’t about any GPS tracking devices or anything like that. This is just a formula at the pump very much like we’re doing now with the fuel tax.”

Graves suggested Friday that planned modernization of the U.S. Postal Service vehicle fleet could provide an opportunity to test a mileage fee program on a national scale because the some of new postal vehicles will be electric.

Adrian Moore, vice president of policy at Reason Foundation, a libertarian think tank, said a mileage fee would be a more equitable user fee than the gas tax because drivers of electric cars avoid paying anything. And those who can afford new, more fuel-efficient cars are paying less per mile than their counterparts who drive older cars.

The result, he said, is a system in which “those that can afford new technologies will be privileged to pay less than those who can’t afford it.”

The longest-running U.S. mileage tax program started in 2013 in Oregon, where drivers who join OReGO, as the program is called, are charged 1.8 cents per mile for trips that take place on the state’s roads.

Participants are given the option of using a GPS device to record their miles or using a non-GPS option that tracks usage based on the mileage odometers of cars.

In return for participating, the drivers are offered a tax credit reimbursing them for the 36-cent-per-gallon Oregon gas tax that they pay on fill ups. Drivers in the program receive regular statements of their road charges based on the reported miles, which also show their fuel tax credits.

In Washington state, a newer pilot program allows drivers to choose between four methods of tracking mileage, including pre-paying for an estimated number of miles that will be driven annually, reporting mileage based on odometer readings either electronically or in-person, using plug-in devices that in some cases contain GPS systems or recording mileage with a smartphone app.

California, Delaware, Hawaii, Minnesota, and Missouri also have federally-funded mileage fee pilot programs.

Representative Pete DeFazio said legislation he’s supported in the past paid for some of the pilot programs.

“I continue to support this approach,” DeFazio, an Oregon Democrat who chairs the Transportation and Infrastructure Committee, said in a statement. “We need to learn from these tests, including about how revenue gets collected and how we address privacy concerns, before we take any additional steps at the federal level.

Updated: 4-1-2021

Biden’s $2.3 Trillion Infrastructure Plan Takes Broad Aim

Proposal would increase corporate taxes to pay for fixing roads and bridges, boosting research and tackling climate change.

President Biden unveiled a $2.3 trillion infrastructure plan centered on fixing roads and bridges, expanding broadband internet access and boosting funding for research and development, plus higher corporate taxes to pay for the package.

“It’s not a plan that tinkers around the edges,” Mr. Biden said during a speech in Pittsburgh, where he kicked off his presidential campaign. “It’s a once-in-a-generation investment in America.”

The Democratic president cast his plan as a fundamental shift in economic thought away from the small-government, tax-cutting approach embraced decades ago under Ronald Reagan, a Republican.

“Here’s the truth: We all will do better when we all do well,” Mr. Biden said, arguing that the pandemic had exposed longstanding inequalities in the country. “It’s time to build our economy from the bottom up and from the middle up, not the top down.”

He said his plan isn’t an attack on wealthy Americans. “This is not to target those who’ve made it, not to seek retribution,” he said. “This is about opening opportunities for everybody else.”

The president’s advisers say the Covid-19 pandemic has helped change American attitudes about the role government should play in their lives, making political space for unprecedented investments that could reshape the country.

The measure, which comes after Mr. Biden signed a $1.9 trillion coronavirus relief bill into law, is the first of a two-part economic plan that he hopes to move through Congress in coming months.

A second plan focused on child care, healthcare and education will be released in April. Combined, Mr. Biden’s economic proposals are expected to cost between $3 trillion and $4 trillion over a decade, according to people involved in the discussions.

Mr. Biden’s infrastructure proposal faces hurdles, including GOP opposition to significant tax increases, disagreements among Democrats about how to pay for the package and progressives’ concerns that it isn’t ambitious enough.

The infrastructure plan would cost roughly $2.3 trillion over eight years and be paid for over 15 years by raising the corporate tax rate to 28% from 21% and increasing taxes on companies’ foreign earnings. The tax changes would revamp or replace much of the international tax structure congressional Republicans established four years ago in the law signed by then-President Donald Trump.

Mr. Biden’s proposal includes $621 billion to modernize transportation infrastructure, $400 billion to help care for the aging and those with disabilities, $300 billion to boost the manufacturing industry, $213 billion on retrofitting and building affordable housing and $100 billion to expand broadband access, among other investments.

The plan, which requires congressional approval, calls for modernizing 20,000 miles of roadway; building 500,000 electric-vehicle charging stations; replacing the country’s existing lead pipes and service lines; repairing aging schools; expanding home care for the elderly and disabled; and investing billions of dollars in domestic semiconductor manufacturing. Mr. Biden also proposes mandating that more of the country’s electricity be generated from low-carbon sources, with a goal of eliminating carbon emissions from the power grid by 2035.

Mr. Biden’s plan stresses equity in access to jobs and transportation options, including $20 billion for a new program that would reconnect neighborhoods cut off by past transportation investments as well as research funding for historically Black colleges and universities. The plan calls for a national climate-focused laboratory to be affiliated with an HBCU.

The plan’s rollout will kick off months of negotiations between the White House and Capitol Hill, as well as a wave of lobbying by business and industry groups. White House officials acknowledged that the shape of the package could change as lawmakers—eager to put their stamp on it and score victories for constituents—offer up their own proposals. Mr. Biden’s advisers hope Congress will pass it this summer.

“I’m open to other ideas, so long as they don’t impose any tax increase on people making less than $400,000,” the president said.

Republicans and Democrats have struggled in recent years to pass major infrastructure legislation, disagreeing over how much to spend and how to finance it. Republicans are especially unlikely to agree to reverse the 2017 tax law that they supported enthusiastically.

Given likely GOP opposition, some Biden advisers and congressional Democrats are considering a budgetary maneuver to advance the measure without Republican support—as they did with the Covid-19 aid package—which would require almost every Democrat to stick together.

Keeping the party united could prove complicated as both moderate and progressive lawmakers jockey to see their favored issues addressed in the bill.

Reps. Tom Suozzi (D., N.Y.), Bill Pascrell (D., N.J.) and Josh Gottheimer (D., N.J.) said this week that they wouldn’t back any tax-code changes unless Congress restores the deduction for state and local taxes, which is now capped at $10,000 under the 2017 tax law. Democrats control the House 219-211, so they can lose no more than three votes on legislation that all Republicans oppose.

Progressives said the infrastructure proposal doesn’t meet the scale of the challenges facing the country, including climate change. Congressional Progressive Caucus Chairwoman Rep. Pramila Jayapal (D., Wash.) said on Wednesday that the package “can and should be substantially larger in size and scope.”

She noted that Mr. Biden had campaigned on spending $2 trillion over four years on climate and infrastructure-related projects, half the time frame outlined in his new plan. It “makes little sense to narrow his previous ambition on infrastructure or compromise with the physical realities of climate change,” Ms. Jayapal said.

Even Democrats who broadly agree with the Biden administration’s goals indicated they would seek modifications. Sen. Ron Wyden (D., Ore.), who leads the Senate Finance Committee, said Wednesday that he was preparing his own proposal to overhaul international tax rules.

Some Democratic activists who lined Mr. Biden’s route to the Pittsburgh event with signs are pushing for him to include a pathway to citizenship for essential workers who are in the country illegally. Julia Aviles Zavala, a member of immigration advocacy group CASA, said there was a connection between the two issues because some workers on infrastructure projects fall into that category.

A senior administration official said the type of spending outlined in the package has garnered bipartisan interest previously, adding that the president was open to ideas on structuring and financing the plan. Mr. Biden will hold his first cabinet meeting on Thursday, the White House said, where he is expected to discuss the infrastructure plan with his senior aides.

Senate Minority Leader Mitch McConnell (R., Ky.) said Mr. Biden called him Tuesday to discuss the plan, which Mr. McConnell said appeared to be only nominally about infrastructure. Mr. Biden said in Pittsburgh that he would invite Republicans to the Oval Office to talk about the proposal.

“If it’s a Trojan horse for a massive tax increase, put me down as highly skeptical,” Mr. McConnell said Wednesday at an event in Kentucky, adding that the proposal appeared to involve “not only significantly more borrowing, but raising taxes on the most productive parts of our economy. This is not a very bipartisan period we’re in right now.”

Sen. Kevin Cramer (R., N.D.) said he was open to working with Democrats on certain measures like expanding the Highway Trust Fund or easing regulations to lower the cost of transportation projects, but added that he thought Mr. Biden’s proposal went beyond just infrastructure.

“I worry that by using one of the most bipartisan policies in Congress as a tool for much more partisan goals like climate and taxes, President Biden will squander whatever remaining goodwill he has with Republicans,” Mr. Cramer said.

It is unknown how much of Mr. Biden’s coming healthcare and education package would be paid for through tax increases, but White House officials are weighing additional proposals.

The first package contains corporate tax proposals and none of Mr. Biden’s main campaign proposals to raise taxes on top earners’ individual income, capital gains, estates and noncorporate businesses.

Under the president’s plan, the corporate tax rate would rise to 28% from 21%, putting it halfway between the previous 35% tax rate and where Republicans set it in 2017. It would push the U.S. corporate tax rate back toward the top of the pack among major economies, a change that business groups are already warning would discourage investment.

“Policy makers should avoid creating new barriers to job creation and economic growth, particularly during the recovery,” Joshua Bolten, president and chief executive officer of the Business Roundtable, said Tuesday.

Democrats contend that the 2017 tax law cut taxes too deeply and contains several features that encourage companies to put profits and operations abroad. The Biden plan would reverse several of those.

Notably, the plan would set the minimum tax on U.S. companies’ foreign income at 21%, up from 10.5% today, and it would set that tax so it applies to profits earned in each country, rather than letting companies combine their income globally.

Administration officials said that would limit companies’ ability to book profits in tax havens, while businesses warn of complexities and unforeseen consequences.

White House aides said the proposal is paid for, but not in the way that Congress typically measures such things. It would take 15 years of the corporate tax increases to cover the one-time infrastructure expenses over eight years, though the tax increases would remain after that point.

Updated: 4-4-2021

Biden’s Infrastructure Package Is Designed To Boost Unions

Proposal aims to lift wages and includes many labor priorities, which business and GOP critics say would raise project costs, limiting increase in economic growth.

President Biden’s $2.3 trillion plan to invest in infrastructure, clean energy and caregiving over the coming decade would be a boon for construction workers, truck drivers, electricians and home health aides.

Both critics and supporters of the initiative say it will also benefit another group: labor unions.

Some business groups, employment law experts and Republican lawmakers say provisions aimed at bolstering union membership and expanding labor protections could increase costs, limit the number of projects that can be completed with the proposed funding and reduce the gains in economic growth.

For Mr. Biden, those provisions are key to ensuring the package creates millions of “good-paying union jobs of the future.” In 2020, just 10.8% of U.S. workers belonged to unions, half the share in 1983, but those workers earned a dollar for every 84 cents earned by nonunion workers.

“The president has made very clear that he wants to be the most labor-friendly president in history, and the steps that he’s taking in many different ways are designed to accomplish that,” said Michael Lotito, co-chairman of the Workplace Policy Institute at Littler Mendelson, an employment law firm based in San Francisco.

The Democratic administration’s plan includes spending on an array of industries over eight years. The proposal includes $621 billion to modernize transportation infrastructure, $300 billion to boost the manufacturing industry, $213 billion on retrofitting and building affordable housing and $100 billion to expand broadband access, among other investments.

Many of the new jobs are likely to be union positions, because the plan targets sectors that already have high levels of union participation, said Greg Regan, president of the Transportation Trades Department, a coalition of unions in industries such as aviation and rail transit.

Even within those industries, a minority of workers are union members, including 20.6% of utility workers, 17% of transportation and warehousing workers and 14.3% of telecommunications workers, according to 2020 Labor Department data.

“There is a very glaring need for this type of big investment, and if done with the right policies—in many ways, existing programs already have them—that will not only improve our transportation systems across the board, but also build union jobs and middle-class jobs,” Mr. Regan said.

Bill Spriggs, chief economist at the AFL-CIO, said implementation of the package, particularly for construction projects, should gravitate toward unions if the goal is to promote racial equity—a stated priority for the Biden administration. Black workers are more likely to be represented by a union than other racial groups, according to Labor Department data.

The overall fall in union membership is a sign of the decline in power of organized labor in the U.S. and reflects slower employment growth in traditionally more unionized industries, such as manufacturing, transportation and utilities, compared with healthcare and other services.

Economists have pointed to the decline as a reason why wage growth in the U.S. was relatively soft in the years leading up to the coronavirus pandemic, despite low unemployment and steady hiring. Median weekly pay for full-time union members was $1,144 last year versus $958 for nonmembers, the Labor Department said.

Mr. Regan said provisions in the package—such as a measure that seeks to have more goods shipped on U.S.-flag vessels staffed by American workers—would also be a boon for union positions.

The package proposes tying federal investments to prevailing wages, echoing existing law that requires federal contractors and subcontractors on public works projects to offer workers pay commensurate with local wages.

It also includes a provision that would require employers benefiting from the plan’s investments “to follow strong labor standards and remain neutral when their employees seek to organize a union and bargain collectively.”

“It’s not just about getting people off the unemployment rolls, it’s about getting people in good-paying jobs so they can raise their families,” Labor Secretary Marty Walsh said in an interview with The Wall Street Journal on Friday.

Those provisions could benefit other sectors targeted in the proposal where union membership is slimmer, including among caregivers. Mr. Biden’s plan would allocate $400 billion in funding for long-term care for the elderly and disabled.

Leslie Frane, executive vice president of Service Employees International Union, estimated the caregiving provision could create close to a million new jobs and improve the jobs of current home care workers, a total of 3.2 million jobs in 2020, according to the Labor Department. Those workers are the lowest paid among healthcare sector employees, with a median wage of $28,060 last year.

Low pay and lack of benefits are two reasons the rapidly growing sector faces a labor shortage, said Ms. Frane, who added the Biden plan would make it easier to unionize and subsequently attract new hires. The changes would especially benefit women and women of color, who make up the majority of home care workers, she added.

There are potential drawbacks to the labor provisions, detractors said. They will likely raise project costs, meaning the government can’t build as much for a given dollar of spending, said University of Missouri professor Aaron Hedlund, who served as chief domestic economist for former Republican President Donald Trump’s Council of Economic Advisers.

“If we don’t build as much, that means we aren’t going to get as much economic benefit out of it,” Mr. Hedlund said.

Mr. Lotito said nonunion contractors may also be wary of bidding for projects that could open them up to a potential unionizing effort among their workers. “The big winners here are the union-building trades,” he said.

The package also would include legislation that would make it easier for workers to unionize and toughen enforcement of the National Labor Relations Act. The bill, known as the Pro Act, passed the House on a near-party-line vote with nearly all Republicans voting against it and faces an uncertain future in the evenly divided Senate.

Many GOP lawmakers say the Pro Act would stifle business and empower union leaders. While most Democrats support it, some centrist Democrats, such as Sen. Joe Manchin of West Virginia and Sens. Kyrsten Sinema and Mark Kelly of Arizona, haven’t signed on as co-sponsors.

The Biden package could also create some frictions in the labor market due to mismatches between the skills required for some of the new jobs and the skills of unemployed workers. The White House has proposed $100 billion in new training programs to help bridge the gap.

Ken Simonson, chief economist for the Associated General Contractors of America, said it was unlikely the package—which could take most of the year to make its way through Congress—would run up against an immediate worker shortage.

While construction employment hasn’t fully recovered last year’s losses, job growth in the sector has been much stronger than in most other industries, adding more than 100,000 jobs last month, and some construction firms report labor shortages. Training will be essential, Mr. Simonson said. For example, there are a limited number of tower crane operators who would be able to work on projects such as wind turbines.

It could take quite a while to find enough workers to do some of the jobs to be created by the package, Mr. Simonson said. “On the other hand, we think there will be a fairly long lead time to actually get these projects launched.”

Updated: 4-4-2021

What The U.S. Can Learn From China’s Infatuation With Infrastructure

Beijing’s building boom inspires awe in even the staunchest U.S. critics, but emulating it is a different story.

Even China’s staunchest critics express awe at its capacity to build bridges, railways and other infrastructure, feats of engineering made possible by a command-style political system.

President Biden is the latest American leader to invoke China’s accomplishments while pressing Congress to allocate spending for a far-reaching infrastructure program. He says more than $2 trillion to fix bridges and mass transit, modernize airports and refurbish neighborhoods, extend broadband internet coverage and replace lead piping is the cost to “outcompete China.”

Sleek airports, grand stadiums and stylized skylines captivate visitors to China. Infrastructure may be the most tangible—and admired—aspect of a modernization drive that in a generation transformed a poor country into the U.S.’s primary strategic and economic rival.

Donald Trump also entered the presidency highlighting China and pledging to rebuild America. “They have bridges that are so incredible,” Mr. Trump said at a 2016 rally.

“There’s a real China envy,” says Thomas J. Campanella, a historian who specializes in urban planning at Cornell University who used to live in eastern China. “The Chinese seem to be able to do this stuff we used to do.”

Emulating China is another story.

China’s leapfrogging—practically to bullet trains from bicycles—may have limited direct application to improving American infrastructure. The two nations have different needs and diametrically opposed political systems, starting with carte blanche for Chinese leaders to order up construction.

China’s proudest symbol is the Great Wall, a 12,000-mile fortification built over centuries, and the country’s leaders laud dams and bridges as human triumphs over a landmass that is two-thirds mountainous with 1,500 rivers.

President Xi Jinping studied chemical engineering, while his predecessor specialized in hydroelectric engineering and had succeeded an electrical engineer. The U.S. tends to elect lawyers as president, though Jimmy Carter, Herbert Hoover and George Washington had engineering backgrounds.

Mao Zedong, too, pursued construction projects like a double-decker road-railway bridge spanning the Yangtze River. But by the 1980s, the nation was broke and broken after decades of misguided state planning. Roads, railways and ports were in dire shape.

Spurred initially by international aid from U.S.-backed multilateral institutions, China started building in earnest, focusing on big projects that created jobs.

A card with bullet points that Mr. Biden clutched at his first news conference as president last week noted that China spends three times more on infrastructure than the U.S. Figures from the Council on Foreign Relations put U.S. spending at 2.4% of GDP, compared with 8% in China.

China claims at least a million bridges, including most of the world’s highest. Of the world’s 100 tallest skyscrapers, 49 are in China.

Bill Gates publicized a remarkable statistic in 2014: China had used more cement in the previous three years than the U.S. did during the entire 20th century. U.S. Geological Survey figures show China has sustained the pace since then, producing well over 2.2 gigatons of cement annually, compared with the estimate cited by Mr. Gates of 4.5 gigatons used in the U.S. in the 100 years to 2000.

China also produces more than half the world’s steel, last year 14 times more than U.S. production, according to the Brussels-based World Steel Association.

Even though China has sold more cars than the U.S. since 2009, it is nowhere near American-scale car ownership and the government has positioned rail as a viable option nationwide, with high-speed trains serving 98% of major urban areas and subways in many cities.

China’s expanse of high-speed rail, 23,550 miles, could link New York and Los Angeles more than eight times and Beijing intends to add 30% more track by 2025. New lines are being readied for next year’s Winter Olympic Games near Beijing and in remote Tibet, the last Chinese region to host high-speed rail since construction began in 2004.

Bullet trains that travel about 100 miles between Shanghai and Hangzhou hit speeds of up to 215 miles an hour, covering the distance in about 65 minutes. It takes more than an hour and a half to go about as far on an Amtrak route familiar to Mr. Biden, between Wilmington, Del., and Washington.

What the U.S. can learn from Beijing’s rail strategy—build it and they will come—is that infrastructure costs should be weighted in favor of broad societal benefits, rather than strict revenue projections, says Arthur Kroeber, founding partner at Gavekal Dragonomics, a China-focused research firm.

“It can be a spur to economic growth and it doesn’t need to be paid for directly,” he says.

China’s value proposition for high-speed rail included hard-to-measure payoffs like how industrial efficiency would enjoy a boost over decades as passenger trains got shifted off busy freight lines, Mr. Kroeber said.

Chinese mayors are motivated to build boldly since they expect job postings to new cities every few years, says Silas Chiow, China director for the American architectural giant Skidmore, Owings & Merrill who regularly meets town planners. “Government officials are rewarded on how much improvement they can make physically,” says Mr. Chiow.

When Shanghai officials in 1991 invited World Bank urban planners to consider the feasibility of a subway, the visitors dismissed underground transit as doubtful considering the city sits in the basin of the Yangtze River, and they instead proposed buses, according to the bank’s official archives.

Shanghai went ahead anyway. Three decades later, its metro is one of the world’s longest and busiest, carrying more than 10 million passengers daily. Dozens of Chinese cities have followed suit.

Subways allow cities to expand to places with room to erect apartment towers, which in turn fosters homeownership. “It’s a win-win circulating system for their economy,” says Mr. Chiow.

Along the way, China also became a major producer of large boring machines that cut passages through rock and beneath rivers, as well as the world’s biggest maker of subway cars.

“We need a bit of China to be stirred into our game,” says Cornell’s Mr. Campanella, who urges American politicians to take a muscular approach to push project approvals as if it were an emergency and de-emphasize local impact studies.

“We’re overprivileging the immediately affected residents. What we don’t do is give requisite weight to the larger society,” he adds.

Unchecked development in China has spawned problems, however, including debt and underused systems. Construction dust in many cities rivals pollution from car exhaust and industrial activity. Political graft tied to construction is common. So is thuggish behavior directed at the rare activists who challenge development plans.

In 2019, less than a decade after Beijing vastly expanded its main airport, it inaugurated the starfish-shaped $17.5 billion Beijing Daxing International Airport by architect Zaha Hadid, 50 miles away on the other side of the city.

China’s government has continually relied on infrastructure construction to endure economic rough patches, including after shutdowns associated with last year’s Covid-19 outbreak. The Washington-based Institute of International Finance puts Chinese debt at 335% of GDP, up from 200% in 2011.

“The usual playbook,” Capital Economics called China’s post-Covid infrastructure spending, saying in a recent report that building will spur near-term growth but “credit-fuelled and investment-led” activity ultimately “strengthens our conviction that growth will slow in the long-term.”

Conscious about pollution, debt and overbuilding, China increasingly emphasizes green infrastructure like wind farms, digital telecommunications and smart-road capabilities in anticipation of driverless cars.

Still, vanity, more than economic sense, appears to explain some recent projects, including a series of glass-bottomed skywalks linking mountains thousands of feet off the ground.

Beijing increasingly looks abroad for growth opportunities for its engineering and construction industry. President Xi’s Belt and Road Initiative envisions Chinese-made infrastructure for the developing world.

The infrastructure bullet-point card Mr. Biden gripped last week noted the U.S. was 13th globally in infrastructure quality, down from fifth place in 2002.

The ranking appears to be from a World Economic Forum global competitiveness report that put China’s infrastructure quality at 36th.

Updated: 4-5-2021

Biden Team Seeks Public’s Help To Beat GOP On Infrastructure

The Biden administration is aiming to corral overwhelming public support for its $2.25 trillion infrastructure plan, targeting Republican voters, independents, mayors, governors and local politicians to counter opposition from GOP lawmakers, according to White House officials and Biden allies.

It’s the same outside-of-Washington playbook President Joe Biden’s team used to successfully pass his stimulus $1.9 trillion bill last month — applied to an even larger spending proposal that already enjoys a head start in public support, polls suggest.

Biden’s aides and allies believe that just trying to persuade congressional Republicans to support what he calls a jobs plan is the strategy of a bygone era. Barack Obama’s presidency took that tack, when bipartisan negotiations over the Affordable Care Act with GOP lawmakers proved fruitless.

While Biden says he’s happy to work with Republicans, listen to their ideas and make adjustments, the White House doesn’t want to let the GOP slow or water down Democrats’ sweeping policy agenda. One White House official said the president is a realist about what happened during the Obama years as well as about the internal dynamics of the GOP in Washington and the pressures its individual members face.

Congressional Republican leaders quickly stated their opposition to Biden’s $2.25 trillion plan last week, calling it a hodge-podge of liberal aspirations and arguing that its corporate-tax increases would hurt U.S. competitiveness.

Broad Backing

But Biden aides and allies argue proposals like fixing roads and bridges, expanding broadband, boosting taxes on the wealthy and corporations and expanding affordable child care options are overwhelming popular with both Democratic and Republican voters. Biden plans a speech on Wednesday on the infrastructure program to ramp up the sales pitch.

In a White House memo sent on March 31 obtained by Bloomberg, senior adviser Anita Dunn wrote that the support for the Covid-19 relief bill remained “steady and popular” from its introduction to its passage. Her memo signaled the White House hopes for the same success with the infrastructure proposal. It cited polling that shows spending on infrastructure is supported by more than half of Americans.

Biden’s team members “have pretty successfully re-positioned the idea of unity to mean a super-majority of the country supports what they are doing — the test is not whether you can get Kevin McCarthy to vote for it,” John Podesta, former counselor to Obama and former chief of staff to President Bill Clinton, said in an interview, referring to the Republican leader in the House.

However, passing the stimulus as the U.S. recovered from the pandemic and an economic downturn will likely prove far easier than Biden’s latest proposal. The argument to the public is trickier, as the price tag is larger, and its elements are disparate — a combination of proposals to rebuild roads and bridges, increase broadband access, invest in clean energy and expand child and elderly care that is difficult to brand.

‘Incredibly Misguided’

“Raising taxes in the middle of an economic crisis is incredibly misguided,” said Senator Mike Crapo of Idaho, the senior Republican on the tax-writing Finance Committee. “Hastily changing the tax code purely for the purposes of raising revenue will bring back inversions and foreign takeovers of U.S. companies, cost jobs, shrink domestic investment and slow down wage growth.”

A new factor in the debate is resurgent U.S. job growth. The country added more than 900,000 jobs in March, more than economists had forecast, as coronavirus vaccinations accelerate and the economy reopens, a report showed Friday.

The administration will also need to accommodate the differing wings of the Democratic party. Even strong supporters expect negotiations to drag on for months, and they worry there is a limit to Congress’s appetite for huge pieces of legislation in the first year of the new administration.

Even so, one White House official said anyone arguing there is not as much urgency surrounding the infrastructure proposal should talk to a mayor or governor waiting for two presidential administrations for the investments now planned.

Aides have said they want significant progress on the bill by Memorial Day, late next month. Biden last week assigned Transportation Secretary Pete Buttigieg, Energy Secretary Jennifer Granholm, Commerce Secretary Gina Raimondo, Housing and Urban Development Secretary Marcia Fudge and Labor Secretary Marty Walsh to take on the role of emissaries for the infrastructure package.

The five Cabinet officials started their sales tour by phoning top congressional committee chairs and ranking members last week, holding calls with bipartisan governors and mayors and doing roughly 25 TV and radio hits at both the national and local level.

Outreach Efforts

Next week, the Cabinet members plan to hold a series of meetings with congressional committees once the lawmakers return from recess, said a White House official.

The administration has also been reaching out to progressive groups, labor unions, business leaders and business groups, a second White House aide said.

For the pandemic-relief bill, senior administration officials made dozens of appearances in local media and focused their efforts on key political battleground states like Ohio, Pennsylvania, Arizona and Georgia. Biden visited Wisconsin and Michigan — states he flipped from Donald Trump to win the presidency — to make the case directly.

“Voters agree on many more issues than elected officials,” said Celinda Lake, who served as one of the top pollsters to Biden’s 2020 campaign and runs the polling firm Lake Research Partners.

Polling Data

Recent polling from Navigator shows at least 70% of Republican voters support increased funding for highway and bridge construction, new job-training programs, expanding broadband access and making childcare more affordable for families.

Half of Republicans surveyed in the poll said they support government investment in clean energy.

And polling by Morning Consult and Politico shows 54% of voters support Biden’s infrastructure plan with tax increases on corporations and Americans earning more than $400,000 — including 32% of Republicans.

“Even things that Washington Republicans treat as polarizing, like investment in clean energy infrastructure, has support among Republicans. This is not where we were a decade ago,” said Jeff Liszt, a partner at ALG Research, the top polling firm to the Biden campaign.

Mixed Messaging

Republicans have, meanwhile, shown they are not unified in their criticism of Biden’s policies.

After the Covid-19 aid bill became law without a single Republican vote in Congress, some GOP lawmakers nevertheless promoted provisions included in it that would help their constituents. In Mississippi, for example, GOP Senator Roger Wicker lauded spending to help restaurants and small businesses.

And there’s been little effort by Republicans to criticize that bill for adding to U.S. deficits and debt — a common attack from the GOP before Trump, who cut taxes and raised spending without focusing on the budgetary impact.

Biden’s allies interpret the lack of GOP message discipline as a sign that appealing to Republican voters and local leaders is a more important tactic than trying to persuade their Washington representatives.

“Immediately after the recovery act, we did not see Republicans talking about deficits and spending. We saw them talking about Dr. Seuss,” Liszt said, in reference to political battles over cultural issues. “That was not an accident.”

With the public-appeal plan in place, the White House is rejecting any suggestion of splitting off from the proposal a package of the more traditional infrastructure items, like roads, that could get congressional GOP votes.

“Let’s be very clear: all of these pieces are core to our nation’s infrastructure and they’re core to America’s competitiveness,” said White House economist Heather Boushey on Bloomberg TV Monday.

Why Biden’s Infrastructure Plan Is A Green Jobs Plan

Jobs vs. environment is an old trope whose time has passed.

“Once you put capital money to work, jobs are created.”

These are not the words of President Joe Biden, announcing his administration’s infrastructure plan in Pittsburgh on Wednesday. Nor were they the words of Transportation Secretary Pete Buttigieg, standing on a train platform to announce expanded service, or of any of the administration’s economists charged with touting the virtues of the $2.25 trillion spending plan.

It was Michael Morris, then-CEO of Ohio utility American Electric Power, who uttered them on an investor call a decade ago. AEP was fighting an Environmental Protection Agency proposal to reduce mercury and other pollutants from power plants, citing the expense of creating jobs to install new scrubbers on smokestacks or build cleaner plants.

Morris, taking his fiduciary responsibility to the utility’s investors seriously, argued these new roles would come at a cost to AEP and were, thus, bad. What he did not question, and correctly so, was whether more investments would indeed create more jobs.

All that held particularly true in 2011 since the economy, slowly emerging from the Great Recession, was far from full employment. As Josh Bivens, an economist at the Economic Policy Institute, testified at the time in favor of EPA’s air toxins rules: “There is no better time than now, from a job-creation perspective, to move forward with these rules.”

The economy is once again far from full employment. That made the $1.9 trillion American Rescue Plan, passed last month, so important. It is also a clear point for passing the infrastructure package now, and for spending the money soon.

“Jobs versus the environment” is an old trope. There are indeed some real tradeoffs. When a tree cannot be cut to protect the northern spotted owl, the tree cutter is out of a job. Climate is different.

Cutting CO₂ isn’t about stopping economic activity, as last year’s Covid-19 lockdowns have vividly shown. Even the near-total lockdowns last April only decreased CO₂ emissions by around 17% per day compared to 2019 levels, around 7% for the entire year, with emissions bound to increase this year. Re-guiding market forces toward fully decarbonizing economies implies more economic activity, more jobs, not less.

That does not mean that all jobs will stay the same. They won’t, and they shouldn’t. Biden’s infrastructure plan, for example, is projected to cost around 130,000 jobs in the oil, coal, and gas industry. Providing these workers with a viable alternative must be part of the clean energy transition, and it is. Biden’s plan includes $16 billion to help retrain and employ fossil fuel workers to plug orphan oil and gas wells and clean up abandoned coal mines.

That comes on top of $10 billion to create a Civilian Climate Corps aimed at training the next generation, and many more programs with specific climate-related goals—both to cut CO₂ emissions and to fortify U.S. infrastructure to make it more resilient to climate changes already in store.

Then there are more far-reaching changes that a cleaner future will bring. An electric vehicle takes about one third fewer workers to build than a gas guzzler. That one-to-one comparison, however, misses dynamic effects, and international competition.

Much of the jobs impact does not come from one-to-one comparisons but from who produces the vehicles in the first place. China, for example, now dominates the global market for lithium-ion batteries. That domination stems from access to raw materials but also from its large domestic battery market. Creating such a market in the U.S. would also help build a domestic supply chain.

Many other parts of the infrastructure plan are even more directly linked to jobs, especially in building and construction sectors, which can hardly be outsourced across international borders.

It is also why this infrastructure package is perhaps the most durable of climate policies. The Reagan White House famously removed largely symbolic solar panels installed during the Carter administration, but most actual infrastructure investments are here to stay.

Short of large bipartisan majorities for CO₂ emissions cuts, this feature is important. Future administrations are not going to strip homes off their better insolation, or rip out bridges or train lines. It helps that weatherizing homes and building infrastructure goes hand-in-hand with more jobs.

Biden’s Grid Proposal May Be A Square Peg In A Round Hole

While tax credits helped solar and wind energy take off in the U.S., it is much less clear that it would have a similar effect on transmission lines.

When you have a fiscal hammer in the form of tax credits, perhaps everything looks like a nail.

President Biden’s infrastructure plan proposes some tried-and-trusted methods to spur clean-energy development such as a 10-year extension of existing tax credits for solar and wind energy. More interestingly, it introduces an investment tax credit for high-voltage transmission lines.

The goal is to incentivize the build-out of at least 20 Gigawatts worth of transmission. That is roughly the amount of transmission that could match the Texas grid’s very significant wind generation.

The administration is certainly looking in the right direction: To reach President Biden’s net-zero emissions goal by 2050, the U.S. will need to expand electricity transmission systems by 60% by 2030 and may need to triple it by 2050, according to research published by Princeton University in December. That is because renewable energy-rich places such as the windiest regions aren’t necessarily close to population centers, where electricity demand is.

While the clean-energy industry probably won’t complain about a new subsidy, the tax-credit proposal is a bit of a head scratcher given that the real roadblocks to transmission lines have to do with permitting, much of which is in the hands of state and local authorities.

“For most transmission we need in the country, it’s not a cost issue or an access-to-capital issue, although transmission can be delayed because of cost allocation debates,” said George Bilicic, global head of power, energy and infrastructure at Lazard.

Tax credits were instrumental in helping wind and solar take off because funding really was a bottleneck to development. When tax credits were introduced for wind and solar in 1992 and 2005, respectively, the technologies were much more expensive than they are today and not fully trusted by investors. By contrast, transmission line technology is well past middle age: Modern high-voltage transmission lines have been around since the 1950s.

In that vein, it is true that a tax credit for transmission could help offshore wind, still relatively new to the U.S., become more cost competitive, as Clarke Bruno, chief executive officer of transmission developer Anbaric Development Partners, notes. Because there is no offshore grid, U.S. offshore wind projects all need to build transmission lines from scratch to connect to the shore.

The proposed plan also calls for a so-called Grid Deployment Authority within the Energy Department to “better leverage existing rights of way” along roads and railways. That would be a good first step, though eminent domain—the power of the government to take private property and convert it for public use—remains largely within state regulators’ hands.

While the Federal Energy Regulatory Commission has authority to grant natural-gas pipelines the right of eminent domain under the Natural Gas Act, there is no equivalent authority for electricity transmission under the Federal Power Act and little momentum in Congress to grant that provision.

The infrastructure plan is certainly a helpful indicator of what the Biden administration prioritizes. Soon, however, it will come to realize something that transmission line developers have known for a while: The devil is always in the details.

Updated: 4-7-2021

Amazon’s Jeff Bezos Supports Infrastructure Bill, Corporate Tax Hike

Amazon.com Inc. Chief Executive Officer Jeff Bezos said he supported investing in U.S. infrastructure and a hike in the corporate tax rate to help pay for it.

Weighing in as lawmakers debate the Biden administration’s $2.25 trillion infrastructure plan, the Amazon founder said his company backs “making bold investments in American infrastructure,” but stopped short of endorsing the president’s proposal.

“We recognize this investment will require concessions from all sides — both on the specifics of what’s included as well as how it gets paid for (we’re supportive of a rise in the corporate tax rate),” Bezos said in a brief statement posted to Amazon’s corporate blog site. “We look forward to Congress and the Administration coming together to find the right, balanced solution that maintains or enhances U.S. competitiveness.”

Amazon traditionally shuns hot-button political issues that aren’t directly tied to its business to avoid alienating customers. But the company has been caught up in the debate about infrastructure and how to pay for it. Just last week, Biden cited Amazon as an example of a company that didn’t pay any federal income tax, drawing a contrast with individuals unable to cut their tax bills to zero.

Jay Carney, a Biden staffer during the Obama administration who today leads Amazon’s lobbying and communications teams, addressed the critique on Twitter, saying that Amazon had reduced its tax burden with credits meant to incentivize spending on research and development.

Amazon historically has low profit margins, in part because it reinvests most revenue back into the company. This reduces the burden of corporate taxes based on profit, makes Amazon eligible for R&D tax credits and means a hike in such taxes would be less of a blow than to higher-profit corporations.

Still, technology companies like Amazon will likely pay more under the Biden plan.

Infrastructure investments would also help Amazon efficiently move goods around the country. Bezos has acknowledged in the past that the very existence of his company was predicated on massive public investments in the internet and the U.S. Postal Service.

Amazon has also received attention from the White House recently thanks to a closely watched union drive at a warehouse in Bessemer, Alabama. The administration released a video in which Biden said he supported the rights of workers to organize and encouraged employers to refrain from illegal interference in workplace campaigns, without mentioning Amazon by name.

Updated: 4-8-2021

There’s Another Way To Pay For Infrastructure Projects

Rather than raising taxes, we can finance bridge and road improvements by packaging and selling data on their usage.

It’s no secret that the roads, bridges, water and sewer systems that have shaped how our communities developed over the last century are, in too many cases, operating on borrowed time. Infrastructure is — after all — the collective of services that allows a society to function.

In its recently released infrastructure report card, the American Society for Civil Engineers (ASCE) counted more than 45,000 of the nation’s bridges as structurally deficient. Despite the poor condition of these overpasses, they carry 178 million trips every day.

While our drinking water system has improved in the past few years, there’s still a water main break every two minutes somewhere along its 2.2 million miles of pipes. Those are just two examples of the many U.S. infrastructure services that need to be fixed and future-proofed—and urgently.

It’s promising to hear that President Joe Biden is prioritizing infrastructure with a multi-trillion-dollar plan. To address the nation’s infrastructure needs by 2029, ASCE estimates the infrastructure finance gap between needs and available funding at $2.68 trillion across the multiple categories defined in the report card.

These include surface transportation, water and stormwater, energy, schools, inland waterways and ports, airports, solid waste management, levees and dams, and broadband, to name a few. If we are going to truly tackle the scale and breadth of these challenges, we have to turn to new financing and funding models.

Typically, governments use a combination of public and private financing instruments to pay for major infrastructure projects.

The main public financing comes from municipal bonds that are funded by taxpayers or project-specific revenue streams, revolving loans and grants. The rest comes from private financing through public-private partnerships such as toll roads and other user-fee-based arrangements.

But neither approach will raise enough money to eliminate our roads’ potholes, make all of our bridges safe and deliver clean drinking water that every member of the public can trust. The cost of borrowing enough is simply too high, or politically unpalatable, for cities and towns to collect in taxes. And the options on today’s menu of public-private partnerships won’t cover it in fees.

There is a better way. Based on my work with financing mechanisms that integrate performance or structural health metrics, there are ways to unlock new revenue streams for projects, tie the cost of borrowing to metrics (which lowers the risk), and decrease the cost of infrastructure operations using smart contracts. These new financing opportunities don’t require raising taxes, making it easier for them to garner bipartisan support.

We can do it with smart city infrastructure, but replacing existing systems won’t be instantaneous. The race is on to define transformative practical applications in road design, solar energy, water distribution systems, solid waste and port management.

Financing With Data

Increasingly, our roads and bridges, drinking water and sewer pipelines, buildings, ports and hospitals are outfitted with sensors and other data collection systems. An urban internet of things is emerging, and its data have the potential to generate an incredible amount of added value. We can harness this technology to deliver insights that will make financing more efficient and to develop the next generation of public-private partnerships.

Sensors can pull data on water flow, traffic congestion, air pollution and more—all of which can be processed to illuminate how to deliver services more efficiently and cost-effectively. The data are attractive to insurance companies because they help to hedge risk, and to investors because the information can give rise to new revenue streams, or create value well beyond the infrastructure itself.

For example, sensors on roads and bridges can monitor deterioration as well as the impacts of trucking. These insights could be used to price a fee structure for logistics companies based on how they reduce lifetime use or maintenance requirements. Models like this are being explored in the Netherlands and Germany.

Rather than charge tolls, public agencies in those nations are considering farming out bridge portfolios to asset management companies that are collecting anonymized data on traffic volume, truck weights and structural health. In turn, those companies can sell that data in derivative markets to materials suppliers, insurance companies, marketing firms and hedge fund investors.

In pilots that couple a new financing instrument with sustainability goals, utilities in Washington, D.C., and Atlanta, and Buffalo, New York, have issued “environmental impact bonds” for green stormwater infrastructure. Rather than financing construction of more “gray” pipes at a fixed interest rate, they’ve tied the cost of these bonds to outcomes.

Sensors measure stormwater runoff, and the performance of the infrastructure can be quantified and translated into operational savings for the utility. In turn, the utility pays out some of the savings to investors. Because the financial returns are uncorrelated to the broader market, interest from investors in this type of performance bond is ballooning.

The ‘Stock’ of Infrastructure

Indeed, just like data from smartphone apps create value, the data from physical infrastructure will lead to a new marketplace in which public infrastructure is a lot more attractive to private capital than it is right now. Data contracts can be securitized like mortgages, repackaged and resold in various business-to-business data markets.

Updated: 4-13-2021

Since When Does Government Have A Money Tree?

Don’t believe the assurances that higher taxes and low-interest debt servicing will contain the costs.

Someone, at some point, needs to pay for government spending.

Just because some politicians and advocates assume there’s a money tree for this purpose doesn’t make it so. Nor is it helpful for either side in the debate to talk in generalities, whether with reassurances that “the rich will pay,” on one hand, or with vague warnings that “higher taxes and larger deficits hurt the economy,” on the other.

In March 2020, Congress appropriately responded to the Covid-19 emergency by throwing fiscal caution to the wind.

But extraordinary measures were supposed to be temporary. Instead, many Democratic leaders got a taste of bigger government, and seem to like it. And measures like checks to households have proved very popular with voters.

The result? President Joe Biden signed a recklessly large stimulus that needlessly continues many lockdown-era measures. He is following that up with a push for over $2 trillion on infrastructure, in-home care for the elderly and disabled, and subsidies to the manufacturing sector. He will soon propose trillions more for programs to benefit workers and families. Many in his party are pressuring him to go even further — for example, to cancel a large share of student loan debt.

Biden would raise taxes on corporations to pay for a portion of his infrastructure proposals, and will call for increases on individuals to cover some of his proposed benefits for families.

But corporate tax increases aren’t a free lunch. Sure, the owners of capital will bear most of the burden of the corporate tax, but workers will pay a price as well through lower wages. If U.S. competitiveness decreases as a result, our children and grandchildren will also pay through slower productivity growth and lower incomes.

Higher income taxes on individuals reduce incentives to save and invest. Less investment will reduce productivity growth, which in turn will lower wages across the board.

Programs like Biden’s child allowance — which will send a monthly check to the majority of parents — can be thought of as transferring money from childless adults to adults with kids. Taxpayers without children pay.

A new working paper released by the nonpartisan Congressional Budget Office studied the longer-term effects of financing a large and permanent expansion of government spending through higher taxes. Using a progressive income tax, a $1 trillion increase in spending reduces the level of GDP by 5% and after-tax wages by 10%, after 10 years.

A $2 trillion spending boost reduces wages by 20% and GDP by 10%. CBO’s analysis does not include the economic benefits of the spending, but isolating the effects of the higher tax burden needed to finance it is illuminating.

Larger deficits also aren’t a free lunch. Even at today’s low interest rates, government debt reduces private-sector investment by putting upward pressure on interest rates. A recent CBO working paper estimates that rates rise by 2 to 3 basis points for every 1 percentage point increase in the ratio of debt to GDP. Less investment leads to lower wages.

The U.S. could borrow to cover spending today and increase taxes in the future to pay down the debt. But raising income taxes — in this case, on future generations — has the drawbacks I previously discussed. Alternatively, the government could allow for higher inflation to reduce the debt burden. But inflation operates as a tax by reducing the purchasing power of savings, hurting those on fixed incomes.

It is commonly argued that because the safe interest rate is below the economic growth rate, we can climb out of the red, because the debt burden grows more slowly than the economy.

China’s Commodities Binge Makes America’s Future More Expensive

The U.S. spending plan faces a big problem: Beijing got to all the raw materials first.

Fresh from passing a $1.9 trillion stimulus bill, U.S. President Joe Biden on Wednesday turned his attention to a similarly vast package of investment in infrastructure, and that means the U.S. is going to need more commodities.

There’s Just One Problem: China.

America requires steel, cement, and tarmacadam for roads and bridges, and cobalt, lithium, and rare earths for batteries. Above all, it needs copper—and lots of it. Copper will go into the electric vehicles that President Biden has said he’ll buy for the government fleet, in the charging stations to power them, and in the cables connecting new wind turbines and solar farms to the grid. But when it comes to these commodities—and copper in particular—Washington is one step behind Beijing.

China was the first place the coronavirus struck, but it was also the first country in the world to start recovering from the pandemic. As the rest of the world went into lockdown and commodity prices plunged in March and April 2020, China went on a buying spree. Chinese manufacturers, traders, and even the government approached the global commodity markets much as a shopaholic might approach a fire sale.

“They bought a lot last year, and I don’t believe it was solely for their industrial needs,” says David Lilley, a veteran copper trader who is managing director of U.K.-based Drakewood Capital Management. “It was also about building the strategic reserves of copper needed for their plans.”

China imported 6.7 million tons of unwrought copper last year, a third more than the previous year and a full 1.4 million tons more than the previous annual record. (The year-on-year increase, alone, is equivalent in scale to the entire annual copper consumption of the U.S.) Traders and analysts reckon that China’s powerful and secretive State Reserve Bureau bought somewhere from 300,000 to 500,000 tons of copper during the price slump.

That already looks to have been a smart trade. In part thanks to China’s buying, copper prices have doubled from their March 2020 nadir to current levels around $9,000 a ton. But some reckon copper and other commodities have much further to run. The combination of rebounding global growth and government largesse has bulls fired up.

Wall Street analysts enthuse about a new commodities “supercycle”—a period of above-trend prices driven by a structural shift in demand, comparable to the China-led boom of the 2000s or the period of global growth following World War II.

Oil skeptics say faster adoption of electric vehicles will inevitably mean less demand for crude. But for metals like copper, there’s less disagreement. Normally cautious traders are trying to outdo one another in their predictions for new record prices.

Mark Hansen of Concord Resources Ltd., a London-based trading house, sees copper blasting past its previous record high of $10,190 to trade at $12,000 a ton in the next 18 months. Trafigura Group, the leading copper trader, thinks copper is going to $15,000. “This is as big a demand shift as the urbanization of China,” says Graeme Train, a senior economist at Trafigura.

The Chinese state has been investing huge amounts of money into infrastructure for two decades, so much that the country now accounts for around half of the world’s demand for many metals. This has also forced it to get smarter about its commodity purchases.

China’s copper smelters join together to handle negotiations with the world’s miners. Chinese entities, many of them state-owned, have bought mining operations everywhere from the Democratic Republic of Congo and Peru to Indonesia and Australia. In recent years, they’ve also been buying up international trading companies.

As for what might be called the commodities of the future, China is also ahead of the game. It’s the world’s largest producer by far of rare earths, critical in all kinds of high-tech applications. It dominates the processing of the raw materials needed to make lithium ion batteries— lithium, cobalt, nickel, and graphite—which are the building blocks of the electric vehicle revolution.

While just 23% of the world’s battery raw materials are mined in China, 80% of their intermediate processing takes place in China, according to Simon Moores, managing director of Benchmark Mineral Intelligence, who has advised the White House on the battery industry.

In its latest five-year plan published in March, Beijing showcased how it will go about strengthening its system of reserves of energy and commodities, including through holding strategic stockpiles. An official at the country’s reserves bureau set out Beijing’s views on commodity security in an article published in a Communist Party magazine last year: Stockpile a range of commodities.

That includes those in short supply, those for which there is high dependence on imports, those that exhibit large price fluctuations, and those produced in politically and economically unstable countries, the official wrote.

In the U.S., such security of supply has been of only peripheral concern. When Washington has paid attention to the geopolitics of commodities, its focus has been on the oil resources of the Middle East, and even that relationship has evolved as the shale revolution lessened U.S. dependence on imported oil. Copper and other metals have been an afterthought. While Chinese copper demand has soared over the past two decades, in the U.S. it’s fallen, analysts at Macquarie Group Ltd. point out.

The proliferation of stimulus packages means that this is surely about to change. While the details of Biden’s infrastructure push remain to be haggled over in Congress, consultancy CRU Group estimates that $1 trillion of spending could necessitate an additional 6 million tons of steel, 110,000 tons of copper, and 140,000 tons of aluminum annually.

“China has been looking at vulnerabilities in its supply chain from top to bottom for a while, and growing its strategic reserves,” says Lilley, the copper trader. “I don’t think the West has even begun to think about it. There is still a casualness here about raw material supply.”

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