economic stimulus

A Peek Inside a Percolating Infrastructure Package

With the tax bill passed and despite looming spending decisions, the next big thing in Congress could be the long-promised, but still percolating Trump infrastructure package.

With the tax bill passed and despite looming spending decisions, the next big thing in Congress could be the long-promised, but still percolating Trump infrastructure package.

With the tax bill in the rear-view mirror, the next big thing for Congress could be the long-promised $1 trillion Trump infrastructure package.

Based on conversations with Hill committee staff members and leaked reports, details of the package, which President Trump says he will unveil in January, are coming into view. Here is a sneak preview:

One of the four funding pots in the Trump package would invest in innovative transportation projects such as Elon Musk’s proposed hyperloop subsonic train.

One of the four funding pots in the Trump package would invest in innovative transportation projects such as Elon Musk’s proposed hyperloop subsonic train.

  • There is a 70-page outline of the package under review in the bowels of the Office of Management and Budget.
  • Four pots of money will be created, backed by $200 billion in direct federal spending.
  • Half of the $200 billion would be distributed to states to use as financial incentives for road, transit, broadband, water and housing projects that can attract at least 80 percent of non-federal funding. This would theoretically attract $500 billion in new infrastructure investment from public and private sources.
  • A separate pot would be established for rural projects, using the more tradition 80 percent federal/20 percent non-federal funding split.
  • The third pot would be assigned to innovative projects such as Elon Musk’s hyperloop initiative or other technological advances that revolutionize transportation systems.
  • The fourth pot would add financial incentives to the Transportation Infrastructure Finance and Innovation Act (TIFIA) and Water Infrastructure Finance and Innovation Act (WIFIA), which provide federal credit assistance in the form of loans, guarantees or lines of credit.
  • All projects receiving funding from the $200 billion would be exempt from federal requirements such as NEPA (environmental review), Davis-Bacon (prevailing wages) and Buy America.

The Trump plan would face a rough road to passage, especially in the Senate where the Republican majority has been trimmed to just 51-49. GOP congressional leaders are reportedly working on their own infrastructure proposal, with an eye on what it would take to attract at least some Democratic support.

While there will be vigorous debate over how to invest billions of dollars, the main political stumbling block will be resistance of GOP conservatives to spend more money and drive up the federal deficit even further. That stumbling block is already in the path of Congress finding a way to avoid a partial federal government shutdown by a self-imposed deadline of December 22.

Congress may skirt by the December 22 deadline by agreeing to another short-term spending resolution until January 19. Sooner or later, Congress will have to face the larger spending and deficit picture, which includes GOP demands for a major increase in defense spending, $200 billion for hurricane and wildfire relief, another $2.4 billion for the Veteran’s Choice Fund, $50 billion extension of the Children’s Health Insurance Program and continued funding for health insurance stabilization.

The spending splurge in Washington has already prompted GOP leadership to talk openly about mandatory spending cuts for SNAP, Social Security, Medicare and Medicaid. Trump’s decision to postpone signing the $1.5 trillion tax-cut bill until January is an attempt to push off mandatory cuts until 2019, after the 2018 mid-term election. GOP Senate Majority Leader Mitch McConnell has announced the Senate won’t look at what Republicans refer to as “entitlement reform” in 2018.

There also could be pushback from economists who warn that adding a major transportation bill on top of huge tax cuts intended to stimulate the economy could resurrect the sleeping bear of inflation.

Despite all that, Trump is expected to push for his infrastructure package and McConnell appears to be a willing ally. The package might be the best shot for a major bipartisan legislative effort during 2018.

 

Put Economic Growth on the Card, Please

A "supply-side liberal" economist says the fastest, cheapest way to revive the nation's economy is to give every adult a $2,000 federal credit card.American consumers are keeping their wallets in their pockets, which has prompted a novel suggestion from an economics professor to give everyone a $2,000 federally backed credit card.

Miles Kimball, a "supply-side liberal" from the University of Michigan, says a federal credit card for every U.S. taxpaying adult would stimulate consumer purchasing and, in turn, generate more demand — and jobs — in the manufacturing, wholesaling and retail sectors.

People could use the $2,000 now and not repay the loan, at a low interest rate, until the U.S. economy has fully recovered, Kimball explains. It would be similar to — only more potent and less expensive — than the Federal Reserve loaning money to banks to loan to average Joes.

Kimball says his idea is the fastest — and maybe only remaining — way to stimulate economic growth as Congress is high-centered in political gridlock and President Obama is on the campaign trail. He adds that a federal credit card would be more effective than tax rebates or credits — and less costly. The card only benefits people who use it and they eventually will pay back what they borrow, plus interest. Since the credit cards would be issued by the Federal Reserve, they won't deepen the federal deficit because the Fed operates on its own, separate balance sheet.

Rhyming History Without Reason

Mark Twain said history doesn't repeat itself, but it does rhyme. Could we be repeating steps that led to the recession following the Great Depression?All the attention on the federal debt ceiling, deficits and debt may be a mistimed priority as some commentators and historians argue U.S. policymakers should focus instead on stimulating consumer demand to get economic recovery into full gear.

"Most people realize that a failure to raise the debt ceiling could be catastrophic," says Millsaps College historian Robert McElvaine, who is author of The Great Depression: America, 1929-1941. "But the drastic cuts in federal spending that some Republicans are demanding in exchange for an increase in the debt ceiling would be a repeat of the mistakes that prevented a full recovery in the 1930s and then caused a secondary collapse in 1937. Enacting these cuts is the most likely scenario in which the current recession could become a new depression."