There Are Plenty of Offsets for Infrastructure Package
A bipartisan group of senators has apparently reached agreement on a plan with $579 billion of new infrastructure spending. Meanwhile, President Joe Biden has proposed $1.7 trillion of infrastructure spending in his American Jobs Plan. The cost of either plan would come on top of the $195 billion shortfall in the Highway Trust Fund over the next decade.
These hundreds of billions to trillions of new investments must come with genuine offsets to pay for them. Luckily, there are many options available.
President Biden has proposed $2.1 trillion of corporate revenue increases in his budget to pay for the American Jobs Plan over 14 years and $1.5 trillion of individual income revenue increases to pay for most of the American Families Plan. Lawmakers should consider these proposals. But many other options are also available.
The tables below present numerous potential offsets, ranging from new user fees and charges – especially for businesses – to options to close the tax gap, reduce tax breaks, repurpose COVID relief dollars, and reduce other spending. These options could help finance new spending and secure the Highway Trust Fund.
The three tables below present roughly 80 options for lawmakers to consider.
Income Tax Options to Fund Infrastructure
| Policy | Ten-Year Savings |
|---|---|
| Reduce the Tax Gap and Close Tax Loopholes | |
| Increase Internal Revenue Service (IRS) funding by $40 billion over ten years^ | $65 billion' |
| Increase information reporting from financial institutions^ | No CBO Score' |
| Close carried interest loopholes^ | $20 billion |
| Improve S Corporation reasonable compensation rules | $20 billion |
| Close estate tax loopholes (mainly GRATs) | $20 billion |
| Clarify worker classification | $10 billion |
| Make shareholders liable for unpaid corporate taxes^ | $5 billion |
| Give IRS new authorities to regular paid prepares, correct errors, increase penalties, and otherwise reduce the tax gap^ | $5 billion |
| Modify or Build Upon the Tax Cuts and Jobs Act | |
| Permanently extend current law SALT and other itemized deduction limits | $700 billion |
| Restore estate tax to 2009 levels | $250 billion |
| Extend $10,000 SALT cap to businesses and corporations | $250 billion |
| Eliminate 20% pass-through deduction | $200 billion |
| Phase out pass-through deduction above $400,000 of income | $150 billion |
| Make 2017 child tax credit, standard deduction, personal exemptions permanent | $150 billion |
| Extend Tax Cuts and Jobs Act limit on business losses^ | $50 billion |
| Restore Pease limits | $40 billion |
| Reduce Tax Breaks | |
| Limit tax benefits of all deductions and exclusions to 28% | $400 billion* |
| Limit benefit of itemized deductions to 28% | $250 billion* |
| Require business to amortize advertising costs | $200 billion |
| Reduce the mortgage interest deduction cap from $750,000 to $500,000 | $150 billion |
| End the double deduction for donation of stock and appreciated assets | $100 billion |
| Replace tax-exempt municipal bonds with a credit | Up to $100 billion |
| Adopt Last-In-First-Out (LIFO) accounting rules | $100 billion* |
| Limit head of household filing to those with qualifying children | $70 billion |
| Freeze or reduce limits on retirement account contributions | $50 billion to $100 billion |
| Repeal fossil-fuel related tax breaks^ | $35 billion |
*Assumes enactment of President Biden’s proposed tax increases.
^Version included in the President’s budget.
‘The President’s budget proposes nearly $80 billion of IRS funding and a robust information reporting regime. It estimates the policies will raise $239 billion (net) and $473 billion, respectively. CBO = Congressional Budget Office.
User Fee and Excise Tax Options to Fund Infrastructure
| Policy | Ten-Year Savings |
|---|---|
| User Fees and Excise Taxes on Individuals | |
| Increase per-gallon gas & diesel tax rates | $15 billion per cent |
| Impose a per-mile vehicle miles traveled (VMT) fee | $150 billion per cent |
| Impose new vehicle sales tax | $50 billion per 1% |
| Establish vehicle registration fee (2x for trucks) | $4 billion per dollar |
| Enact a tire tax | $3 billion per dollar |
| Increase or expand Universal Service Fund Fee | Adjustable |
| Increase passenger airline fees | $9 billion per dollar |
| Tax all alcoholic beverages at $16 per proof gallon | $85 billion |
| Increase cigarette taxes | $0.7 billion per cent |
| Impose annual fee on electric vehicles | * |
| User Fees and Excise Taxes on Businesses | |
| Reinstate Superfund taxes^ | $25 billion |
| Impose per-mile fee on freight trucks and trains | $12 billion per cent |
| Impose per-gallon gas refinery tax | $15 billion per cent |
| Impose VMT fee on commercial trucks | $32 billion per cent |
| Establish US port container fee | $0.5 billion per dollar |
| Establish freight shipping tax | $100 billion per 1% |
| Impose a per-ton carbon tax | $44 billion per dollar |
| Impose per-barrel oil tax | $35 billion per dollar |
| Establish per-flight Air Traffic Service charge | $0.1 billion per dollar |
| Increase truck and trailer sales tax from 12% | $4 billion per 1% |
| Increase heavy vehicle use tax of $100 + 11% per | $0.1 billion per dollar |
| Increase aviation fuel tax | $1 billion per cent |
| Impose fee on covered liabilities of large financial institutions | $8 billion per basis point |
| Enact spectrum license fees | $5 billion |
| Impose inland waterway fees | $4 billion |
| Reauthorize special fee on nuclear facilities | $3 billion |
| Reauthorize and increase Oil Spill Liability Fee | $2 billion |
| Impose rail safety user fees | $2 billion |
| Reform abandoned mine financing | $1 billion |
^Included in President’s budget. Assumes Superfund excise tax at twice 1990s levels, but no Superfund corporate tax.
*CBO has estimated a $100 annual fee would raise $1.1 billion over five years, but we are currently working on our own ten-year projetions.
Spending Reduction Options to Fund Infrastructure
| Policy | Ten-Year Savings |
|---|---|
| Rescind or Repurpose COVID Relief | |
| Repurpose up to half of American Rescue Plan (ARP) state and local recovery funds (mainly 2nd tranche) | $115 billion to $175 billion |
| Repurpose ARP education funding projected to be spent in 2023 or later | $100 billion |
| End enhanced Medicaid match at the end of 2021 | Up to $50 billion |
| Rescind unused provider and public health funding | $50 billion to $100 billion (possibly less) |
| Rescind about half of remaining EIDL loans and advances | $25 billion |
| Rescind about half of unused FEMA funding | $25 billion |
| Reduce Health Care Costs | |
| Cancel Trump Administration drug rebate rule (takes effect in 2022) | ~$200 billion |
| Restore “Cost-Sharing Reductions” funding as in Alexander-Murray | ~$100 billion* |
| Freeze thresholds and increase Medicare premiums for high earners | $50 billion to $100 billion |
| Limit drug prices through negotiation with cap of 120% of international average | $350 billion |
| Reduce or eliminate state Medicaid provider tax loophole | $20 billion to $500 billion |
| Reduce excessive Medicare Advantage payments | $90 billion to $355 billion |
| Equalize Medicare payments regardless of site-of-care | $110 billion to $265 billion |
| Reduce and reform Medicare post-acute care payments | $90 billion |
| Reduce or repeal Medicare payments for bad debts | $25 billion to $80 billion |
| Reduce drug prices by reforming Medicare Part D benefit and limiting price growth | $120 billion |
| Reduce Other Mandatory Spending | |
| Measure inflation using the chained Consumer Price Index (chained CPI) | $275 billion |
| Increase federal worker retirement contributions | Up to $130 billion |
| Reform federal student loan programs | Up to $130 billion |
| Reduce crop insurance subsidies | $30 billion |
| Reinstate Discretionary Spending Caps | |
| Impose defense caps based on Biden Budget (1.6% growth in 2022, 2.2% growth from 2023-2026, 1% growth from 2027-2031) | $140 billion |
| Impose matching cap on nondefense discretionary (NDD) spending | $120 billion |
| Enact one-year defense freeze | $150 billion |
| Enact one-year nondefense freeze | $130 billion |
| Cap total spending growth at 1% for one year (roughly even defense/NDD split) | $145 billion |
| Cap spending growth at 1% for two years (roughly even defense/NDD split) | $275 billion |
| Cap spending growth at 1% for five years (roughly even defense/NDD split) | $600 billion |
| Freeze spending for five years (roughly even defense/NDD split) | $1.1 trillion |
*Might not officially count as scoreable savings under CBO’s methodology and scoring rules.
***
With the national debt set to reach a record as a share of the economy this year, it is vital that any infrastructure deal fully pay for its costs over ten years and secure the Highway Trust Fund. Doing so will ensure that the investment is truly pro-growth and that it does not worsen our bleak fiscal situation.
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