December 18, 2014

Policymakers Should Pay for Any Additional Infrastructure Spending

  • Discretionary spending is the portion of the federal budget determined through the Congressional appropriations process. Approximately one-third of...

Last week President Obama called for an additional $50 billion in infrastructure spending, which he argued would create jobs and help the nation to compete in the global economy. It is encouraging that the administration has said that it will work with Congress to fully pay for the plan.

Obama once again proposed creating an infrastructure bank to increase coordination and use federal dollars to leverage private and state funding.  At a 2008 hearing, then CBO Director Peter Orszag cautioned that while creating entities to finance projects outside of the appropriations process could allow federal spending to support more projects, "they are not sources of free money."  If the bank were to have the authority to issue its own debt, it could incur higher interest costs than the Treasury and potentially expose the government to the risk of default.

CBO Director Doug Elmendorf testified earlier this year that infrastructure spending directly increases employment as workers are hired for construction projects. However, he pointed out that "infrastructure projects often involve considerable start-up lags." CBO has ranked infrastructure spending as less effective than proposals such as a payroll tax reduction that would work more quickly.

Economic stimulus and fiscal responsibility need not be mutually exclusive. When $50 billion in additional infrastructure spending is on the table, offsets such as increasing the gas tax or cutting spending in other areas should also be a part of the discussion.