The 2016 election season has been going on for what feels like decades, and somehow still has four long months remaining. I’m not running, and would face a merciless beating that would make me cry if I did run, but if I were in the race then here are four straightforward proposals to improve the economic outlook of this country that I would campaign on:
- America’s infrastructure grade is a D+ with an estimated $3.6 trillion backlog of investments needed. Since the middle class would disproportionately benefit from infrastructure jobs, and solid infrastructure provides huge benefits to the economy as a whole, fixing and improving existing infrastructure seems the most obvious way to benefit the largest number of people. Spending on infrastructure supports jobs, improves efficiency for everyone who uses the infrastructure, and saves money in the long run – as the saying goes, an ounce of prevention is worth a pound of cure. Also, to this engineer, infrastructure is super cool – I like bridges and water mains and the electrical grid. The current federal budget allots around $100 billion annually for infrastructure, so I’d propose doubling that for the foreseeable future, which still wouldn’t even come close to dealing with the current maintenance backlog. Since the US currently gets far less bang for its buck than other countries due to red tape and other issues, I’d also require that spending be allocated to reward the best-managed projects, encouraging fixed-cost contracts, fast-tracking projects where appropriate, and giving preference to projects that have local dollars behind them already.
- To pay for this infrastructure spending, and in the process ensure that no one would vote for me, I would propose increasing the gas tax (which hasn’t been raised since 1993). Raising the tax by five cents per year over the next two years would move it from the current level of 18.4 cents per gallon to 28.4 cents per gallon, after which it should be automatically increased each year based on the inflation rate. Currently the gas tax brings in about $34 billion per year, so this move would increase that amount to $52 billion. I’d augment that with a one percent levy on new vehicles, since as vehicles become more fuel efficient the gas tax is a less accurate way of ensuring that those using the road pay their fair share. Given that there were $570 billion in new car sales in 2015, plus a similar amount for commercial vehicles, this levy would raise about $11 billion annually. That gets about $30 billion of the $100 billion needed, and when you factor in the stimulus effect of increased infrastructure spending (project workers pay taxes on their earnings, etc), and the fact that fixing things now saves money down the road, you could probably add another $5-10 billion, but additional revenue would still be needed, so…
- Raise the capital gains tax rate from 20% to 25%, which should produce about $40 billion in additional annual revenue. Currently it seems fundamentally unfair that someone working forty hours a week is paying a significantly higher tax rate compared to someone who primarily makes their money from investments. That still leaves a gap in the revenue needed to pay for the increased infrastructure spending, so to close it and also ensure that opposition to my election would be as energized as possible I would propose phasing out the mortgage interest deduction, but doing so over the next 20 years to avoid causing financial distress to current homeowners. The current cost of that deduction is $70 billion per year, with most of the money going to people who don’t really need it. Furthermore, it’s a deduction that doesn’t make a lot of sense – why should the government provide a deduction to homeowners but not renters? And before anyone screams that these proposals are just soaking the rich, I currently benefit from both the capital gains rate and the mortgage interest deduction and nevertheless think they are bad policy.
- The above proposals actually generate about $35-45 billion more than is needed to cover the increased spending on infrastructure, so if I’m extrapolating the tax revenues correctly, some of the pain from the loss of the mortgage interest deduction and the increased gas tax could be offset by using the leftover revenue to phase-in middle class tax cuts of 1-3% for single filers making less than $91,150 or joint filers making less than $151,900, thus reducing the current 10-25% tax brackets down to 7-22%; no reductions would be made to higher tax brackets.
I realize that, while everyone gets to enjoy better infrastructure, the above proposals would mostly benefit the middle class at the expense of the rich. I don’t in any way think that’s a bad thing – I would personally pay more taxes under these proposals and would be OK with doing so since a strong middle class improves the economy for everyone. More importantly, from the standpoint of fairness, economic benefits have disproportionately benefited the wealthy over the past thirty years, so a correction is overdue in a country where many households are currently forced to choose between fixing the family car or sending their kid to summer camp.
I won’t be running for office anytime in the foreseeable future, and if I made proposals like those above they would be guaranteed losers, but for a journal entry it’s a fun subject to think about and put forward for discussion.