How should we pay for infrastructure? That question has been at the heart of U.S. infrastructure policy for decades — and it’s among the most divisive of the many divisive issues that led to the dramatic and at times ugly debate over infrastructure legislation.
The traditional Democratic answer has been, “raise taxes.” But higher tax rates are clearly a political nonstarter. The traditional Republican answer has been “anything but taxes,” an unhelpful bit of orthodoxy. Moderates on both sides have suggested a combination of taxes, user fees and public-private partnerships (PPPs).
Fortunately, the American people have a view; and their answer is practical and not dogmatic. They believe that those who use infrastructure should pay for it but believe equally that the federal and state governments, through taxes, should also fund our infrastructure.
I recently conducted a survey of 1,000 Americans through the Development Research Institute at New York University to examine Americans’ attitudes and opinions about key infrastructure issues. Sixty-eight percent reported they were willing to pay more in exchange for safer and more reliable infrastructure.
According to the survey:
- Americans are equally willing to pay for better infrastructure through user fees and “use taxes” (such as gasoline taxes) (45 percent), and an increase in federal and state taxes (47 percent);
- The 45 percent who reported they favored use taxes for safer and/or more reliable infrastructure said they would be willing to pay more for infrastructure projects that benefitted them;
- Residents of states such as Florida, Texas and California, would rather pay for better infrastructure through user fees and higher gasoline taxes than increases in federal or state taxes;
- But there is a generational divide; Generation Z is more willing to pay for infrastructure through user fees and higher gasoline taxes (54 percent) than Generation X (44 percent);
- Those living in urban areas are more willing to pay for infrastructure through user fees and the private sector (51 percent) than rural areas (43 percent) and;
- There was surprising bipartisan consensus: A significant number of Republicans were willing to pay federal and state taxes (41 percent) or use taxes (41 percent) for safer or more reliable infrastructure — almost the same level as the total across all party affiliations (47 percent and 45 percent).
Independent research produces similar results. In the 2021 annual survey by the Mineta Transportation Institute of San Jose State University, 71 percent of Americans favored increasing the federal gasoline tax by 10 cents if the revenue would be dedicated to maintenance. Roughly half supported mileage fees, either on all travel or just commercial travel, with 62 percent adding that fees should be reduced for low-income drivers.
In an ideal world, there is nothing wrong with using general tax revenue to fund infrastructure. Public funding is a legitimate way to pay for the public good. But in a toxic, polarized political environment — where Texas drivers will not want to pay for New York roads — across-the-board taxation as the sole source of funding is not a viable option. This year’s infrastructure debates bear that out — the bipartisan infrastructure framework had no provisions for a tax rate increase. Under our current, real-world conditions, user fees and use taxes offer a viable alternative — though ultimately, private investment will be necessary if we are to meet our long-term infrastructure needs.
Political resistance to taxation has had a long-term negative impact. U.S. infrastructure funding started to fall in 1970, and we currently spend less than 1 percent of GDP on infrastructure — in contrast to China’s 8 percent. The consequence is neglect and decay — the power failures, floods, poor roads and tainted water that disrupt everyday life, undermine economic growth and productivity, and in the most extreme cases, such as Hurricane Ida and its aftermath, threaten public safety.
The consequences of this underinvestment cannot be minimized. The American Society of Civil Engineers (ASCE) estimates that we are currently spending $2.59 trillion less than is needed just to bring existing infrastructure into an adequate state of repair — without starting any new projects. According to the ASCE, if the gap is not addressed, the cost will be $3.9 trillion in U.S. GDP by 2039.
Political resistance to infrastructure spending also leads to a too-short funding cycle and a dangerous near-term focus. Infrastructure should be planned, funded and managed on a decades-long time horizon. But appropriations cycles don’t work that way. And concerns about inflation hamper long-term investment. During downturns, administrations are eager to fund infrastructure to stimulate the economy. But as the economy improves and interest rates rise, inflation fears set in and funding is cut. Important projects lose out. Opponents of the 2021 infrastructure bills specifically cited inflation concerns.
The people know better — they recognize that infrastructure is essential. In my survey, most Americans, members of both parties, responded that infrastructure was our most important national priority, more than COVID-19, tax rates, the national debt or racial inequality. It’s not surprising, then, that they are willing to dig into their own pockets to repair the damage and build new, modern infrastructure.
With these sentiments in mind, Congress should revise its position on the gasoline tax as well as on user fees. As the survey results demonstrate, we should rely on taxes but also on user fees, PPPs and privatizations to fund our long-term needs for infrastructures. Some have argued that use taxes and user fees can be regressive. We need more serious research to analyze how regressive user fees are, by state and by sector. Today, technology can help target groups that could benefit from tax credits or user-fee exemptions. Sixty-four percent of those surveyed believe that technology could be critical to improving the delivery of infrastructure.
Americans understand what’s at stake — and political leaders should take note. But it will ultimately require all available funding mechanisms, public and private, to address our current crisis and give us the 21st century infrastructure we need.
Sadek Wahba is a senior fellow at the Development Research Institute of New York University. He is also chairman and managing partner of I Squared Capital, an independent global infrastructure investment company. The views expressed in this paper do not necessarily reflect those of the organizations mentioned above.