Bipartisan Infrastructure Bill: These Are Not the Taxes You Are Looking For!

 

There is an interesting facet in the Bipartisan Infrastructure Bill (BIB) that a group of five Democrats and five Republican Senators are proposing to ‘break’ the typical impasse between Democrats and Republicans in Congress on anything. As an attempt to ‘compromise’ it is a rather modest, at best, effort to achieve even the desired ‘pure’ infrastructure efforts proposed by the Biden Administration and Democrats. The ‘new’ Infrastructure items are absent in toto. But within the BIB is a small item that is included as an “option”. That option is to provide an ‘inflation-based indexing’ of gasoline taxes.

So, to accommodate an essential inviolate Republican ‘line in the sand’ the BIB is presented as a “no new taxes” bill. This is a common tactic among politicians, they use their phrasing and personal interpretation as to what anything ‘is’. Just the simple term “new” is highly nuanced. What “new” means is actually very important. Consider if I were to propose that I was going to build a dam but that ‘no new laws of physics’ were going to be used, what would that prevent me from doing? I still get to use all the ‘existing’ laws of physics. So, a promise of “no new taxes” only prevents the use of a tax that doesn’t already exist. What does it allow however?

This is where that pesky personal interpretation could come in, and in fact the Republicans have wedged in at least one such view. The Republicans seem ok with the use of an existing gasoline tax. After all, it is not a ‘new’ tax. Now, because that ‘sleight of hand’ maneuver is just to easily something that the public (even voters) can readily see as disingenuous the BIB provides it as an “option” that can be used. Wow! I feel much more that there are “no new” taxes now. But there is a second-order tactical evasion included in the “no new taxes” optional funding mechanism. The ‘optional’ “no new” tax is only applied as a “inflation indexing” adjustment. The ‘not new tax amount’ that might ‘optionally’ be used is simply to adjust the current gasoline tax-rate to account for Inflation. So, it is really not “new” but just an ‘adjustment’ because the increased amount of money that users will have to pay is only because if ‘Inflation’. Just like the dam I am going to build won’t change the flow of water because I only used the ‘existing’ laws of physics!

Now, you might think that we have covered this taxation issue pretty much completely. Except what about the reasoning* behind this ‘not a new’ tax notion beyond is it ‘new’ or not? [Note: * I am asking the reader to apply their ‘suspension of disbelief’ skill to the notion that politicians reason.] What about some other factors and considerations that we have to hope politicians think** about when proposing and crafting legislation. [Note: ** Just like first note, lets assume politicians think.] For example, who is being taxed? And, who benefits from the taxes? Oh yeah! What makes this approach ‘fair’ and ‘equitable’?

Who would be taxed? Well, it’s a gasoline tax; so, people who drive cars on the roads and bridges or who use gas in boats or other gasoline-powered devices like backup-power generators for instance. Well, everyone drives a car right? So, that makes it fair. Except even if millionaires and billionaires drive a car, is the cost of gasoline for them a ‘fair’ distribution of a tax policy? They don’t dry more than anyone else really, probably less actually. However, why are people driving vehicles on roads and over bridges?

We drive cars (and truck and such), for all the usual reasons. To get to and from work and school, and in the fields that grow our food. Cars are used by those whose jobs are in the transport industry, be that transport of produce, goods, or people. Folks use cars to go to stores in order to procure anything from food to furniture. We also use cars to go to entertainment events and take vacations; but this category of use is at a lower quantity than those above. We are thus taxing virtually everything in our economy and spreading that tax burden over everyone to the degree that those activities are part and parcel of their lives, life-styles, and economic rung.

Now, if you assessed how much everyone is taxed; how you measure that is quite significant. Is the amount of tax you pay fair compared to someone who makes half of what you do? How about compared to someone who makes ten, hundred or a thousand times what you do? If you think this is fair then there is a far better, cheaper, and more reasoned way to do all this without a gasoline tax. Wouldn’t it be better to have a cheaper way to obtain the same tax revenue? If you don’t think this is ‘fair’, then a gasoline tax approach is problematic, isn’t it?

What about who benefits? That should be a pretty easy answer. Everyone. But does everyone benefit equally or more precisely do we all benefit in what would be a consistent ‘fair’ manner given how the taxes are ‘fairly’ applied? We all get to go back and forth to work/school (unless you work/school-at-home). Farmers get to farm, truckers/deliverers/drivers get to truck/deliver/drive, customers get to purchase, and we all get to go out and enjoy as we choose. But once again there is that nagging question of did you benefit just like the person who earns half your salary, and just as much as those who earn ten, a hundred, or a thousand times what you earn? There seems to be some form of asymmetry happening here just like there was in the amount of taxes paid by everyone.

Is it possible that those at the top pay in relatively little but get out a much greater benefit? To be honest, this is an overly complex and difficult question to answer because it involves so many other factors and considerations. But has a quite real regressive, even repressive, attribute on putting more of the burden on those in the lower economic tiers than those in the top tiers. Consider corporations as some of those ‘persons’ at the top. They pay their mileage tax costs and any derivative gasoline-tax costs that flow-through to them and then pass those along to their customers. However, these same corporations earn their revenues from their customers who are paying for those same taxes in the prices they are paying the corporation for its goods. Their profits can be the same in an absolute sense, or even higher if they earn the same profit percentage on a higher priced product.

It is a difficult situation to determine what it mean to be ‘fair’ in with regard to a gasoline tax policy and structure.

So, when the politicians tell you, “These are not the taxes you are looking for” be very skeptical. These may be exactly the taxes you are going to pay.  

Grand Economic Experiment

 

This ought to be an exciting time and opportunity for economists. I know, I know, exciting and economists are terms rarely used together in the same sentence; but you must also consider that ‘exciting’ is a relative term and like everything needs to be understood in context.

Anyway, back to the Grand Economic Experiment! (GEE!). If the article’s topic doesn’t automatically convey what the GEE! Is then it is prudent to explicitly define it. GEE! is a voluntary selection by each state as to which experimental group they wish to belong. The groups differ in those that are choosing to end the COVID Unemployment Federal stimulus months earlier than required; and the other group are the states that are continuing to provide the Federal stimulus payments for the unemployed. That is what GEE! is at first glance. The reason that GEE! is a natural experiment is that this choice by the states is being done voluntarily and was not intentionally considered in the context of an economic experiment. But since each state is by default in one or the other group, we wind up with a ‘natural’ economic experiment, GEE!.

There is even a ‘natural’ hypothesis that is being tested. Again, those electing to join the “End Early” group are postulating that their states will be economically better off with that decision; while the other states are deciding or defaulting to the “Stay To The End” group. The Stay group’s hypothesis is that their economies will perform better by retaining the stimulus payments.

Now, if all other things were equal, this would be a classic experiment; but of course, everything else is not equal so there will be lots to factors and variables to consider and to tease out of the data. But the GEE! will occur and data will be generated, so there is no reason or excuse for economists not to use the data to see what we can learn from the GEE!

For example, do the states that End Early recover employment level quicker as predicted by their political leaders as the reason, or part of the reason, for why they are ending early. Alternatively, do the Stay To The End states’ economies do as well or even better with jobs recovery? That would be one reasonable question to try and answer. It won’t be as easy to answer as one might think since there are those pesky differences among the states not just between the two groups but within each group itself.

Then there is the issue of jobs/unemployment is not a singular or required measure of the economic performance of any given state. If the gross domestic product of a state goes up statistically more in one condition than in another, which can be one measure of economic performance, does that mean or require that its jobs/unemployment data must coincide? [Note: It does not. A state’s economy may be much better off and yet its jobs/unemployment could be comparatively average or even below average.]

This is why we are looking at a GEE! moment. There are many things that we (via the economists) could learn as long as we collect, analyze and explain what has been observed and hopefully learned. Consider the two hypotheses that are underlying the choices each states’ governor is making. To know who made a good choice and why, and who made a bad choice and why; we need to see what happens.

Do the extra unemployment payments to go to the states produce more economic value than an offsetting economic milestone that jobs/unemployment brings; or on the other side, are more jobs created with corresponding unemployment decreases causing those states’ economies to recovery and grow better?

In Stay To The End states, the stimulus money will go into those states’ economies, and some, most or all will be spent in those states. That spending will be to local businesses, which than is used to resupply, to grow business, hire employees, and those expenditures repeat at some rate. Producers in those states may thus sell more of their produce since more funds are in circulation.

In the End Early states, that stimulus money will not be used as it isn’t available. However, without those funds more individuals are expected to have to find jobs to sustain their and their families lives. This will produce its version of the economic cycle. People will earn money, spend it, and a similar cycle to that above will occur.

Which group will do better? We don’t know, yet! That is why is it the GEE!. The experiment may be so complex and there may be so many uncontrolled variables that the basic question will never be answered; but we might learn somethings and since the GEE! is happening anyway, we should avail ourselves of the opportunity to learn what we can. If there are winners and loser, we can hope to prevent creating more losers in the future and instead creating more winners.