Congress should consider eliminating tax exemption and privatizing infrastructure to subject it to property taxes in order to broaden the tax base, a director from the right-leaning think tank, Cato Institute, said this week.
“Federal infrastructure spending often gets bogged down in mismanagement and cost overruns,” Chris Edwards, director of tax policy at Cato, told members of the Joint Economic Committee at a hearing on Wednesday. “Decades of experience show that many federal investments get misallocated to low-value activities because of politics. That’s why we should tackle the nation’s infrastructure challenges by decentralizing the financing, management and ownership of investments as much as possible.”
Edwards argued that state and local governments are likely to make better investments without federal subsidies and regulations that may distort their decisions. There has been a history of “pork-barrel politics and bureaucratic mismanagement of many types of federal investment,” he said.
He called tax exemption for municipal bonds a “hurdle” to private infrastructure investment, claiming financing by using muni bonds “stacks the decks against the private provision of infrastructure.”
Instead, Edwards said that privatization of infrastructure promises to improve economic efficiency, spur growth and reduce federal barriers. “The way forward is for the federal government to cut subsidies and reduce its control over the nation’s infrastructure,” he said.
Private infrastructure investment in the U.S. is five times larger than total nondefense government investment, he said. In 2012 private investment was $2 trillion while federal, state and local government investment was only $472 billion.
“The answer to America’s infrastructure challenges is not greater federal intervention, but greater involvement by the private sector,” Edwards said, adding that there has been a worldwide trend toward infrastructure privatization.
Edwards noted that the U.S. has embraced some public-private partnerships and privatization, but said it is not nearly enough. Specifically, he said that one of the largest advantages of infrastructure P3s and privatization is that “private businesses are taking the risks and putting their profits on the line, funding is more likely to get allocated to high-return projects and completed in the most efficient manner.”