Committee for a Responsible Federal Budget
Spending_Highway_Virginia

There Are Plenty of Offsets for Infrastructure Package

A bipartisan group of senators has apparently reached agreement on a plan with $579 billion of new infrastructure spending. Meanwhile, President Joe Biden has proposed $1.7 trillion of infrastructure spending in his American Jobs Plan. The cost of either plan would come on top of the $195 billion shortfall in the Highway Trust Fund over the next decade.

These hundreds of billions to trillions of new investments must come with genuine offsets to pay for them. Luckily, there are many options available.

President Biden has proposed $2.1 trillion of corporate revenue increases in his budget to pay for the American Jobs Plan over 14 years and $1.5 trillion of individual income revenue increases to pay for most of the American Families Plan. Lawmakers should consider these proposals. But many other options are also available.

The tables below present numerous potential offsets, ranging from new user fees and charges – especially for businesses – to options to close the tax gap, reduce tax breaks, repurpose COVID relief dollars, and reduce other spending. These options could help finance new spending and secure the Highway Trust Fund.

The three tables below present roughly 80 options for lawmakers to consider.

Income Tax Options to Fund Infrastructure

Policy Ten-Year Savings
Reduce the Tax Gap and Close Tax Loopholes
Increase Internal Revenue Service (IRS) funding by $40 billion over ten years^ $65 billion'
Increase information reporting from financial institutions^ No CBO Score'
Close carried interest loopholes^ $20 billion
Improve S Corporation reasonable compensation rules $20 billion
Close estate tax loopholes (mainly GRATs) $20 billion
Clarify worker classification  $10 billion
Make shareholders liable for unpaid corporate taxes^ $5 billion
Give IRS new authorities to regular paid prepares, correct errors, increase penalties, and otherwise reduce the tax gap^ $5 billion
   
Modify or Build Upon the Tax Cuts and Jobs Act
Permanently extend current law SALT and other itemized deduction limits $700 billion
Restore estate tax to 2009 levels $250 billion
Extend $10,000 SALT cap to businesses and corporations $250 billion
Eliminate 20% pass-through deduction $200 billion
Phase out pass-through deduction above $400,000 of income $150 billion
Make 2017 child tax credit, standard deduction, personal exemptions permanent $150 billion
Extend Tax Cuts and Jobs Act limit on business losses^ $50 billion
Restore Pease limits $40 billion
   
Reduce Tax Breaks
Limit tax benefits of all deductions and exclusions to 28% $400 billion*
Limit benefit of itemized deductions to 28% $250 billion*
Require business to amortize advertising costs $200 billion
Reduce the mortgage interest deduction cap from $750,000 to $500,000 $150 billion
End the double deduction for donation of stock and appreciated assets $100 billion
Replace tax-exempt municipal bonds with a credit Up to $100 billion
Adopt Last-In-First-Out (LIFO) accounting rules $100 billion*
Limit head of household filing to those with qualifying children $70 billion
Freeze or reduce limits on retirement account contributions $50 billion to $100 billion
Repeal fossil-fuel related tax breaks^ $35 billion

*Assumes enactment of President Biden’s proposed tax increases.
^Version included in the President’s budget.
‘The President’s budget proposes nearly $80 billion of IRS funding and a robust information reporting regime. It estimates the policies will raise $239 billion (net) and $473 billion, respectively. CBO = Congressional Budget Office.

User Fee and Excise Tax Options to Fund Infrastructure

Policy Ten-Year Savings
User Fees and Excise Taxes on Individuals
Increase per-gallon gas & diesel tax rates $15 billion per cent
Impose a per-mile vehicle miles traveled (VMT) fee  $150 billion per cent
Impose new vehicle sales tax $50 billion per 1%
Establish vehicle registration fee (2x for trucks) $4 billion per dollar
Enact a tire tax $3 billion per dollar
Increase or expand Universal Service Fund Fee Adjustable
Increase passenger airline fees $9 billion per dollar
Tax all alcoholic beverages at $16 per proof gallon $85 billion
Increase cigarette taxes $0.7 billion per cent
Impose annual fee on electric vehicles *
   
User Fees and Excise Taxes on Businesses
Reinstate Superfund taxes^ $25 billion
Impose per-mile fee on freight trucks and trains $12 billion per cent
Impose per-gallon gas refinery tax $15 billion per cent
Impose VMT fee on commercial trucks $32 billion per cent
Establish US port container fee $0.5 billion per dollar
Establish freight shipping tax $100 billion per 1%
Impose a per-ton carbon tax $44 billion per dollar
Impose per-barrel oil tax $35 billion per dollar
Establish per-flight Air Traffic Service charge $0.1 billion per dollar
Increase truck and trailer sales tax from 12% $4 billion per 1%
Increase heavy vehicle use tax of $100 + 11% per  $0.1 billion per dollar
Increase aviation fuel tax $1 billion per cent
Impose fee on covered liabilities of large financial institutions $8 billion per basis point
Enact spectrum license fees $5 billion
Impose inland waterway fees $4 billion
Reauthorize special fee on nuclear facilities $3 billion
Reauthorize and increase Oil Spill Liability Fee $2 billion
Impose rail safety user fees $2 billion
Reform abandoned mine financing $1 billion

^Included in President’s budget. Assumes Superfund excise tax at twice 1990s levels, but no Superfund corporate tax.

*CBO has estimated a $100 annual fee would raise $1.1 billion over five years, but we are currently working on our own ten-year projetions.

Spending Reduction Options to Fund Infrastructure

Policy Ten-Year Savings
Rescind or Repurpose COVID Relief
Repurpose up to half of American Rescue Plan (ARP) state and local recovery funds (mainly 2nd tranche) $115 billion to $175 billion
Repurpose ARP education funding projected to be spent in 2023 or later $100 billion
End enhanced Medicaid match at the end of 2021 Up to $50 billion
Rescind unused provider and public health funding $50 billion to $100 billion
(possibly less)
Rescind about half of remaining EIDL loans and advances $25 billion
Rescind about half of unused FEMA funding $25 billion
   
Reduce Health Care Costs 
Cancel Trump Administration drug rebate rule (takes effect in 2022) ~$200 billion
Restore “Cost-Sharing Reductions” funding as in Alexander-Murray ~$100 billion*
Freeze thresholds and increase Medicare premiums for high earners  $50 billion to $100 billion
Limit drug prices through negotiation with cap of 120% of international average  $350 billion
Reduce or eliminate state Medicaid provider tax loophole   $20 billion to $500 billion
Reduce excessive Medicare Advantage payments $90 billion to $355 billion
Equalize Medicare payments regardless of site-of-care  $110 billion to $265 billion
Reduce and reform Medicare post-acute care payments  $90 billion
Reduce or repeal Medicare payments for bad debts $25 billion to $80 billion
Reduce drug prices by reforming Medicare Part D benefit and limiting price growth  $120 billion
   
Reduce Other Mandatory Spending
Measure inflation using the chained Consumer Price Index (chained CPI)  $275 billion
Increase federal worker retirement contributions  Up to $130 billion
Reform federal student loan programs  Up to $130 billion
Reduce crop insurance subsidies $30 billion
   
Reinstate Discretionary Spending Caps
Impose defense caps based on Biden Budget (1.6% growth in 2022, 2.2% growth from 2023-2026, 1% growth from 2027-2031) $140 billion
Impose matching cap on nondefense discretionary (NDD) spending $120 billion
Enact one-year defense freeze $150 billion
Enact one-year nondefense freeze $130 billion
Cap total spending growth at 1% for one year (roughly even defense/NDD split) $145 billion
Cap spending growth at 1% for two years (roughly even defense/NDD split) $275 billion
Cap spending growth at 1% for five years (roughly even defense/NDD split) $600 billion
Freeze spending for five years (roughly even defense/NDD split) $1.1 trillion

*Might not officially count as scoreable savings under CBO’s methodology and scoring rules.

***

With the national debt set to reach a record as a share of the economy this year, it is vital that any infrastructure deal fully pay for its costs over ten years and secure the Highway Trust Fund. Doing so will ensure that the investment is truly pro-growth and that it does not worsen our bleak fiscal situation.