Biden’s infrastructure plan includes, “things that I don’t think are going to meet the productivity test,': AAF President

American Action Forum President; Fmr. CBO Director Douglas Holtz-Eakin joined Yahoo Finance Live to break down his thoughts on President Biden's infrastructure plan.

Video transcript

JARED BLIKRE: A trillion dollars here, a trillion dollars there. Pretty soon, we're talking about real money. And of course, we're talking about infrastructure. I got a clip for you. This is President Biden talking yesterday about his multitrillion dollar infrastructure bill. Here it is. Take a listen.

JOE BIDEN: I'm prepared to negotiate as to how the extent of the-- my infrastructure project, as well as how we pay for it. But I-- if we're getting into serious conversation about how to do that. I think everyone acknowledges we need significant increase in infrastructure. It's going to get down to what we call infrastructure.

JARED BLIKRE: I want to bring in Douglas Holtz-Eakin, American Action Forum president and former CBO director, to help break this down for us. All right, so last year, 2020, that was a year of triage because we had a pandemic. Maybe we're over most of it. Maybe we're over the hump. And now we're talking infrastructure. What do you think of President Biden's plan? Is he on course here? Is he off?

DOUGLAS HOLTZ-EAKIN: I think, on balance, it's going to be off course. And here's why. In between last year's triage, which I thought was a tremendous job by the administration and the Congress to respond in a timely fashion at the appropriate scale with pretty well-designed programs, all of which were temporary and did alleve any additional structural deficits once you get past couple of years. So now we have the American Rescue Plan, $1.9 trillion, which pretty much should provide whatever stimulus is necessary to get the economy back to full employment. That's an enormous package.

And we turn to the American Jobs Plan, the infrastructure plan. So how do you think about that? Well, you think, all right, we're putting the cyclical recovery behind us. We need to raise the standard of living, productivity, and real wages in the US economy. Let's raise about $1.8 trillion in corporate taxes and target that very carefully on highly productive infrastructure, maybe some R&D spending. I think if you did that, you might break even. But you probably wouldn't. The damage from the tax increases would outweigh the productivity gains you get.

And that's not what we have here. We have that plus an enormous amount of, really, social spending-- $400 billion expansion in Medicaid, some worker training, some work on manufacturing, clean energy spending, broadband spending, things that I don't think are going to meet the productivity test. So, on balance, I think this is going to be a negative in the out years. But certainly up front, there's enough left over from 2020 and 2021 early in the year that no one will notice.

SEANA SMITH: Doug, it's great to see you again. The American Jobs Plan is being billed as something that is going to help the economy, though, that it is going to create some jobs. I know you're questioning certain parts of it, but is there anything good in this? I guess, what does it mean at all for longer term employment?

DOUGLAS HOLTZ-EAKIN: So certainly, there are good things in it. I don't think anyone should pretend that somehow there's nothing good in here. There's a big backlog in transportation ports, airports, infrastructure. That's in here. To my taste, there should be more of that. We could finance it better. And the president has indicated some willingness to think about that. Then, good, there's a tradition of using user fees to finance infrastructure. That make sure people don't overuse the infrastructure. If you're paying for it, you use it when you need it. And it builds up reserves to maintain the infrastructure so that you don't get yourself in this situation where everything's run down.

So I think that you could build a really strong productivity enhancing infrastructure program out of this. But there are a lot of things in here that are not that. So I think of the $500 billion you're going to spend on charging stations and other climate-related issues, those aren't going to raise economic growth. You can make the case we should do them, right? That the administration needs to do it and say, look, we get it. This isn't economic growth, but we have climate as our top policy priority. But that's not what they're doing. They're saying this is all jobs, and I just don't think that's right.

JARED BLIKRE: Doug, I want to talk about next gen infrastructure because a lot of people, myself included, I think infrastructure, shovel and picks. You got bulldozers are building roads, fixing things, even the electrical grid. But cities are going to be vastly different in five, 10 years-- 5G, 6G, internet of things, smart cities. How does all this fit together in the plan? Is this something that's also being thrown in there?

DOUGLAS HOLTZ-EAKIN: It's in there, and I think it's appropriately in there. It's $100 billion for closing the digital divide. I think there's not a big disagreement across any dimension that we learned in the pandemic that we need Americans, and especially America's children, to be connected to the internet in a high speed fashion so they can continue to learn and use the facilities that that are out there. So that's a priority. There's no question about it.

What they've chosen to do, I think there is some problems with. They've targeted that money exclusively on municipal broadband and essentially told the internet service providers who built the most resilient internet on the globe that they're not in line for any of the money. That doesn't make a lot of sense to me. And they've also signaled in the same part of that that proposal that they are prepared to go to rate regulation of the private sector to get costs down. And that, I think is a mistake.

We've had a tradition of light touch regulation in the US. It has spawned a lot of competition across types of high speed broadband, so not everything needs to be fiber. We've seen the development of satellites and other delivery systems. I think we should continue to build on that. It belongs in this program, no question. But how you do it does matter.

JARED BLIKRE: Yeah, and I know a lot of people are sorely missing that broadband that they had just over a year ago. Douglas, thank you for joining us. That's Douglas Holtz-Eakin, American Action Forum president and former CBO director.