Republicans Won’t Accept an Infrastructure Bank Financed by Debt

Business Insider’s Josh Barro has a nice piece this morning listing five ways that President Obama could improve the economy. I agree with him that Obama should nominate Janet Yellen to head the Fed, allow more homeowners to refinance and prioritize standing up to Republicans on the debt ceiling/budget debate over appointing Larry Summers to the Fed. I disagree with Barro on approving the Keystone pipeline, but that’s for environmental, not economic, reasons.  On his third point though, I don’t see what Obama can do:

Propose an infrastructure plan that isn’t designed to draw Republican opposition. Democrats keep attaching tax-increasepoison pills to their infrastructure plans and then acting surprised when Republicans won’t support them. In today’s low-interest rate environment, infrastructure spending should be financed with debt, not taxes. Obama should try again for an infrastructure bill without any revenue offset. As a sweetener, he should offer to repeal the Davis-Bacon Act, which forces contractors on federally-funded infrastructure projects to pay inflated wages. Davis-Bacon repeal would make infrastructure spending more cost-effective and more appealing to the Republican-held House.

Here’s the thing though: an infrastructure bank funded by debt would be unlikely to pass Congress. In the Senate, it would be welcomed by most Democrats and could pick off enough cement-loving Republicans to garner 60 votes. Maybe. In the House, it would be a major uphill battle. The majority of House Democrats would likely support it, but the majority of House Republicans, who are more concerned about cutting spending than rebuilding our infrastructure, would not. That would put Speaker Boehner yet again in the position of deciding whether to break the Hastert Rule again. If he is so wary to do so over something as big as the debt ceiling, what makes us think he would do so over an infrastructure project?

Thus, I don’t see any way that an infrastructure bank financed by debt gets to the President’s desk. And the President knows this. That’s why all of his infrastructure plans have been funded through tax increases. Barro is right that the best policy would be to finance those projects via debt (and I like his Davis-Bacon repeal sweetener). But the GOP won’t allow it so Obama has turned to Plan B.