image title

Fixing fragile foundations

April 29, 2021

ASU engineering experts offer perspective on the Biden administration's $2 trillion plan to improve American infrastructure

Every four years, the American Society of Civil Engineers publishes a Report Card for America’s Infrastructure. This comprehensive assessment evaluates the performance and capacity of our national road network, rail system, bridges, ports, drinking water, wastewater and other key resources.

Results are consistently gloomy. For more than two decades, the United States has averaged “D” grades on these engineering report cards. The 2021 report shows a “C-minus,” which indicates improvement. But the ASCE notes that our national infrastructure still suffers grave shortcomings that represent risks to America’s economy, security and public health.

“Funding infrastructure is a significant problem in part because we’ve let deficiencies accumulate over time. We spend only when we have to fix something,” said Brad Allenby, a President’s Professor of civil, environmental and sustainable engineering in the Ira A. Fulton Schools of Engineering at Arizona State University.

“Of course, that is a very expensive way to manage infrastructure. It means that we’re always tackling significant problems, whether it’s roads that become essentially impassable because of potholes or fragmentation of the power grid, the consequences of which Texas suffered very recently,” Allenby said. “We continually ‘fix’ our infrastructure systems, but we don’t invest to bring them up to necessary standards. That needs to change.”

President Joe Biden’s recently announced American Jobs Plan proposes to apply more than $2 trillion to address these chronic problems and transform U.S. infrastructure in a meaningful and lasting manner. The best ways to do so are subjects of intense debate and require guidance from experts in developing the built environment. Faculty members at the Fulton Schools are among those equipped to offer substantive input on multiple fronts.

One component of the new White House plan calls for $111 billion to ensure access to clean water in all American communities. Recent contamination crises in Flint, Michigan, and many other cities indicate that a uniform, federal approach might yield higher quality than the current patchwork of local systems.

“It is long past time to replace lead drinking water pipes. Their negative health impacts are well known, and safer materials and replacement techniques are tried and true technology,” said Margaret Garcia, a Fulton Schools assistant professor of civil and environmental engineering specializing in water management. “But drinking water distribution systems are owned and operated locally, and funded by local water rates and taxes. As a result, lower income communities have lagged behind on lead pipe replacement.”

However, replacing these antiquated lines is more than a financial issue. Tony Lamanna, a Fulton Schools associate professor of construction management and technology specializing in repair, retrofit and adaptive reuse of existing systems, highlights the challenge of insufficient documentation regarding buried infrastructure.

“Cities like Washington, D.C., and New Orleans don’t have a full record of what’s underground. In fact, there are still portions of water systems around the country that use wooden pipes!” Lamanna said. “Standard procedure has been to replace them when problems arise, but it’s hard to tell what’s down there until you start digging. Addressing this gap needs to be part of planning.”

The White House proposal also commits $115 billion to renew 20,000 miles of roads and 10,000 bridges. Much of the current network was designed for 40 years of use, but those resources are now more than 60 years old and unstable.

“We need a national mandate for every new critical structure to have a minimum of 100 years of serviceability,” said Narayanan Neithalath, a Fulton Schools professor of civil and environmental engineering specializing in concrete materials. “The incremental cost of the necessary design and construction upgrades would be miniscule compared to the costs of ongoing structural overhauls.”

Paralleling Garcia’s comments about water systems, Neithalath also says that a uniform federal approach to material use would be more efficient than current, fragmented systems of decision-making.

“For example, a new bridge structure can be built with ultra-high-performance concrete that undergoes extensive development and testing under the guidance of the Department of Transportation,” Neithalath said. “But rather than rely on those testing outcomes, another agency might initiate its own research on the same materials when determining how to build another structure. Central management could eliminate these wasteful disconnects and allow rapid permeation of impactful technologies into multiple use cases.”

Alongside overdue road and bridge upgrades, the Biden proposal intends to invest $174 billion to accelerate the shift from internal combustion cars and trucks to electric vehicles.

“With transportation contributing nearly 30% of greenhouse gas emissions in the United States, it is imperative that we invest in a future that is substantially less carbon intensive,” said Ram Pendyala, a professor of civil and environmental engineering specializing in transportation planning as well as director of the School of Sustainable Engineering and the Built Environment, one of the six Fulton Schools at ASU.

Pendyala says expanding electric vehicle use will require investment in a ubiquitous charging network to make it possible for people to travel and for fleets to operate without concerns about driving range. He also says that better accommodation for bicycles and pedestrians will be important to transportation systems that support the future health and productivity of the nation.

“Clearly, the time has come to invest in sustainable modes of mobility so that generations to come will recognize that the arc of transportation was bent forever during this pivotal moment, reversing a century of deleterious effects on the environment and equity of opportunity,” Pendyala said.

While much of the proposed effort to raise the grade of America’s infrastructure focuses on traditional resources that can be quantifiably improved through innovative civil engineering, there are aspects of the work for which the means and metrics are uncertain.

“In some sense, our biggest hurdle may just be advancing the way we conceptualize infrastructure,” Allenby said. “If we need to put in 10 miles of high-voltage power lines, we know how to do that. But if we need to design and deploy wireless networks to support the evolution of the 21st-century economy, we probably don’t know how to make that happen right now. As a consequence, flexibility must be at the forefront of our efforts. What we need and what we will need is changing.”

Top photo: The American Society of Civil Engineers reports that decades of underinvestment have eroded the condition of America's infrastructure. The Biden administration proposes more than $2 trillion to upgrade roads, bridges and other resources, but how to accomplish this work is the subject of debate that demands guidance from experts in the built environment. Photo courtesy of Shutterstock

Gary Werner

Science writer , Ira A. Fulton Schools of Engineering

480-727-5622

 
image title

Who's footing the infrastructure bill?

April 13, 2021

ASU business professors explore tax increases to pay for Biden’s new plan to overhaul America's infrastructure

President Joe Biden’s proposed $2.3 trillion plan to upgrade America’s eroding infrastructure promises to give the country a sweeping makeover and put millions to work with good-paying jobs, while sustaining our long-term economy.

Calling it a “once-in-a-generation” opportunity, Biden said the infrastructure bill will modernize more than 20,000 miles of freeways, roads and bridges and make improvements to mass transit, ports, rail systems, airports and electric vehicle charging stations. There’s also money for health care for the elderly, replacement of pipes and lines for cleaner drinking water and high-speed broadband.

The commander in chief plans on raising the necessary funds over a 15-year period by increasing corporate taxes.

Upon first blush, many Americans are praising the idea as a bold and innovative plan because citizens like the idea that “the other guy” – namely faceless corporations and wealthy individuals – will be footing the bill.

But is that actually true?

ASU News asked Jenny Brown and David Kenchington, both professors and accountants in Arizona State University’s W. P. Carey School of Business, to offer their insight to help unpack the tax for us. 

Editor's note: Brown and Kenchington teamed up to provide their answers collectively.

Woman with red hair smiling

Jenny Brown

Question: President Biden’s new infrastructure bill seeks to raise $2.3 trillion in additional revenue over 15 years. What new taxes are being proposed to achieve this goal?

Answer: The Biden administration would raise the corporate tax rate to 28% from 21%. The White House is also proposing significant changes to how the foreign earnings of U.S. multinational corporations are taxed. Among the biggest changes would be a doubling of the so-called global minimum tax (GILTI) to 21%. The administration also plans to crack down on large, profitable companies that pay little or no income taxes but that report large profits based on “book income.” To cut down on that disparity, companies would have to pay a minimum tax of 15% on book income.

Q: It is popular to say corporations will pay for this infrastructure bill through tax, but who will actually pay this tax?

A: We refer to who will actually bear the burden of the tax as “tax incidence.” It is important to remember that corporations are simply a collection of people providing their capital and labor to produce a good or provide a service. Because of this, people, not corporations, will ultimately bear the tax incidence. Research shows that the tax incidence falls on three groups: shareholders through lower returns, workers through lower wages, and consumers through higher prices.

Q: The Biden administration has pledged that “If you make less than $400,000, you won’t see one single penny in additional federal tax.” Is it possible to fulfill this pledge based on your discussion of tax incidence?

A: Yes and no. It seems likely that direct tax payments to the federal government will not increase for those making less than $400,000. However, research suggests that higher corporate taxes are associated with lower wages and that low-skilled workers bear a larger share of the tax burden. Also, higher taxes are associated with higher consumer prices and the effects are larger for lower-price items and products purchased by low-income households. It seems that indirectly those making less than $400,000 will be affected by the tax increase.

Man in suit smiling

David Kenchington

Q: Will these changes in corporate taxes make U.S. companies less competitive with their foreign counterparts in the global marketplace?

A: This is an argument that some U.S. multinational companies are making. The corporate tax rate increase from 21% to 28% would push the U.S. tax rate from the middle of the pack among major economies to near the top. Because of this, there is concern in the Biden administration that U.S. companies may shift their profits or headquarters (i.e., an inversion) to low-tax countries. As a result, the proposal calls for tougher anti-inversion rules and stronger penalties for profit shifting. For multinational corporations, an adjustment to the U.S. corporate rate represents just one piece of the equation. Multinationals are looking to see what ultimately happens with the international provisions of U.S. tax law, especially the newest provisions enacted in 2017 under the Trump administration tax cuts. They also face an ever-evolving landscape of tax changes outside the U.S. As part of an effort toward tax coordination, Treasury Secretary (Janet) Yellen has been working with G20 countries to agree on a global corporate minimum tax rate. At this point, multinationals might be willing to trade a slightly higher rate for some stability and simplicity.

Q: Even with the increase in corporate taxes, could U.S. companies be better off due to the expected growth of our economy from the infrastructure bill?

A: That is a challenging question to answer. U.S. corporations will benefit from better infrastructure. Unfortunately, measuring the effects of a policy over a long time is difficult to do. Imagine that the infrastructure takes five years to implement. So many other things will change in the U.S. economy over that five-year period that even if there is growth in GDP and corporations become more profitable, it will be nearly impossible to say how much of it was due to improved infrastructure. That is not a very satisfying answer, but it is accurate.

Top photo courtesy of Pixabay.com.

Reporter , ASU News

480-727-5176