Media reports suggest President Trump and Democratic leaders have agreed in principle to a $2 trillion infrastructure plan “to upgrade the nation’s highways, railroads, bridges and broadband.”

Minor details such as how to finance it have yet to be agreed. White House Chief of Staff Mick Mulvaney doubts the deal will come to fruition anyway, given differences between the parties on environmental regulations surrounding new projects.

But it’s difficult to think of a worse way to make major policy than to dream up a big round number and then work backwards in deciding how money is spent.

Indeed, if $2 trillion is the answer, then what, exactly, is the economic question?

Is $2 trillion the amount needed to invest in targeted public goods that the market would not or could not provide? Is $2 trillion the amount the politicians think is needed for specific projects to enhance long-term economic growth? Is $2 trillion the amount politicians feel is necessary to repair existing infrastructure? Is $2 trillion what they feel the federal infrastructure contribution needs to be to alleviate negative externalities such as pollution? Or is $2 trillion maybe what they think is necessary to create shovel ready jobs to minimize unemployment?

Judging by the joint post-meeting statement from Speaker Pelosi and Senator Schumer, the Democrats have no coherent answer here. Within their 224-word statement, they outlined no fewer than 9 distinct policy aims or ambitions that any infrastructure package would be trying to meet:

1. “creating jobs immediately”
2. “bolstering commerce”
3. “advancing public health with clean air and clean water”
4. “improving the safety of our transportation”
5. “expanding broadband to…underserved areas”
6. “being for the future”
7. paying “the prevailing wage”
8. involving “women, veteran and minority-owned businesses in construction”
9. addressing needs in “every congressional district”

Whatever the economic case for a major infrastructure program (and for my thoughts on that, read here), it should be obvious that these aims contradict one another.

Lots of projects with high returns take extensive planning and won’t “create jobs immediately.” Investment in safety might come at the expense of other projects that bolster commerce. Paying “the prevailing wage” will likely leave fewer resources to address needs in more districts. Selecting contractors based on the demographics of the owners might trade-off the safety quality of the job. Focusing on safety upgrades for existing infrastructure means fewer resources for “the future.” Addressing needs in every district and expanding rural broadband is almost certainly not the best way to bolster overall commerce. I could go on.

This plethora of aims is grist to the mill for a conclusion I reached back in 2017:

The sad truth is that infrastructure investment through the political process rarely prioritises long-term growth. Other considerations dominate, whether electoral advantage or regeneration of an area – even when market signals point to the need to expand booming regions.

And:

The conflicted role of being both the promoter of a project and being responsible for examining its failures and risks leads politicians to make over-optimistic claims about a scheme’s benefits relevant to costs.

In principle, smart investments in infrastructure can sometimes improve economic welfare. But when huge amounts of federal money is seen as a communal pot for a host of social, environmental, local and “make work” objectives, the chances that such money will be spent wisely looks slim.

The ongoing saga of California’s high-speed bullet train may end up being as classic a story of Democratic politicians’ hubris as the Solyndra debacle. The difference is that the bullet train is still going — well, not the train itself, but the taxpayer spending on the planning — despite some optimism earlier this year that Gov. Gavin Newsom was going to put the project out of its misery. A Los Angeles Times story last week by Ralph Vartabedian is a deep dive on the consulting companies that have been intimately involved in the whole process. Here’s the most revealing nugget:

The rail authority’s consultants are hardly household names, but they are politically powerful and made major contributions to support the 2008 political campaign for the bullet train bond. They have staffed their ranks with former high-level bureaucrats, and their former executives have occupied key government posts.…

divThe consultants, however, have played a key role in the political success of the project. Along with labor unions, consultants helped fund the campaign for the $9‑billion bond that is paying everybody’s salaries, including their own.

Engineering and construction firms contributed $837,000 to the bond campaign, second only to the $1.6 million spent by various unions, according to a Times review of campaign filings. WSP put $107,000 into the campaign. There was no organized opposition to the bond measure. It passed with 52.7% support, but its popularity has dropped in public opinion polls ever since.

divThe consultants continue to provide political muscle for the project. A revolving door provides lucrative job opportunities for state and federal officials to enter higher-paying private jobs.

The firms and the unions that expected to profit from building the rail line paid for the campaign to persuade voters to approve the bond issue that would commit taxpayers to the project. And the consultants move in and out of government to make sure the project — if not any actual train — stays on track. Political scientists write about an “iron triangle” of government agencies that handle a particular issue or project, special interests that benefit from it, and legislative committees that oversee it. The flow of personnel — the “revolving door” — is part of that cozy process.

So how’s all that coziness working out for California taxpayers? Here’s the basic story:

This Wednesday the rail authority plans to send the legislature “a detailed plan on building a partial operating system from Bakersfield to Merced for $16 billion to $18 billion.” You can drive from Bakersfield to Merced in 2.5 hours according to Google Maps. You can already take a train for $27 that covers the distance in two hours and 45 minutes, and the consultants promise that the high-speed train would cut that by 45 minutes. And all for only God-knows-how-many billions of dollars.

At only $535 million in unpaid taxpayer loans, Solyndra looks like a bargain.

The exodus of the wealthy from high-tax Connecticut continues, according to the Wall Street Journal:

After four years on the market, and three price cuts, a stately Colonial-style home on Greenwich, Conn.’s tony Round Hill Road is being sold in a way that was once unthinkable in one of the country’s most affluent communities: It is getting auctioned off. Once asking $3.795 million, the four-bedroom property will be sold May 18 with Paramount Realty USA for a reserve price of just $1.8 million.

Seller Isaac Hakim, a real-estate investor, said it is time to move on …. Many wealthy New Yorkers are opting to live in the city, rather than in the suburbs. Some of the wealthiest, like Mr. Hakim, have decamped to Florida in search of more favorable tax rates.

… Owners who paid top dollar for their homes in the Fairfield County town in the mid- to late-2000s are routinely selling for less than they paid. Dramatic price cuts are the order of the day.

… Starwood CEO Barry Sternlicht, a former Greenwich resident, declared it to be the worst housing market in the country. “You can’t give away a house in Greenwich,” he said while speaking at an investment conference. Mr. Sternlicht’s company has since relocated from Greenwich to Miami Beach, Fla.

Data from both the Census Bureau and Internal Revenue Service have long shown that Americans are, on net, moving from higher-tax states such as Connecticut to lower-tax states such as Florida. The 2017 Tax Cuts and Jobs Act (TCJA), which capped state and local tax deductions, has likely strengthened these existing migration patterns.

These patterns are shown in the chart below. Each blue dot is a state. The vertical axis shows the mid-2017 to mid-2018 Census net interstate migration figure as a percentage of state population. The horizontal axis shows state and local household taxes as a percentage of personal income. The red line shows the fitted relationship between the two variables.

On the right, most of the high-tax states have net out-migration. On the left, nearly all the net in-migration states have household tax loads of less than 8.5 percent of personal income.

The TCJA should be a wakeup call for out-migration states such as Connecticut. Such states need to reduce their taxes and trim their government costs. News articles reveal that the wealthy are taking a hit on selling their Connecticut homes. But the whole state takes a hit when highly productive people and their businesses decamp for tax-friendlier locations.

I profile some of the other wealthy expatriates from Connecticut here.

A new study published by NBER summarizes the latest international evidence on tax-induced mobility.

Tax Day is here. In a column about this unhappy day, Christine Emba of the Washington Post provides her views regarding income tax filing and tax simplification.

But then she says:

Meanwhile, the wealthier among us (remember: corporations are people, too!) are able to hire tax lawyers, consultants and accountants to clue them in on lightly advertised but heavily lobbied for loopholes that allow them to pay a lower tax rate or even no taxes at all.

Emba’s language is imprecise, but generally the wealthier among us do not “pay a lower tax rate.” There are exceptions. Agriculture has good lobbyists and many farmers pay little income tax on farming.

However, it is ridiculous to imply that the rich generally pay lower tax rates when the contrary facts are readily available from authorities such as the Urban-Brookings Tax Policy Center (TPC).

Emba may be referring to statutory federal income tax rates. These rise from 10 percent to 37 percent, as shown in the first chart below from TPC. The Republican Tax Cuts and Jobs Act (TCJA) slashed statutory rates virtually across the board, but the chart shows that higher earners still pay steeply higher rates. The TCJA also reduced some “loopholes” that the wealthier among us use, such as the state and local tax deduction.

Or Emba may be referring to average effective tax rates, which are total taxes paid divided by income. These are shown in the second chart below from TPC. Looking at the income tax column, the bottom two fifths, on net, pay no taxes. Then the rate rises from 2.5 percent on the middle fifth to 14.3 percent on the top fifth. The top 1 percent—the wealthier among us—pay 23.4 percent.

The far-right column in the table includes all federal taxes. The rates rise from 2.9 percent on the bottom fifth to 22.9 percent on the top fifth. The top 1 percent pay 29.6 percent. This rate on the wealthier among us is 10 times the rate on the bottom group.

Perhaps Donald Trump will turn out to be an exception, but the wealthier among us who are campaigning for the White House pay quite high income tax rates. Wealthy Kamala Harris has paid a roughly 32 percent average effective tax rate since she got married. Wealthy Elizabeth Warren paid 25 percent tax on her total income in 2018. And fairly well-off Amy Klobuchar paid 21 percent in 2017.

Tracy Gordon of the Urban-Brookings Tax Policy Center writes interesting columns on taxes, fiscal federalism, and other economic issues. Before Congress and the administration enact another costly infrastructure bill, they should consider what Gordon wrote in a 2015 article:

… it is an opportune time to reexamine the so-called consensus on infrastructure funding—that we need more of it and now. Focusing on how much we spend leaves out a more important question: how much infrastructure we get for our money.

Put bluntly: the costs of US infrastructure are too damn high.

How high? It’s not easy to find comprehensive data on infrastructure costs around the globe. But with help from various government and business websites as well as some very busy bloggers, we pulled together data on 144 planned and finished rail projects across 44 countries.

… It turns out that, at least in our sample, the United States is home to the four most pricey per kilometer rail and majority-tunnel projects in the world.

Towering among giants is New York City’s East Side Access project to join the Long Island Rail Road and Grand Central Terminal at cost of $3 billion per kilometer by the time it’s finished in 2023. Beyond East Side Access, New York has two more projects (the Second Avenue Subway and No. 7 Line extensions) in the $1.5 billion to $2 billion per-kilometer range.

To put these numbers in global perspective, New York’s Second Avenue Subway will cost roughly eight times more than Tokyo’s Koto Waterfront line and 36 times more than Madrid’s Metrosur tunnels on a per-kilometer, purchasing power parity (PPP) basis.

But this is not strictly a New York problem. Outside of New York, there are three more US projects in the top 12: Boston’s proposed Red-Blue Line Connector, San Francisco’s Central Subway, and Los Angeles’s Westside Subway Extension.

Gordon discusses reasons why U.S. infrastructure costs may be so high, but more research is needed. Before any major infrastructure bill is considered, Congress and the administration should study the whole cost issue in depth. Since Gordon’s piece, there have been many other projects in the news (such as here, here, and here) that illustrate the productivity problem with government-funding infrastructure.

Americans are scrambling to file their 2018 federal income tax returns. The good news is that most folks should be left with more cash this year after Uncle Sam’s greedy grab than in past years.

The 2017 Republican Tax Cuts and Jobs Act slashed taxes across the board, with about 90 percent of tax-paying households receiving a cut. The individual tax cuts will be in place from 2018 to 2025, at which point Congress will decide whether to extend them. If Americans want to retain their tax cuts, they need to pressure Congress to restrain spending.

The Joint Tax Committee—the tax scorekeeper of Congress—released the table below showing the effects of the tax cuts in 2019. In the confusing way they’ve labelled it, “present law” is the law before the cuts and “proposal” is with the cuts. Also note that the law cut income taxes, but the table includes income taxes, payroll taxes, and excise taxes.

The GOP law cut taxes for every income group. The largest percentage benefits went to households with incomes between $20,000 and $50,000. House Speaker Nancy Pelosi has repeatedly called the law a “tax scam for the rich,” but she is quite wrong. The law made our highly progressive tax code a bit more progressive.

The table shows that average tax rates (total taxes paid divided by income) rise steeply as income rises. With the GOP cuts in place, households earning more than $1,000,000 pay a rate about twice that of households earning between $50,000 and $100,000, and three times that of households earning between $40,000 and $50,000.

The $768 billion Medicare program is in deep trouble as America ages and elderly health care soars in cost. Medicare is a giant central planning scheme that imposes more than 100,000 pages of regulations and related rules on more than 600,000 health care providers. 

The inefficiency is vast, and the structure of the program makes it a perfect target for fraud and abuse. The system processes more than a billion provider claims a year. Auditors estimate that more than $50 billion of taxpayer money goes down the drain every year from improper payments. The New York Times highlights some alleged scams today stemming from a recent federal bust.

Congress should end traditional Medicare and give each enrollee a voucher to purchase a health plan of his or her choice. Funding Medicare through fixed-dollar vouchers would give enrollees more control over their medical care, encourage cost consciousness, spur innovation by eliminating price controls, and restrain spending.

A voucher-based system would also greatly reduce fraud because massive, complex, and open-ended federal billing would be replaced by simpler fixed payments to individuals.

Here is an excerpt from the NYT story. Fortunately, investigators caught these alleged fraudsters, but the article illustrates the vulnerability of the system where scam artists can rack up apparently bogus charges of more than $200 million.

Federal officials said Tuesday that they had dismantled a $1.2 billion Medicare scheme that spanned continents and ensnared hundreds of thousands of unsuspecting elderly and disabled patients.

Under the scheme, which the authorities described as one of the largest health care frauds in United States history, doctors prescribed back, shoulder, wrist and knee braces that were not needed, prosecutors said. Twenty-four people were charged, according to the Justice Department.

“These defendants — who range from corporate executives to medical professionals — allegedly participated in an expansive and sophisticated fraud to exploit telemedicine technology meant for patients otherwise unable to access health care,” Brian Benczkowski, the assistant attorney general for the department’s criminal division, said in a statement.

Some of the accused were owners of durable medical equipment companies that paid kickbacks and bribes to doctors to write prescriptions for braces that were medically unnecessary, according to the authorities.

An international telemarketing network with call centers in the Philippines and Latin America would reach out to Medicare beneficiaries, persuading them to get the free or low-cost braces. The doctors would sometimes write prescriptions without speaking to the patient.

“The defendants took advantage of unwitting patients who were simply trying to get relief from their health concerns,” Craig Carpenito, the United States attorney for New Jersey, said in a statement. “Instead, the defendants preyed upon their weakened state and pushed millions of dollars’ worth of unnecessary medical devices, which Medicare paid for, and then set up an elaborate system for laundering their ill-gotten proceeds.”

The defendants laundered the proceeds through international shell companies and used the money to buy exotic cars, yachts and luxury real estate around the world, the authorities said.

Prosecutors brought charges related to the payment of bribes, illegal kickbacks, money laundering and conspiracy to commit health care fraud against people in California, Florida, New Jersey, Pennsylvania, South Carolina and Texas.

… In Florida, Willie McNeal IV, the owner and chief executive of two telemedicine companies, hired health care providers and then paid them to prescribe braces for Medicare beneficiaries regardless of whether it was medically necessary, according to an indictment. Mr. McNeal would then receive illegal kickbacks in exchange for ordering those braces, the indictment said.

Mr. McNeal, 42, facilitated the submission of fraudulent Medicare claims worth nearly $250 million, the government said.

… In a case out of South Carolina, more than a dozen companies owned by Andrew Chmiel, 43, billed Medicare for more than $200 million as part of a scheme to sell medically unnecessary equipment, according to an indictment.

By the way, the HHS headquarters building ranks as one of the ugliest in Washington. As this blogger notes, the federal government only hired architects with early onset glaucoma during the 1960s and 1970s.

However, it is also true that the Soviet-style brutalist design for HHS is ideal for a bureaucracy that imposes top-down central planning on a large part of the economy. The harshness of the building is a metaphor for the cold treatment of the citizenry under government-imposed planning schemes.