The views expressed here are solely those of the authors and do not necessarily represent the views of FreightWaves or its affiliates. Jake Medwell, founding partner at 8VC, and Loren A. Smith Jr., president of Skyline Policy Risk Group, take a look at potential impacts on trucking. This will be a regular quarterly Q&A exclusively on FreightWaves.
By Jake Medwell and Loren Smith
Q: President Biden and the Congress are still hammering away on a big infrastructure and tax plan. What’s the latest?
A: The situation is extremely fluid in Washington. The jobs report on May 7, which was both very weak and well below expectations, has kicked off a very difficult run of news for the economy. Inflation is edging up — the 0.8% increase in April was the largest in a decade — and the Colonial Pipeline hack led to gas lines in the eastern U.S., creating a potential nightmare scenario.
We still expect a large spending bill in the $1 trillion-$2 trillion range to be enacted later this year, but the attached tax hike is likely to be much smaller than the original proposal.
Q: So we could still see a major spending boost to infrastructure?
A: Well, one of the recent food fights in Washington is over the definition of “infrastructure.” The Biden administration and Democrats in Congress argue that “human infrastructure” — meaning social programs in support of health care, education and related priorities — should be paired with “physical infrastructure.” That raises the question of how much in the way of dollars will go to the various categories. It’s certain that the “human infrastructure” component will get a large share of any package, but it’s unclear what share will go to roads and the like.
The scenario that worries people who want to see more spent on the physical infrastructure is a repeat of 2009’s “shovel-ready.” That year, Congress passed the ARRA/stimulus legislation with the argument that much of it would go to physical infrastructure projects, which ended up getting less than 3% of the package. Currently, the Biden plan is targeting less than 10% of the package for roads and bridges. A nice bump, certainly, but not a game-changer.
Q: Infrastructure is typically pretty bipartisan. Shouldn’t that make it easier to get a bill done compared to more controversial topics? I mean, it’s not like they’re trying to strike a deal on health care or the border wall or social issues — things where the two parties are totally at odds.
A: President Biden and the Democrats would very much like to do a bipartisan deal with the Republicans, for reasons both principled and political. However, the Republicans are more or less dug in against tax hikes, and they also want “infrastructure” to mean a bill that restricts its focus to highways and broadband and other things that have traditionally been considered infrastructure. Democrats, who ultimately control the agenda, have to decide whether they want to shelve the grander plans and do a more modest deal with the Republicans. The answer is very likely that Democrats will ultimately push ahead with the bigger bill and some sort of increase in the corporate tax rate. If that causes the Republicans to walk away, the Democrats aren’t going to lose much sleep over that.
Q: There’s typically a lot more in the infrastructure bill than just spending and taxes. What sort of policy changes or mandates should folks be keeping an eye out for?
A: A very important question! It’s possible that the answer is none. One consequence of the Democrats going it alone could be no significant policy changes this year.
Q: How’s that?
A: The infrastructure bill that we expect to see enacted over the next few months — the one with the “human infrastructure” funding and the hike in the corporate income tax — is not likely to include a traditional highway bill. The highway bill, what folks normally think of when they’re talking about infrastructure programs, is the reauthorization of federal surface transportation programs that Congress passes every five or six years.
The most recent highway bill was the FAST Act passed in 2015, which is indeed up for renewal. And that bill does indeed typically include much in the way of policy changes. For instance, the mandate for truckers to switch over from paper logs to electronic logging devices was a directive to USDOT-FMCSA from Congress in the FAST Act.
Q: So it’s up for renewal and it’s infrastructure — why wouldn’t it be part of the show this year?
A: Well, unlike the tax and spending changes, the reauthorization of the federal-aid highway programs is likely not eligible for the reconciliation mechanism that allows the Senate to skip the 60-vote threshold. That means there will have to be bipartisan support for a reauthorization to pass. And that means that if the bipartisan talks fall apart, Democrats will still do the spending and tax parts they’re able to agree on internally, and then set aside the reauthorization for when they can get a deal with the Republicans.
Q: And when will that be? They have to do something, right?
A: The FAST Act itself expired in September 2020, but before that happened, Congress enacted a 12-month extension to this September. They will probably end up punting again for 12-24 months, with 2023 the next likely window for a serious five- to six-year bill.
Now, if Congress does agree on a new highway bill this year, it would likely include provisions on climate policy that could affect trucking and passenger vehicles in particular. Climate policy is arguably the top area of focus for the administration, with transportation emissions a key area, perhaps the key area, within that. Efforts to impose fuel efficiency and transition the fleet from internal combustion to electric vehicles are high on the list. Safety measures could also include steps towards speed limiters on heavy trucks or underride protection. Additional measures to promote bicycle access on roadways could also emerge.
A cautionary note, however, that while a simple extension of the FAST Act would rule out new statutory mandates, the DOT has substantial rulemaking powers of its own. DOT is currently hard at work on new fuel efficiency mandates, as one example.
Q: Last question: Where is the corporate tax rate likely to settle?
A: The Biden plan proposes raising it from 21% to 28%, with substantial increases on the personal side of the tax code as well. My guess is that the economic troubles have capped the corporate rate at no higher than 25%, but it might end up at 24% or even less. Notably, when you’re dealing with major tax legislation, there could be a lot of nuance with smaller provisions, so keep watching this one closely.
Thanks for the conversation. See you next time!
Jake Medwell, founding partner of 8VC, focuses on both consumer and enterprise investments. A serial entrepreneur who has spent his life building and scaling companies, he also leads 8VC’s logistics and transportation focus. Prior to launching 8VC, Medwell co-founded Humin, a consumer mobile software company where he built the engineering team and led growth. He also co-founded The Kairos Society, where he sits on the board of directors. While in college at the University of Southern California, he founded Sole Bicycle Co. and grew it into an industry leader. Most recently, he co-founded Operation Masks with partner Drew Oetting to help bring personal protective equipment to medical workers on the front line of the fight against COVID-19.
Loren A. Smith Jr. is the president of Skyline Policy Risk Group. From 2017 to 2021, he worked at the Department of Transportation as deputy assistant secretary for policy. There, his leadership included serving as DOT’s chief environmental review permitting officer; chair of the management team for the ROUTES Initiative on rural transportation; and as a member of the task force on regulatory reform, including leading efforts on supersonic aviation. From 2009 to 2016, he was an analyst for Capital Alpha Partners, a Washington-based research firm that studies public policy for investors. He specialized in transportation policy, particularly relating to autos and infrastructure, and published more than 500 research notes.