Funding The U.S. Infrastructure Overhaul: Interest Deductibility’s Key But Oft-Overlooked Role
In 1956, the interstate highway bill, one of the largest public works projects in American history was signed into law. At the time, the system carried roughly 65 million cars and trucks. Today, that number has more than quadrupled to over 260 million.
The increase in traffic borne by our national highway system is just one reason our roads are in a state of much-needed repair. In some parts of the country, our roads and bridges are still well over 50 years old, and the condition of railways and waterways is no better. Often, local and federal governments do not have the funds at hand to make needed repairs, but one way to solve for this is through private investment.
The Administration’s infrastructure goals place a strong emphasis on securing significant private capital to fund the infrastructure upgrade. As a result, there have been discussions about what this would look like in practice.
One of the surest ways to ensure projects to improve our roads and bridges will attract private capital is by maintaining interest deductibility (ID) in the tax code. Treating interest like the cost of doing business that it is will ensure companies have access to financing to make necessary investments.
Business leaders across the country have warned in recent months that any limit on ID will raise the cost of borrowing, which will inevitably affect their operations as well as their ability to invest in infrastructure. During a recent senate hearing, for instance, a Nokia executive explained:
“The loss of interest deductibility means less dollars, billions of them, for broadband infrastructure deployment.”
This is also true of other key industries in communities across the country, outside of those directly involved in infrastructure — from farming to small businesses to hospitals and real estate.
Importantly, maintaining interest deductibility to fund our infrastructure improvements is not just a public policy issue. In today’s economy, cities and districts must be able to provide people with timely, efficient, and effective infrastructure. Limiting ID will impact private sector participation in infrastructure projects, forcing local governments to pick up the tab. This will mean higher tolls and taxes for Americans.