The topic of political discourse over the past few weeks is the president’s proposed $2 trillion infrastructure plan. As with the American Rescue Plan before it, there is much hesitation in making such a large public investment. But like the American Rescue Plan, the facts support a bold investment. Let’s separate the facts from the myths.
The argument goes much like this. The return on investment in keeping taxes low is better than spending public tax money on infrastructure or education. The events of a few months ago in Texas demonstrate the hollowness of this argument. The failure of the state government to adequately invest in the energy and utility infrastructure led to a catastrophic response to the winter storms that ravaged the state. It is the same model that we have tracked in states like Kansas where large cuts to state services were made to keep taxes low.
Let’s look at the facts. The research shows that those states which have made the greatest investment in building the capacity of their public infrastructure and education systems have experienced stronger economic growth than states that did not. Indeed, the high-investing states also had larger increases in worker wages, as well as a statistically meaningful advantage in state-level GDP growth.
A rigorous 2012 study commissioned by the U.S. Small Business Administration found “no evidence of an economically significant effect of state tax portfolios on entrepreneurial activity.” The Truman Institute at the University of Missouri found that when the benefit of a tax break is measured against the economic loss generated by spending cuts—there is always a net economic loss. The Congressional Budget Office found no correlation between tax policy and job creation–private sector demand is what counts.
As it turns out, investment in public infrastructure along with P-12 education and higher education, not lower taxes, are the only public policy decisions that have a statistically meaningful correlation to economic outcomes, according to research conducted by the Center for Tax and Budget Accountability.
The U.S. is the wealthiest country in the world, yet we rank 13th when it comes to the overall quality of our infrastructure. After decades of disinvestment, our roads, bridges, and water systems are crumbling. Our electric grid is vulnerable to catastrophic outages. Too many lack access to affordable, high-speed Internet and to quality housing. The past year has led to job losses and threatened economic security, eroding more than 30 years of progress in women’s labor force participation. It has unmasked the fragility of our caregiving infrastructure. And, our nation is falling behind its biggest competitors on research and development, manufacturing, and training.
The same argument can be made for education. The failure to invest in P-12 and higher education will not be as immediately evident as infrastructure neglect. Citizens of states that consistently fall behind and fail to invest in their human capital will not completely see this failure until it is too late.
That is why it is so alarming to see the news earlier this year from the Kentucky Council on Postsecondary Education about the decline in state higher education enrollment. The decline of students nationally and in Kentucky completing the Free Application for Financial Aid (FAFSA) has dropped even more sharply, signaling the potential for a larger decline in 2021.
These trends on top of a 35 percent cut to higher education since 2008 means that Kentucky’s human capital may become the educational parallel to the Texas power grid. It is already showing up in Kentucky’s declining economic competitiveness. In a recent study of the economic health of all 50 states by Comen (2019) prior to the pandemic, Kentucky ranked 44th with the 12th lowest GDP and 13th highest unemployment rate. Also unsurprising is the corollary of bachelor’s degree attainment. Kentucky ranked 45th in the percentage of adults with at least a bachelor’s degree. In fact, the best predictor of the competitiveness of a state’s economy is college attainment.
The states which have made the greatest investment in building the capacity of their infrastructure, public schools, colleges and universities to meet the needs of businesses and citizens, from the poorest on up, have experienced stronger economic growth than states that did not. They are winning the race for human capital, jobs, and economic competitiveness.
Fiscal policy in Kentucky is at a crossroads. As state leaders ponder tax reform, and a needed fix to state infrastructure, and investments in education it is critical to separate fact from myth about fiscal policy and cost of consistent underinvestment in our Commonwealth and its people.
Nicholas Brake, a former public school superintendent, is director of the Doctoral Program in Educational Leadership at Western Kentucky University and author of the Kentucky Education Policy Blog.
