Economist Martin Feldstein warns about excessive government debt in the Wall Street Journal:

The most dangerous domestic problem facing America’s federal government is the rapid growth of its budget deficit and national debt.

I agree.

To avoid economic distress, the government either has to impose higher taxes or reduce future spending. Since raising taxes weakens incentives and further slows economic growth … the better approach is to slow government spending growth.

I agree. 

Defense spending and nondefense discretionary outlays can’t be reduced below the unprecedented and dangerously low shares of GDP that the CBO projects. Thus the only option is to throw the brakes on entitlements. In particular, the government needs to hold back the growth of Medicare, Medicaid and Social Security.

Here, I differ with Feldstein. We need a more expansive view of what can and should be cut.

The pie chart breaks down the $4.5 trillion federal budget for 2019 into major parts, and it identifies which parts should be cut.

Here are some reform suggestions:

• Social Security. Congress should raise the retirement age as Feldstein advises, but also switch the indexing of initial benefits from wages to prices to slow growth, while also reforming disability insurance to encourage work.
• Medicare. Congress should increase premiums and cost-sharing while moving to a system of vouchers to encourage competition and cost control.
• Medicaid. Congress should convert federal aid to block grants in order to cut federal spending and encourage state innovation and cost reductions.
• Defense. The largest federal bureaucracy is the Pentagon’s civilian staff of 750,000. A Washington Post investigation suggested that bloat in the defense bureaucracy cost more than $100 billion year. I don’t know whether that is true, but the Pentagon could certainly save money by tackling excessive layering, cost overruns, and corruption.
• Interest. Without reforms, interest costs are expected to double over the next seven years, but those costs would fall if Congress cut spending.
• Other Spending. Congress should cut food subsidies, farm subsidies, energy subsidies, housing subsidies, rural subsidies, development subsidies, K-12 subsidies, college subsidies, welfare subsidies, disaster subsidies, security subsidies, community subsidies, developer subsidies, water subsidies, grazing subsidies, unemployment subsidies, training subsidies, highway subsidies, transit subsidies, airport subsidies, rail subsidies, worker subsidies, foreign aid subsidies, business subsidies, flood subsidies, power subsidies, and much more.

If the government is subsidizing everyone, then it is effectively subsidizing no one. We are shuffling trillions of dollars around and the largest net gainers are the high-paid middlemen and lobbyists in Washington.

Feldstein concludes: “Lawmakers don’t like to cut spending, but they have to do something. Otherwise the exploding national debt will be an increasing burden on our children, economic growth and our future standard of living.”

I agree with that, but it suggests that cuts are like taking unpleasant medicine to treat an illness. Instead, spending cuts should be viewed as a positive. They would shift resources from mismanaged and damaging federal programs to more productive private activities. Federal spending cuts are not a necessary evil needed to tackle deficits, but rather an opportunity to spur growth and expand freedom.

New York Governor Andrew Cuomo is upset that the Trump administration doesn’t want to fund new tunnels under the Hudson River. Cuomo sent an angry letter to Trump earlier this week accusing the president of being prejudiced against New York and New Jersey because they didn’t vote for him. Cuomo claims the tunnels should be federally funded because “the Northeast is home to 17 percent of the entire population and contributes 20 percent to the national domestic product.” 

But gross domestic product and regional populations aren’t among the criteria Congress established for federal funding of transit infrastructure. Instead, one of the most important criteria that the Department of Transportation is required to use is whether the project is “supported by an acceptable degree of local financial commitment.” Based on the lack of local support, the Federal Transit Administration’s 2020 New Starts funding recommendations gave the project a “medium-low” rating, and under federal law, that makes it ineligible for funding. Not counting some very small projects (such as the downtown Los Angeles streetcar), the only other project to get a medium-low rating was the Portal North Bridge, which is also part of the Hudson Gateway megaproject.

Cuomo argues that Trump has ignored “the financial commitments made by New York and New Jersey.” The FTA’s profile of the project reveals just what those commitments are.

First, the states are asking the federal government to put up $6.7 billion, or 49 percent of the projected $13.6 billion cost. Second, they want the federal government to make them a loan of $2.3 billion that will be “repaid with PANYNJ [Port Authority of New York and New Jersey] funds.” Third, they want another federal loan of $2.0 billion that will be “repaid with project revenues.” These two loans total to 32 percent of the projected costs.

Another billion dollars (7%) is supposed to come from “unspecified private capital sources” who will be “repaid with project revenues.” Further, $1.4 billion (10%) would come from “GDC funds” derived from “project revenues.” GDC is the Gateway Development Corporation, which consists of Amtrak, New Jersey Transit, the Port Authority, and the U.S. Department of Transportation. It currently earns no revenues of its own, so it will have a hard time paying $1.6 billion in construction costs. Finally, $178 million, or 1.3 percent of the total, would come from the Port Authority of New York and New Jersey.

In short, New York and New Jersey are nobly committing themselves to cover 1.3 percent of the cost of the project, while they are relying on the federal government to fund a mere 81 percent. Of course, some of that would be loans, but the states may not be obligated to repay those loans unless the project earns sufficient revenues to do so. The private capital sources who are supposed to put up 7 percent are almost purely imaginary, and even if they existed they would demand that they be repaid out of project revenues before the federal government. But before repaying anyone, these mythical project revenues are supposed to cover another 12 percent of the cost.

Pardon me if I sound naive, but what project revenues are we talking about? Amtrak, New Jersey Transit, and the Port Authority are all money-losing operations. Amtrak claims to make money in the Northeast Corridor, but that’s only because it ignores depreciation and the corridor’s $51 billion infrastructure backlog, only part of which is the Hudson Tunnels. New Jersey Transit trains don’t even earn enough fares to cover 60 percent of their operating costs, much less any to pay for maintenance or capital costs.

In other words, Cuomo is asking Trump to have federal taxpayers pay nearly all the up-front costs and to take nearly all the risks of this project. What if self-driving buses put New Jersey Transit and Amtrak out of business – or at least reduce their ridership enough that they have no surplus revenues to repay federal loans? What if many of the firms now located in Manhattan realize that the subway system is never going to be repaired and decide to move away? Who is going to pay for the inevitable cost overruns? New York and New Jersey are clearly trying to get these tunnels while putting up as little of their own money as possible.

The FTA has long had a policy that applicants for transit capital funds must put up half the cost in matching funds, and federal loans don’t count as matching funds. Following this policy, it rated the Hudson Tunnels “medium low.” Congress made the rules, so Cuomo is complaining to the wrong party when he writes Trump, as the Department of Transportation just followed Congressional direction when it gave the project a medium-low rating. If anything, the DOT was generous: the project really deserves a “low” rating.

The United States has “at least $232 billion in critical public transportation” needs, claims the American Public Transportation Association (APTA). Among the “critically needed” infrastructure on APTA’s list are a streetcar in downtown Los Angeles, another one in downtown Sacramento (which local voters have rejected), one in Tempe, and streetcar extensions in Tampa and Kansas City.

Get real: even ardent transit advocates admit that streetcars are stupid. The economic development benefits that supposedly come from streetcars are purely imaginary, and even if they weren’t, it would be hard to describe streetcars – whose average speed, APTA admits, is less than 7.5 miles per hour – as “critically needed.”

Much of the nation’s transit infrastructure is falling apart, and the Department of Transportation has identified $100 billion of infrastructure backlog needs. (Page l – that is, Roman numeral 50 – of the report indicates a backlog of $89.9 billion in 2012 dollars. Converting to 2019 dollars brings this up to $100 billion.) Yet APTA’s “critical needs” list includes only $24 billion worth of “state of good repair” projects. Just about all of the other “needs” listed – $142 billion worth – are new projects or extensions of existing projects.

In fact, few if any of these new projects are “needed” – they are simply transit agency wish lists. For example, it includes $6 billion for phase 2 of New York’s Second Avenue Subway, but no money for rehabilitating New York’s existing, and rapidly deteriorating, subway system. Similarly, it includes $140 million for a new transitway in Alexandria, Virginia, but no money for rehabilitating the DC area’s also rapidly deteriorating Metrorail system. (In case anyone is interested, I’ve converted APTA’s project list into a spreadsheet for easy review and calculations.)

The $166 billion total on APTA’s “Project Examples” list is less than the $232 billion APTA says is needed, but even if all of the difference is “state of good repair” projects, that difference plus the $24 billion on APTA’s list doesn’t add up to what the DOT says is needed to restore transit infrastructure. This shows that even APTA doesn’t take public safety and “crumbling infrastructure” seriously.

I’ve previously pointed out that the best-maintained infrastructure is funded out of user fees. For example, Federal Highway Administration data show that only 2.9 percent of toll bridges are “structurally deficient,” compared with 5.5 percent of state-owned bridges funded mainly out of gas taxes and 12.2 percent of locally-owned bridges that are funded mainly out of general tax dollars. Gas taxes are a user fee, so state bridges are better maintained than local bridges, but tolls are an even better user fee so toll-funded bridges are in the best shape.

Politicians allow infrastructure funded out of tax dollars to deteriorate because they would rather spend money on new projects than maintain old ones. APTA’s list simply confirms this: APTA is trying to entice politicians into funding all sorts of new projects rather than maintain the existing ones that are falling apart.

To justify this spending, APTA claims that transit produces $4 in economic benefits for every $1 spent. This is based on a report prepared for APTA in 2009. This report includes two kinds of benefits from transit spending.

First, when anyone spends money on anything, the recipients of that money turn around and spends it again. That’s called “indirect” or “secondary” benefits. Spending money on digging holes and filling them up would produce similar secondary spending. That doesn’t mean the government should pay people to dig holes and fill them up (although that’s really what it’s doing for many rail transit projects). For one thing, if government didn’t spend that money, there would be more money in the hands of taxpayers, who would spend it, generating just as many secondary benefits.

Second, the study counts cost savings to transit riders and other travelers, such as the savings from not having to own a car, from getting to destinations faster, or from congestion relief. But transit costs far more and travels far slower than automobiles; there is no cost or time savings from substituting expensive, slow methods of transportation for inexpensive, fast methods of transportation. Transit also does not provide a significant amount of congestion relief; in fact, large buses, streetcars, light rail, and commuter trains that have many grade crossings often do more to increase congestion than reduce it.

The study’s arguments are even less plausible today, when transit ridership is shrinking, than they were in 2009, when transit ridership had been growing. Charlotte, Los Angeles, and Portland recently spent hundreds of millions or billions on new light-rail lines or light-rail extensions, yet transit ridership in those regions dropped after the new lines opened. There is no way that can that be good for transit riders or other travelers.

APTA’s wish-list is just one more reason why Congress should only pass an infrastructure bill if it is one that is funded exclusively out of user fees. An infrastructure bill funded out of tax dollars or deficit spending would impose huge costs on taxpayers in order to build unnecessary projects that we won’t be able to afford to maintain.