The Asset Test

A privatization agenda

Robert Poole from the February 1995 issue

(Page 2 of 2)

The other approach, of course, would be to remove the tax exemption for revenue bonds that go to finance transportation, energy, and environmental infrastructure--the kinds that are, at least in principle, profitable enterprises. The Treasury and deficit hawks would love this because it would add to federal revenue. The privatizers would also love it, because it's more clear-cut than the very complex Gephardt-DeLauro approach.

But investment bankers and bond buyers could be formidable opponents. Their opposition might be overcome if the proposal were narrowly drawn: applying only to new revenue bonds, and only for these specific kinds of infrastructure. That amounts to just over one-quarter of the annual volume of tax-exempt bonds. But each year's new issues of taxable infrastructure bonds would add an additional $1.3 billion in new tax revenue, so after 18 years, the annual contribution to deficit reduction from this change would be $24 billion. It might be politically smart for Gingrich & Co. to nick wealthy bond buyers to this extent, while they are hacking away at overgrown social welfare programs.

Both types of privatization--selling off federal assets and enterprises and encouraging the privatization of state and local infrastructure--share the virtues of improving the economic performance of the entity in question while contributing seriously toward achieving a balanced federal budget. These virtues, in turn, are held dear by New Democrat types as well as by New Paradigm Republicans. Hence, privatization may finally have found political champions in Washington.