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1 Transportation Industry Columbia Southern University Principles of Macroeconomics Dr. Craig Hovey August 17, 2021

2 Transportation Industry The transportation industry is very influential on the economy of the United States because it is concerned with how people and products are moved. According to Rodrigue and Notteboom (n.d.), when transport systems are efficient, they provide economic and social opportunities and benefits that result in positive effects such as better accessibility to markets, employment, and additional investments, but when transport systems are deficient in terms of capacity or reliability, they can have an economic cost such as reduced or missed opportunities and lower quality of life. The focus of this paper is on the next two years. It will look at the current status of the federal budget and fiscal policy and explain how they will impact the industry over the next 2 years The federal budget is a plan of outlays, which include both government purchases and transfer payments, and revenues for a specified period, usually a year (McEachern, 2019). The budget process starts with the budget proposal by the President. The proposal is then passed on the Congress. Budget committees in both the House and the Senate rework the president’s budget until they agree on total out- lays, spending by major category, and expected revenues (McEachern, 2019). Budget policy plays a big part in the makeup of the final budget. For the past decade, final budget appropriations have been governed by the tight annual caps of the 2011 Budget Control Act (BCA) which has resulted in considerable austerity (Reich et al., 2021). However, under President Biden, this budgetary policy is changing. President Biden’s budget policy is in direct contrast to this Act and proposes increases in funds appropriated to entities other than defense. This type of policy will help the transportation industry because it is one of those entities. However, this new budget policy will most likely result in a budget deficit. In certain circumstances a budget deficit is acceptable. Deficit financing has been justified for outlays that

3 increase the economy’s productivity because the cost of these capital projects should be borne in part by future taxpayers, who will also benefit from these investments (McEachern, 2019). This justification is based on the philosophy of functional finance. This philosophy proposes that the people who make the policy should be concerned less with balancing the budget annually, or even over the business cycle, and more with ensuring that the economy produces its potential output (McEachern, 2019). As a result, tax changes have been proposed. The tax changes expected to be enacted this year may be substantial and far-reaching and may include corporate, individual, and capital gains tax rate increases; international tax changes; and estate and gift tax changes (Paravano, 2021). Presently, the pandemic is affecting the transportation 7industry. According to Kim (2021), the impacts of the pandemic on intercity travel and movements within and across urban regions have been significant, and the airline and cruise ship portions of the industry have been seriously affected. Transportation agencies are struggling with limited funds coupled with a declining workforce that is now hampered by social distancing restrictions (Falk et al., 2020). Therefore, unemployment has increased causing a recessionary gap because the economy is producing less than its potential. According to McEachern (2019), fiscal policy refers to government purchases, transfer payments, taxes, and borrowing as they affect macroeconomic variables such as real gross domestic product (GDP), employment, price level, and economic growth. Governments use fiscal policy in an attempt to stimulate economic growth or slow down the economy when needed. There is a type of discretionary fiscal policy to close this recessionary gap. It is called an expansionary fiscal policy. An expansionary fiscal policy aims to close the recessionary gap by increasing government spending, decreasing net taxes, or employing some combination of the

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4 two aimed at increasing aggregate demand enough to reduce unemployment and return the economy to its potential output (McEachern, 2019). One of the fiscal policies of the government under new President Biden is the American Jobs Plan. According to the Office of Management and Budget (2021b), the American Jobs Plan is designed to put millions of Americans back to work to build the U.S. not just back to the way it was before the pandemic but better. This type of fiscal policy will benefit the transportation industry as well as all other industries regarding unemployment. Unemployment is a serious problem. With this plan, the Administration expects a rapid and strong recovery in unemployment coinciding with progress in controlling the pandemic, with the unemployment rate dropping from the peak rate of 14.8 percent in April 2020 to 4.7 percent by the end of 2021. This will go a long way in reducing the recessionary gap. Part of this plan is to put money in the budget to help the transportation industry. The American Jobs Plan would put $621 billion into transportation infrastructures such as bridges, roads, public transit, ports, airports, and electric vehicle development (Pramuk, 2021). Across the US, the transit systems have a $98 billion maintenance backlog, and the national highway system has a further $826 billion backlog of highway and bridge capital needs (Falk et al., 2020). The transportation industry will benefit significantly from this plan. One of the purposes of this plan is to modernize 20,000 miles of highways, roads, and main streets, fix the 10 most economically significant bridges in the Nation in need of reconstruction, repair the worst 10,000 smaller bridges, providing critical linkages to communities, replace thousands of buses and rail cars, repair hundreds of stations, renew airports, modernize ports of entry, and expand transit and rail into new communities

5 In conclusion, the current status of the federal budget and fiscal policy will have a profound effect on the transportation industry. Even though the budgetary policy has changed this year and will result in a deficit, it is justified because it will help the economy get back to normal. To reduce the current recessionary gap, the current fiscal policy is expansionary to help reduce unemployment which is a major cause of the gap. The President is also proposing the American Jobs Plan. This plan would help the transportation industry because it will provide much-needed revenue to bolster the infrastructure. Although proposals made by the President will help the transportation industry in the next two years, there is a long-term effect. The horizon for most numbers in this budget proposal is 10 years which reflects a balance between the importance of considering both the current and future implications of budget decisions made today, and a practical limit on the construction of detailed budget projections for years in the future (Office of Management and Budget, 2021a).

6 References Falk, A., Tucker, J., Hewlett, C., Zubin, P., & Villalbi, V. (2020). Transportation infrastructure and COVID-19 . https://www2.deloitte.com/content/dam/Deloitte/us/Documents/risk/us- transportation-infrastructure-and-COVID-19.pdf Kim K. (2021). Impacts of COVID-19 on transportation: Summary and synthesis of interdisciplinary research. Transportation research interdisciplinary perspectives , 9 , 100305. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7813510/ McEachern, W. A. (2019). Macro ECON6: Principles of macroeconomics (6th ed.). Cengage Learning. https://online.vitalsource.com/#/books/9781337671804 Office of Management and Budget. (2021a). Analytical perspectives of the budget of the U.S. government for the fiscal year 2022 . U.S. Government Publishing Office. https://www.govinfo.gov/content/pkg/BUDGET-2022-BUD/pdf/BUDGET-2022- BUD.pdf Office of Management and Budget. (2021b). Budget of the U.S. government for the fiscal year 2022 . U.S. Government Publishing Office. https://www.govinfo.gov/content/pkg/BUDGET-2022-BUD/pdf/BUDGET-2022- BUD.pdf Paravano, J. H. (2021). The American Families Plan: 2021 Tax Reform. Journal of Taxation of Investments , 38 (4), 3–13. https://eds-b-ebscohost- com.libraryresources.columbiasouthern.edu/eds/pdfviewer/pdfviewer? vid=5&sid=ddba41d4-a501-4146-ab8f-e15bfcdd84f4%40pdc-v-sessmgr02 Pramuk, J. (2021). President Biden unveils his $2 trillion infrastructure plan and here are the details . https://www.cnbc.com/2021/03/31/biden-infrastructure-plan-includes-corporate- tax-hike-transportation-spending.html

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7 Reich, D., Kogan, R., & Windham, K. (2021). Biden budget provides a good starting point for the fiscal year 2022 appropriations bills . https://www.cbpp.org/research/federal- budget/biden-budget-provides-good-starting-point-for-fiscal-year-2022 Rodrigue, J-P. & Notteboom, T. (n.d.). Transportation and economic development . https://transportgeography.org/contents/chapter3/transportation-and-economic- development/

BBA2401UnitVIAssignment

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