Does Obama's Infrastructure-for-Tax-Reform Deal Make Any Sense?

President Obama on Wednesday subjected himself to the second-longest press conference of his presidency, 1 hour and 13 minutes. (Some observers complained it felt even longer.)

Media coverage of this mass of words concentrated on the issue of immigration, because that’s where conflict is most expected. Shorter shrift was given to the big offer to Republicans with which the president opened his conference: more infrastructure spending in exchange for corporate tax reform.

Here’s the way Obama phrased it: “We all agree on the need to create more jobs that pay well. Traditionally, both parties have been for creating jobs rebuilding our infrastructure—our roads, bridges, ports, waterways. I think we can hone in on a way to pay for it through tax reform that closes loopholes and makes it more attractive for companies to create jobs here in the United States.”

The phrase “we all agree” is usually a signal that one should pat to confirm that one’s wallet remains in the pocket. Except during moments of recessionary emergency, the point of infrastructure spending is to build useful and cost-effective public improvements, not to “create jobs.” The jobs are an added benefit, not the purpose. Yet throughout his presidency, Barack Obama has been fascinated by public-sector investment as a permanent, not temporary, solution to the challenge of jobs and wages. Public-sector-led growth was the central concept of his speech at Osawatomie, Kansas, in December 2011, advertised at the time as the most detailed explication of the president’s economic ideas.

It’s about this vision that the parties do not agree, to put it mildly. Conservatives and Republicans remember—or should remember—that Japan slathered itself in cement in the 1990s hoping to blast itself out of stagnation. Instead, it accumulated a debt-to-GDP ratio second only to Greece, plus a lot of underused bridges, roads, and community centers. When infrastructure spending is reimagined as a jobs strategy, the risk of politically motivated waste—always high—tends to approach 100 percent.

Still, it’s at least theoretically possible that a properly designed infrastructure program could deliver good results both for present employment and future growth. To entice Republicans, Obama has joined his desired spending program to something that Republicans do want very much: corporate-tax reform.

Economists have fretted for a long time that the United States has burdened itself with a corporate-tax structure that features high nominal rates but low actual revenues. The high rates invite corporations to structure their affairs to avoid tax. This tax avoidance misdirects investment, probably slows growth, and likely discourages job creation. It benefits accountants, lawyers, and foreign tax shelters. Many politicians have proposed doing something about this gnarled, counterproductive structure. John Kerry proposed a rate-cutting corporate-tax reform during his 2004 presidential run. Reform has proved elusive, however. The high-rate, low-revenue structure didn’t happen for no reason. Many corporations are comfortable with the status quo. They prefer a complex code under which they pay less to a simpler code under which they’d pay more.

The hope that corporate-tax reform could yield hundreds of billions of dollars for infrastructure spending is almost certainly delusive. An attempt to extract that kind of revenue from the corporate-income tax would trigger an interest-group scramble that would most probably sputter into exhausted futility.

But maybe this isn't what Obama has in mind? Maybe the “pay-for” he imagines is political, not fiscal: You give me this thing I want, and I’ll recompense you with this other thing you want. Especially since the most rational place to look for new revenues isn’t the corporate-income tax in the first place—it’s a carbon tax. Republicans don’t care for carbon taxes any more than they care for higher corporate-tax collections. Way less, in fact. But there are taxes and policies they hate worse than a carbon tax. If the president is contemplating some big trades in his final two years, here’s the trade that could clinch the environmental legacy he seeks: a carbon tax in exchange for abolishing the corporate income tax outright.