Exclusive: US businesses warn crumbling infrastructure is hurting the economy

As infrastructure negotiations between the White House and a GOP Senate group broke down this week, business executives are warning that aging infrastructure is holding America back.

Nearly two-thirds (63%) of middle market executives say the nation’s ailing infrastructure is restricting growth of the national economy, according to a new RSM survey shared exclusively with CNN Business. The survey, conducted in partnership with the US Chamber of Commerce, also found that 60% of these executives say the state of infrastructure is hurting local economies as well.

The findings come as President Joe Biden struggles to convince Republicans in Washington to support his $2 trillion American Jobs Plan that would aim to modernize roads, bridges and broadband and invest in clean energy.

“The antiquated nature of America’s infrastructure is holding back the national economy, the local economy and the firms that comprise the beating heart and soul of the real economy,” Joe Brusuelas, chief economist at RSM, said in an interview.

Broad support for 5G, network security and highways

The survey, conducted in April, focused on the middle market sector of the economy, which, as the name suggests, encompasses firms that are larger than small businesses yet not as big as the most powerful corporations with household names. These roughly 2,000 firms have revenue ranging between $10 million and $2 billion and employ around one-third of the US labor force.

When asked about 21 specific initiatives — improving interstate highways, bridges, ports and railways and the like — at least 63% of executives said those improvements would have minor, moderate or significant benefits to their company’s day-to-day operations, the RSM survey found.

“The middle market is signaling to the political authority that we need to improve overall efficiency and productivity because the roads, bridges, waterways and conditions of broadband technology are holding us back,” Brusuelas said. “We need to invest in the future.”

There was even stronger support for modernizing certain elements of infrastructure: telecom network security (95%), local roads or highways (94%), telecom networks such 5G (94%) and the energy grid (90%).

It is important to note, however, that the questions from RSM did not offer any trade-offs for getting these upgrades done. In other words, there was no mention of how revamping the electric grid may require companies to pay more to Uncle Sam in taxes.

“As a business community, we hope something gets done on infrastructure,” Tim Ryan, CEO of accounting and consulting giant PricewaterhouseCoopers, told CNN Business.

Ryan, whose firm advises Fortune 1000 companies and many middle market businesses, said there remains a debate over how to pay for infrastructure improvements and what should be included in the plan.

“There is a clear view that we as a country need to progress on infrastructure,” Ryan said.

White House: ‘This is not stimulus’

Infrastructure talks between Biden and Republican Senator Shelley Moore Capito collapsed Tuesday. The White House is now focusing on negotiating with a bipartisan Senate group led by another lawmaker from West Virginia: Democratic Senator Joe Manchin.

Biden officials expressed cautious optimism on Wednesday that there is a path forward.

“There is a reason that infrastructure, while extremely popular, has not gotten done: because it’s hard,” one White House official told CNN Business. “The president is committed to getting it done.”

Republicans have argued that Biden’s $4.5 trillion Build Back Better agenda, which includes the American Families Plan, will backfire by overheating the economy with more spending.

Senate Minority Leader Mitch McConnell recently warned that Biden’s current budget proposal “would drown American families in debt, deficits and inflation.”

However, unlike the $1.9 trillion stimulus package enacted in March, Biden’s infrastructure proposal and American Families Plan are long-term investments that do not include enhanced jobless benefits, small business loans or stimulus checks.

“This is not stimulus. It’s not going to be rolled out the minute the ink is dry on the legislation,” a second White House official told CNN Business.

Inflation is here. How long will it last?

Even so, pricing pressures are real. Everything from gasoline and used cars to diapers and lumber has gotten more expensive.

The latest: Chipotle announced this week it raised menu prices by up to 4%, while Sherwin-Williams is jacking up paint prices by 7% beginning in August.

The White House, like the Federal Reserve and many economists, is betting the return of inflation won’t last.

“We’re going to see some short-term challenges with inflation, but that is likely to abate once we get through and come out of this crisis,” the second White House official said.

Paying for infrastructure

Beyond the substantial price tag on the infrastructure package, one major sticking point is how to pay for it. The Build Back Better agenda calls for raising $3.5 trillion by increasing taxes on corporations and the wealthy.

Republicans and many business groups, including the US Chamber of Commerce, oppose rolling back the Trump tax cuts that lowered the corporate rate to 21%. They argue that raising the tax rate to 28%, as Biden has proposed, would make US companies less competitive on the global stage. (Biden has also signaled a willingness to consider other options, such as imposing a 15% minimum tax on all corporations).

First Solar CEO Mark Widmar cited the Trump tax cuts as one reason the solar panel manufacturer decided to build a third factory in Ohio. He told CNN Business that rolling back those tax cuts would have an “adverse impact” as companies consider investing in more manufacturing in the United States.

Biden officials suggested there is an irony among Republicans’ concerns about inflation and their desire to avoid raising taxes.

“When you pay for something, you’re taking money out of the economy. That helps reduce the expansionary effects of anything we do,” the second White House official said. “If your main concern is inflation, then you should be very concerned about the other side of the equation.”

Brusuelas expressed concern that Washington will fail to take advantage of the current low borrowing costs to make overdue investments in the nation’s infrastructure.

“If they don’t get this done,” the RSM economist said, “there is going to be hell to pay.”