Trump’s Infrastructure Plan:
Potholes or a Smooth Ride?
Paul Davidson, USA Today 6:45 am EST November 16, 2016
President-elect Donald Trump’s plan to spend $550 billion over the next decade to upgrade the nation’s crumbling roads, bridges and waterways has been celebrated as a key driver of the stock market’s post-election rally and a potential jolt to a listless economy.
Here’s the pothole: Experts are divided over the viability of a plan to leverage private financing to fund the program as a way of appeasing a deficit-averse Republican Congress.
“Americans deserve a reliable and efficient transportation network and a Trump Administration seeks to invest $550 billion to ensure we can export our goods and move our people faster and safer,” Trump’s transition website says.
His economic advisers say the program would create about 3.3 million construction and other related jobs. And Moody’s Analytics says it would add about 0.4 percentage points a year to economic growth.
The nation needs to spend about $3.3 trillion the next decade to fix infrastructure, and there’s currently a $1.4 trillion funding gap, according to the American Society of Civil Engineers. Such improvements, it says, also would add about $4 trillion to the gross domestic product by enhancing productivity.
Yet Trump’s website provides no details on how to pay for the proposal. A spokeswoman for the president-elect did not respond to a request for comment.
During the campaign, Trump touted a $1 trillion plan to upgrade the nation’s frayed airports, bridges highways, ports and waterways. Two of his economic advisers — business professor Peter Navarro of University of California-Irvine and private equity investor Wilbur Ross — laid out a blueprint to finance the spending with investor money that theoretically would add nothing to the deficit.
Under the plan, private firms would put up about 20% of the cost and borrow the rest. The government would provide tax credits to cover 82% of their investment. As a result, the firms would need to earn about a 10% return only on the rest of their investment not covered by the tax credits. What’s more, Navarro and Ross contend, stronger revenue for construction firms involved in the projects and higher wages for their workers would generate enough economic activity and government tax revenue to pay for the credits — adding nothing to the deficit.
But where do these private investors come from?
Navarro and Ross say some of them could be found among the multinationals with about $2 trillion in profits parked overseas. Trump already has proposed allowing them to bring the money back to the U.S. at a discounted 10% tax. Many could take part in the infrastructure program and receive credits that offset the 10% tax.
Michael Likosky, head of the infrastructure practice for 32 Advisors, says he believes it could all work. Some of the projects could generate enough revenue through tolls on highways or bridges to net a healthy profit for investors. In other cases, he says, state or local governments could pay fees to the investors to provide a return on their money. The advantages for the government: a shorter timeline to complete the projects; a longer than usual period to pay back the money; and the ability to keep the debt off their balance sheets.
Others are dubious.
“Our view is that this particular plan is seriously flawed,” says Paul Van de Water, senior fellow at the Center on Budget and Policy Priorities.
He says many projects, such as expanding broadband to schools, would not lend themselves to tolls or other fees. And, he says, it’s not clear why state or local governments would pay higher returns to private investors when they can just issue bonds at historically low interest rates.
Van de Water is also skeptical that the additional economic activity generated by the projects can pay for the tax credits, describing the idea as “fanciful.”
A more practical plan, he says, is for the government to simply borrow money for the upgrades, noting that alone would not add significantly to the budget deficit, which was $587 billion in fiscal 2016, down from $1.4 trillion in 2009. The bigger threat to the deficit, he says, is Trump’s massive tax cut plan. The Tax Policy Center says it would add $6.2 trillion to the national debt over the next decade.
And economist Chris Lafakis of Moody’s Analytics says the additional spending would stoke inflation and drive up interest rates, increasing borrowing costs for Americans.
Despite the uncertainty, Brian Pallasch, managing director of government relations for the civil engineers group, says Trump’s plan “is a solid first step forward.”