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A public policy blog from AEI
The Wall Street Journal raises some issues and explores some question regarding Donald Trump’s trillion-dollar infrastructure plan:
Donald Trump’s proposal for $1 trillion worth of new infrastructure construction relies entirely on private financing, which industry experts say is likely to fall far short of adequately funding improvements to roads, bridges and airports. The president-elect’s infrastructure plan largely boils down to a tax break in the hopes of luring capital to projects. He wants investors to put money into projects in exchange for tax credits totaling 82% of the equity amount. His plan anticipates that lost tax revenue would be recouped through new income-tax revenue from construction workers and business-tax revenue from contractors, making the proposal essentially cost-free to the government.
Mr. Trump has made a $1 trillion infrastructure investment over 10 years one of his first priorities as president, promising in his victory speech early Wednesday morning to “rebuild our highways, bridges, tunnels, airports, schools, hospitals.”
Experts and industry officials, though, say there are limits to how much can be done with private financing. Because privately funded projects need to turn a profit, they are better suited for major projects such as toll roads, airports or water systems and less appropriate for routine maintenance, such as repaving a public street, they say. Officials also doubt that the nation’s aging infrastructure can be updated without a significant infusion of public dollars.
The plan “strikes me as sort of a concept paper or a thought piece as opposed to a real plan,” said Pat Jones, executive director of the International Bridge, Tunnel and Turnpike Association, which represents private operators of toll roads. “These are sort of formulaic numbers that you could come up with to present something that looks like a plan.”
Everything can’t be a toll road, of course. And it is way, way cheap to borrow. As it happens, economist and persistent infrastructure advocate Larry Summers also wonders about the Trump financing mechanism:
I have long been a strong advocate of debt-financed public investment in the context of low interest rates and a decaying US infrastructure, so I was glad to see Mr Trump emphasise it. Unfortunately, the plan presented by his advisers, Peter Navarro and Wilbur Ross, suggests an approach based on tax credits for equity investment and total private sector participation that will not cover the most important projects, not reach many of the most important investors, and involve substantial mis-targeting of public resources.
Many of the highest return infrastructure investments — such as improving roads, repairing 60,000 structurally deficient bridges, upgrading schools or modernising the air traffic control system — do not generate a commercial return and so are excluded from his plan. Nor can the non-taxable pension funds, endowments and sovereign wealth funds that are the most promising sources of capital for infrastructure take advantage of the program.
And as for Summers’s concerns, Twitter offers some mild snark, regarding the economist’s role in the 2009 Obama stimulus:
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