Private Financing Could Be a Problem for Infrastructure Plans
One of Donald Trump’s core initiatives for his first 100 days in office is to revitalize America’s roads, bridges, and airports, but industry experts warn that his infrastructure plan is inadequately funded.
President-elect Trump wants to extend $1.0 trillion in tax credits (over 10 years) to construction companies in the hopes that they will spend that cash on expansion. It is a top-down approach to economics. Trump hopes that lowering tax bills for corporations will incentivize those firms to hire more workers. Critics have pointed out that giving these tax breaks would blast a hole in government revenues, but Trump insists his plan would make up for the lost revenue.
Advertisement
He says the income tax paid by the newly hired workers, not to mention their added spending in the economy, would balance out the tax credits given to the companies. (Source: “Donald Trump’s Infrastructure Plan Faces Speed Bumps,” The Wall Street Journal, November 11, 2016.)
By his account, the plan would be revenue neutral.
A University of California, Irvine public policy professor named Peter Navarra, who also serves as an advisor to Trump, shared a 10-page description of the proposal on his web site. It said that $550.0 billion in infrastructure would be invested almost immediately, but did not specify where that funding would come from. Industry experts caution that Trump’s plan is overly reliant on what they call “private financing.” This is simply a term for the top-down economic approach described above.
The experts warn that commercial entities have profit-based motives, which makes them less than ideal for routine maintenance projects. For instance, there is no profit in repaving a public road. By contrast, private companies are more interested in building toll highways or airports, where there is an explicit return on investment. As such, many critics are skeptical that Trump can achieve his infrastructure goals without significant public investment.
According to the McKinsey Global Institute, 0.7% of gross domestic product (GDP) must be spent on infrastructure between now and 2030 in order to keep the economy at its full potential. President Barack Obama’s efforts to address the infrastructure problem were stonewalled by Republican opposition in Congress, forcing some members to use a reserve account held at the Federal Reserve. The lawmakers tapped the account for a $305.0-billion measure in December 2015.
