Donald Trump recently unveiled his plan to spend $1 trillion rebuilding America’s infrastructure.
This is nearly four times the amount Hillary Clinton has proposed.
Trump economic advisers Peter Navarro and Wilbur Ross announced this new plan to Yahoo Finance. It would rely heavily on private investment that would be encouraged by a new government tax credit. The tax credit would cost the government, but Navarro and Ross say the money would be offset by taxes paid by the companies and workers.
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“If there’s ever a great time to do it, it’s got to be now,” Ross told Yahoo Finance in an interview. “With interest rates so low, this has got to be the best time from a break-even point of view, from a societal point of view.”
Here’s how Trump’s program would work: The investors would be required to take an equity stake in the projects with a down payment, which would be equal to one-sixth of the project’s cost. For perspective, a home mortgage often requires a 20 percent down payment, so billionaire private equity investors like Wilbur Ross would be getting a better deal than many middle-class homeowners.
But the investors would get an incentive with an even better deal from the government. The federal government would offer an 82 percent tax credit for any investor that participates. This would attract more investment and lower the overall rates for state and local governments. The tax credit also acts a federal government guarantee of these projects. There is one catch — the tax credit can only be used on projects that have a revenue stream, such as user fees or tolls.
In exchange for the creative financing schemes, there would be no additional tax increases. The federal government would borrow the difference between the down payment and the overall cost, which would increase the debt.
It should be noted that Republicans in Congress have opposed much smaller infrastructure spending packages proposed by President Obama. In 2009, House Republicans unanimously opposed President Obama’s economic stimulus, which included a little under $100 billion in infrastructure spending.
The Indiana Toll Road is operated under similar principles to what Trump is proposing. It was originally constructed in the 1950s with public financing, but the operation of road was privatized in 2006. The original operators of the Indiana Toll Road filed for bankruptcy in 2014. At the time of the bankruptcy, Yahoo Finance noted that the ITR’s original operators “bore all the risk if the lease didn’t work out.”
But that would not be the case under Trump’s proposal. The federal government would be on the hook for most of the project if the projected revenues did not materialize for these Trump roads and projects. There would also be incentives for these private companies to create crony deals to benefit the private toll operators, which are often foreign companies.
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Finally, the Trump proposal would crowd out private investment in other projects. The government incentives would attract money that would otherwise go to private businesses and startups. Instead, those would be invested in “public-private partnerships” that essentially privatize profits and socialize losses.
The Trump plan is a handout for crony capitalists, would increase the national debt and will harm private investment in other aspects of the economy.
It’s a terrible idea in general, but more particularly, it’s a terrible idea coming from the Republican nominee for president.