Trump Advisors, Officials Fill Potholes in Government Infrastructure Initiative

Published January 23, 2017

President Donald Trump and federal lawmakers are working on filling in details of a proposed $1 trillion federal initiative to build and repair roads, using a combination of taxpayer-funded debt financing, public-private partnerships, and direct taxpayer funding.

During congressional confirmation hearings in January, Trump nominee Elaine Chao testified her priority as secretary of the Transportation Department would be to establish an infrastructure task force to study how to execute the president’s plan for road construction and repairs.

Increased direct government spending on roads would play a part in the final proposal, Chao told lawmakers.

Stresses Importance of Details

Marc Scribner, a senior fellow at the Competitive Enterprise Institute, says big government spending projects don’ spur economic growth.

“If the plan involves spending hundreds of billions of federal dollars, there would be little difference between it and the [American Recovery and Reinvestment Act] ‘stimulus’ Republicans opposed during the Obama administration,” Scribner said. “However, if the total figure includes privately financed infrastructure, as the Trump team appears to have suggested, it could be quite different and perhaps even something fiscal conservatives could support.”

No Hurry?

Scribner says lawmakers shouldn’t be in a hurry to rearrange the government’s transportation policies.

“It is a great political myth that increasing government infrastructure spending raises employment and promotes long-run economic growth,” Scribner said. “A multi-year highway bill was passed in late 2015, meaning there is little legislative urgency to reexamine surface transportation policies at this early date.”

Robert Poole, director of transportation policy at the Reason Foundation, says the only specific infrastructure proposal so far—submitted by Peter Navarro, director of the White House National Trade Council, and Wilbur Ross, Trump’s nominee to head the U.S. Department of Commerce—uses a mix of taxes and spending policies.

“The only specific proposal on infrastructure is the 10-page piece by Wilbur Ross and Peter Navarro,” Poole said. “It calls for total investment of $1 trillion, but none of that is federal outlays. Instead, the plan is based on long-term public-private partnerships that would be financed with a fairly typical 25 percent equity investment, like the down payment on a home, and 75 percent debt, like the mortgage—in this case, revenue bonds.

“Ross and Navarro have proposed a large tax credit to create an incentive for the equity investment, and like any tax credit, this represents a ‘tax expenditure,’ otherwise known as ‘revenue foregone,'” Poole said.

Questions Need

Poole questions the necessity of using tax credits to encourage businesses to do things they already want to do.

“Many experts, including myself, say that this kind of tax-credit incentive is unneeded,” Poole said. “Investment banks, infrastructure investment funds, and pension funds are eager to invest in long-term [public-private partnership] projects that have a user-fee revenue stream. The problem is that, so far, such projects are few and far in between. It is state and local governments that need to be incentivized to offer many more such projects, not the private sector, which is ready, willing, and able.”

Calls Numbers Implausible

Poole says the Ross-Navarro plan’s numbers don’t add up.

“Ross and Navarro do calculations attempting to show that the $1 trillion set of projects will lead to net new corporate income tax revenue and increased personal income tax revenues from the workers employed in all these projects,” Poole said. “I futzed around with the Ross-Navarro calculations and could not come up with a plausible revenue-neutral solution.”

Poole says the Ross-Navarro plan would shift existing workers around instead of creating new jobs.

“The corporation part of this might be plausible, but workers building the projects would mostly be skilled-trades people, not currently unemployed laborers, like in the Great Depression,” Poole said. “The only new personal income tax revenue would come from people who move into skilled construction jobs from somewhat-lower-paying jobs and the overtime hours that they work.”