|This past weekend, NEC chief Gary Cohn delivered a long-awaited outline of the administration’s plan to fix the nation’s crumbling infrastructure. The long-overdue plan calls for up to $200 billion in tax expenditures to attract $1 trillion in private infrastructure investment.
There was just one problem. The plan appeared to contradict what Trump said his administration’s infrastructure plans were just 24 hours earlier at a Camp David retreat with Republican leaders, when the President repeated his view that public-private Infrastructure partnerships do not work.
The administration’s plans and a report and proposal released Wednesday by the Infrastructure Working Group of the 50/50 bipartisanship Problem Solvers Caucus are covered below.
Unsurprisingly, aides are furious that, once again, the President has undercut his own administration’s plans to tackle one of his most popular campaign promises. All this confusion makes it less likely that Democrats will strike an infrastructure deal this year. The back and forth suggests that the current proposal is just what Trump’s advisors want, but not necessarily what the President hopes to get out of such a deal. Picking up on this, Democrats will prefer to wait until 2019, after the midterm elections, to see what kind of deal they can strike with Trump.
The Regressive Approach to Infrastructure
The administration’s proposal directs $200 billion towards the private sector and state and local governments in order to incentivize one trillion dollars in infrastructure spending. How exactly this would happen is unclear, but rumors of a seventy-page memo to be delivered to Congress in early January suggests that specifics might soon be forthcoming.
What is clear at this point is that the administration plans to lean heavily on tax incentives to encourage private enterprises to partake in infrastructure projects. That’s right, another tax reward for businesses, just after the massive deficit-financed Tax Cut and Jobs Act passed before the holidays.
Pressure on States
Rather than allocating $200 billion in direct federal spending, the administration will likely offer more incentives to state and local governments to generate their own revenue. This would involve: incentives for cities and states that raise their own revenue streams, block grants for rural areas, money for “transformational projects,” and “infrastructure financing programs.”
Funds would be available on a competitive basis, and jurisdictions could consider a number of measures to raise their own infrastructure funds and gain access to federal aid. These might include:
- Raising gas or sales tax;
- Imposing new tolls on roads; or,
- Selling off existing assets to the private sector.
Raising the gas tax might be the most expedient way of raising infrastructure funds, but this would only be a marginal increase in the amount of revenue raised. The highway trust fund — funded by the gas tax — has been insolvent for years and will continue to lose spending power as inflation rises, fuel efficiency increases, and electric vehicles become more popular.
While the details remain murky, this kind of package could lead to a total “devolution” of infrastructure spending from the federal government to state and local governments. Perhaps Bannonistic strands remain in Trump’s impulses — this plan may dismantle the federal administrative state’s role in infrastructure finance.
Beyond this, the cap on state and local tax deductions enacted in the new tax law will further constrain states trying to manage the costs of new infrastructure projects. The new tax law will undoubtedly make infrastructure more expensive for state and local governments, as states are already pressured to finance infrastructure projects. Three out of every four dollars spent for operating, maintaining, and improving infrastructure occurs at the local and state level.
Under this pressure, it is unclear whether states will be willing or able to raise more revenue for infrastructure. The administration’s plan to shift the burden onto the states to fund new projects could be disastrous for their finances.
A Progressive Infrastructure Approach
Democrats have offered a progressive approach to fund a broad infrastructure plan. At the beginning of 2017 a plan was offered to inject one trillion dollars into the transportation system to revamp the nation’s airports, roads, and bridges. This would create fifteen million jobs over the next ten years.
The Democratic plan would rely on direct federal spending on projects to revitalize roads, bridges, and airports; expand the nation’s broadband network; revamp hospitals run by the Department of Veterans Affairs; and improve schools. The program is ambitious and will likely require deficit financing.
Democrats will gladly finance a stimulative infrastructure bill that stands to have widespread social benefits. The Federal Highway Administration estimates that for every one billion dollars invested in this plan, there would be a net gain of 13,000 jobs. The expected returns on public infrastructure investment would likely generate more than enough economic growth to compensate the cost of financing.
Problem Solvers’ Say
Today a group of 48 Republican and Democratic members from the House Problem Solvers Caucus agreed on a broad outline for an infrastructure bill. The working group, chaired by Rep. John Katko, unveiled details of the deal but did not put a dollar amount or set targets for how to raise revenue. The deal takes a different approach from the Trump administration’s regressive infrastructure policy. Could this be a signal to the White House that bipartisan legislation is going to be the only way to pass an infrastructure plan?
The infrastructure plan proposed by the Trump administration is nothing short of another tax break for wealthy corporations with uncertain results. A more progressive alternative would create beneficial programs that will stimulate economic growth and revitalize America’s infrastructure and protect the public and its assets from overreach by private investors.
Yesterday afternoon, President Trump’s Infrastructure team met with a bipartisan mix of Senators on Capitol Hill. Participants include Environment and Public Works Chair John Barrasso and Sen. Tom Carper, the committee’s ranking member. Sen. John Thune, Chair of the Science, Commerce, and Transportation Committee, we will sit down with administration officials later this week to work on the plan.
Don’t expect to see much movement on the infrastructure front despite this bipartisan overture. All indications are that the nation’s crumbling roads and bridges will have to endure another year of messaging and partisan jousting. Both sides see 2019 as a better option.