Donald Trump first made his way into the public eye by building things, and while on the Presidential campaign trail he has committed to infrastructure spending as a path to more U.S. jobs and private sector growth. He has proposed spending $1 trillion on roads, airports, pipelines, and the electrical grid, compared to the $305 billion over 5 years approved by Congress in late 2015.
That level of spending would put him far beyond the pale of traditional GOP politics. Even more remarkably, Trump has said his infrastructure priorities would include mass transit and high-speed trains. Those are typically a bugaboo for the American right—Republican Florida Governor Rick Scott, for instance, turned down free federal money for a large rail project in 2011.
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It’s uncertain whether Trump’s endorsement of rail will come to much once he’s actually in office. As a lifelong New Yorker, he seems to understand the economic benefits of mass transit. But with a political base in rural and industrial regions, he might decide acting on that insight doesn’t fit his brand.
Then there’s the question of how to pay for that massive spend. Trump had previously proposed using debt. But in late October, two senior advisors to the Trump campaign released a detailed policy paper outlining a much more unusual funding plan for Trump’s infrastructure program. The paper lays out a system of government backing and tax credits intended to attract private investment in revenue-producing infrastructure projects.
The paper argues that $167 billion in government-funded equity, along with large tax credits, would be enough to attract the $1 trillion from private investors. Those tax credits would be repaid by additional tax revenue created by the projects, including from income taxes generated by job growth and corporate taxes on contractor profits. According to the paper’s math, that would make the program revenue-neutral. The paper further argues that Trump’s proposed tax holiday on corporate profits returned to America from abroad would increase the capital available for infrastructure projects.
There’s a lot of sense to this—particularly because, as the paper points out, the downgrading of municipal and state government debt is making traditional bond financing less attractive to investors.
But there are also real hitches to the plan. Much transportation infrastructure, particularly toll roads and rail projects, are dicey propositions for profit-seeking investors. Trump’s hometown subways only get half their budget from fares, with the rest made up of taxes. Similarly, toll highways designed to generate profits for private investors have regularly failed to live up to expectations. Even with the tax subsidies in the Trump plan, it might be tough to find private investors willing to ignore that reality.
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There are also real political headwinds facing any Trump infrastructure plan. In a preview of what could be ongoing struggles with a legislative branch now dominated by Republicans who often have battled with their own candidate, Senate Majority Leader Mitch McConnell has said infrastructure are a low priority for the Senate.
On the other hand, a narrow majority of economists believe that the U.S. economy is due for a recession during Trump’s first term. That would open a political path for major deficit spending in general, just as it did for President Obama’s stimulus package in 2008-2009.
Markets, for their part, seem to believe that Trump’s commitment to infrastructure spending will come to fruition, in one form or another. The stock of contractors and construction suppliers including Aecom and Caterpillar Inc. jumped sharply after Trump’s election victory.