On Trump’s Infrastructure Plan

Brad Plumer at Vox interviewed me about “Trump’s plan to finance infrastructure by offering tax breaks to developers working on projects with revenue streams (like toll roads).” He wrote this article: Donald Trump’s infrastructure plan wouldn’t actually fix America’s infrastructure problems.

David Levinson, a transportation analyst and professor at the University of Minnesota, brings up a number of other concerns about this plan. PPPs are complicated multi-decade financial arrangements, and not all states and localities are necessarily well-equipped to manage these deals in the public interest.

Meanwhile, these tax credits would do nothing to attract investors without any federal tax liability, such as pension funds, endowments, and international sovereign wealth funds. “That’s potentially important,” Levinson says. “If you look at the major investors in existing quasi-privatized US tolls roads, they tend to be international players and pensions funds.”

Finally, the Trump campaign’s claim that its tax breaks will pay for themselves by creating new tax-paying jobs looks dubious, Levinson notes. Right now, unemployment is extremely low. Anyone who works on these new privately financed infrastructure projects is likely to be employed already — this would just be shifting jobs around, not creating new jobs. (Levinson did add, though, that it might be worth trying out Trump’s tax credit scheme on a small scale — just to see how it worked.)

My key points

  1. Opportunity Costs.  The assumption about tax recovery assumes the capital and labor would otherwise be idle. This might be true in a recession. In current conditions, they are working on infrastructure instead of doing something else, so only a fraction of the claimed tax
  2. Non Taxable Revenue Sources. Tax credit scheme cuts out many potential sources that don’t pay taxes, like Pensions and Overseas money. In fact, much of the current private investment in infrastructure is supported by international money, which is great (we get the stuff, they get pieces of paper).
  3. Infrastructure tends to be a money loser in this environment. I am not convinced there are that many good investments in infrastructure, not which will pay the rate of return needed to justify the risk. That’s what I think can be discovered with a small pilot. Does anyone actually bite? The problem is not that private infrastructure could not be profitable if everything else where unsubsidized, it’s that everything else is subsidized, which makes it harder for selected projects to be profitable.
  4. Straight-up privatization (long term leases) is simpler. We could just sell or lease off much infrastructure (airports, ports, water utilities, freeway networks) and get a huge up-front lumpsum payment along with continuing revenue. Regulated utilities are a fine model used in most other countries for these services.