Trump’s infrastructure plan is just a windfall for Wall Street

There is little for Democrats to get behind in the details of his plan.

Donald Trump speaks at a lightbulb factory in June. CREDIT: AP Photo/Robert F. Bukaty
Donald Trump speaks at a lightbulb factory in June. CREDIT: AP Photo/Robert F. Bukaty

In adjusting to the next four years of a Donald Trump presidency, some Democratic lawmakers are looking for places where they might be able to work with him on issues they already care about. One area in which some see such opportunity is infrastructure, given that they have long pushed for the government to spend more on these projects to boost the economy. Trump has promised he wants to do the same.

In fact, Trump’s team has already laid out exactly how it would invest in infrastructure, in a paper authored by advisers Wilbur Ross and Peter Navarro. But if Democrats were to read the details, they would quickly see there is little worth endorsing.

In short, rather than have the government raise or borrow money at incredibly low interest rates and then grant the money to state and local governments to build or maintain infrastructure, Trump’s plan would give private investors tax credits for construction projects. Those private firms would then raise the rest of the money needed for those projects, recouping the costs in profits.

Such projects would address very few of the country’s most dire infrastructure needs, end up costing some Americans a lot more money, and generate little to no economic boost. However, the plan would be a major windfall for private companies looking to boost their bottom lines.

All the wrong projects

There is a universe of infrastructure projects that the private sector could be interested in that have profit potential. Roads can be turned into tollways and those resultant fees can go to private investors. Small airports that serve private and corporate jets can charge usage fees. Private water and electrical utilities can take over systems or become partial investors and charge higher rates.

But they have to be large enough to generate high returns, come with a source of profit, and only be doable with the additional help provided by new tax credits. That all narrows it down considerably. “You have to make some pretty generous assumptions about how many new projects that were otherwise just going to sit on a shelf uncompleted are all of a sudden resurrected because of some tax credits,” said Kevin DeGood, director of infrastructure policy at the Center for American Progress. “It’s a really small little universe of potential projects.” (ThinkProgress is an editorially independent project of the Center for American Progress Action Fund.)

That universe also eclipses many of the country’s most dire needs, especially the kinds of investments that bring the highest longterm gains. Rail projects like Amtrak or public transit would be left out. School buildings and facilities won’t get much-needed upgrades, even though they need millions in investment to keep them up to date. Levees don’t come with any revenue, but a number of places along the coasts, such as Louisiana and Florida, are in desperate need of them, plus the country needs to spend $100 billion just to repair and rehabilitate the ones that already exist.

“When we think about the really big social benefits of infrastructure, we’re thinking precisely about the places that generally can’t afford it themselves and there isn’t a lot of profit,” noted Josh Bivens, research and policy director at the Economic Policy Institute. Under Trump’s plan, “Projects that are profitable will be undertaken and those without profit won’t be,” he added, which is “almost the exact reverse ordering where you get the big bang for the buck.”

There are also examples of the private sector stepping in to take over an asset and then failing to deliver the necessary upkeep. Of the 36 privately financed road projects over the last 25 years, just 14 have been completed, with the others still under construction or having had to declare bankruptcy or get bailed out.

Who pays?

Ross and Navarro promise in their policy paper that Trump’s infrastructure plan won’t cost the government anything.

But Americans who use these assets are the ones generating profits for the private investors by paying higher fees and rates. “The public is paying in part through these tax credits, and partly through… turning these over to the investors,” said Paul Van de Water, senior fellow at the Center on Budget and Policy Priorities. While it’s possible for local governments to pay investors directly for upgrading infrastructure, that’s not the kind of project Navarro and Ross appear to discuss.

And these fees are regressive, acting as a consumption tax for those who use highways and water systems. If projects mostly get constructed in affluent areas it may end up being less of a problem, but the pain of the cost becomes pinpointed on certain people, rather than spread out and shared as when general government revenue is used to fund them. “If you’re somebody who happens to need to use that asset on a regular basis, then the cost to you is exorbitant,” DeGood said. “The pain of this will be very uneven.”

And it can be quite high. In 2008, the city of Chicago privatized its parking meters, and rates spiked dramatically afterward; downtown, for example, they more than doubled within five years.

If private firms start to jack up prices that high, there may be little anyone can do to stop them or reverse course. Navarro and Ross “have not given us any reason to think there would be a whole lot of public control over the results,” said Van de Water.

Other sticky questions arise, particularly when it comes to assets such as water systems. “Are you really going to raise people’s water bills to satisfy a 15 percent equity return?” DeGood asked. “That seems like a morally and ethically ambiguous question given the importance of clean water to human health and life.” Flint, Michigan residents, for example, have been demanding that their water pipes be fully replaced after lead tainted the entire water system, but they were already paying the highest rates in the country and likely can’t afford to pay more.

No bang for the buck

There is also a small chance that this kind of undertaking will bring the economic rewards Trump says he is looking for. To generate more jobs, more growth, and more tax revenue for the government, the infrastructure plan has to lead to the undertaking of new projects that wouldn’t have happened in its absence.

But that’s an unlikely scenario, these economists all agreed. A lot of the projects are already underway or being planned without Trump’s tax credits. “With tax credits to incentivize behavior in any context, you end up not inducing new activity, you end up giving a windfall to people who were going to do a project anyway,” Bivens said. States that don’t want to pay for planned projects themselves, for example, can simply get a private firm to do it instead — but that’s not creating anything new.

That also means that the people who would have been employed on the projects through the government will simply be employed by a private firm, so no net new jobs get created. “The total impact to employment is almost a rounding error,” DeGood said.

And while state and local governments usually have to compensate workers according to prevailing wage laws, paying them at least certain amount, private firms usually don’t have to abide by the same rules. So if a project that was going to be government-run and employ workers at the prevailing wage is instead shifted to a private investor that can undercut wages, the workers just end up being paid less. “You’ve done nothing but lower wages,” Bivens said.

This all means the actual economic stimulus will be low to nonexistent. “It could be a really low number,” Bivens said. “Not a trillion, that’s for sure.”

Navarro and Ross argue in their paper that even though the plan will cost $167 billion, it will be made up for by the new tax revenue generated from people becoming employed who previously were out of work and businesses paying more in taxes than they would have otherwise. But none of that will happen without new projects. “If they manage to construct this so badly that no new net activity is created,” Bivens warned, “then they’re not going to recoup anything.”

A windfall for Wall Street

What it does mean is that private companies, such as those that run electric grids and water systems, can expect a tax break for some of the maintenance they already have to do. “They’re working to maintain and modernize their facilities anyway, presumably,” noted Van de Water. “It’s going to be a windfall tax break for stuff that was being done anyway.”

The other firms that stand to get tax breaks are all straight from Wall Street: investment banks, private equity firms, anyone who invests money in equity projects. “This scheme just seems like a boondoggle for business,” Van de Water added.

“It’s basically a big tax increase on middle class Americans,” DeGood noted, given that they have to pay more in fees and higher rates, “and a giant shifting of wealth upwards towards Wall Street financiers.”

Why do it this way? Van de Water thinks it just fits with an old anti-government ideology, “the notion that somehow doing things through the private sector is inherently better than doing them through the public sector.” There isn’t any reason to think that it’s more efficient, he argued. “You’re having to create these extra returns for private investors, [but] governments don’t have to make a profit.”

Instead, the government could undertake this itself. “The simplest, most straight forward way of doing it is just for the appropriate levels of government to do what they normally do,” Van de Water said.

As with many policies, Trump’s priorities may shift. Steven Bannon, White House strategist, seemed to suggest recently that the government would take advantage of low interest rates and use the money to build. Steven Mnuchin, a member of the transition committee who is being considered for Treasury Secretary, said the administration would look at creating an infrastructure bank that would leverage government money to fund projects.

But until the details change, there is little for Democrats to love. “In the current incarnation, there are no reasons to support it,” DeGood said.