One trillion dollars for infrastructure

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President-elect Trump made many promises during the presidential campaign, and it’s commonly believed that he won’t be able to keep them all. Why it may not matter if President Trump keeps his promises, Rick Hampson,, 11/17/16.

Possibly because few major candidates have run for president with such drastic proposals, many Trump opponents are relieved that he apparently won’t try to do everything he said he’d do. And many Trump supporters say they never really expected him to do everything he said he’d do.

Assuming there will be some slippage, we can think of several proposals that should probably not be implemented – at least on a crash basis without thorough consideration of the alternatives. One of them is a plan to make $ 1,000,000,000,000 available for increased infrastructure spending.

A boost to infrastructure spending would be welcomed on both sides of the aisle, and the president-elect does not appear to be having second thoughts. Indeed, this was the first deliverable mentioned in his speech on the night of the election. Paul Ryan might not be too happy about the first agenda item in Trump’s victory speech, Max Ehrenfreund, Chicago Tribune,

"We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals," the president-elect said after making a few introductory remarks. "We're going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it."

The infrastructure proposal may sail through during “the first 100 days” of the Trump administration, but we have concerns about it and would like to note them for the record.

A. Let’s review the bidding – Federal expenditures for highways, bridges, etc. are channeled through the Highway Trust Fund (HTF), which is primarily funded by federal excise taxes on motor fuel. In principle, this arrangement makes users of the system (motorists and truck drivers) responsible for the cost involved. However, Congress has not seen fit to raise the tax rates on gasoline (18.4¢ per gallon) or diesel fuel (24.4¢ per gallon) since the 1990s; revenues from these taxes have been eroded by improving fuel efficiency of motor vehicles; and a portion of the motor fuel tax revenues have been diverted to various non-highway expenditures.

One short-term fix (diversion of funds from general revenues to supplement dedicated revenues) after another has been required in recent years to keep the HTF solvent, which has led to demands for more stable funding sources. Agreement on how to close the funding gap has proven elusive, but the members of Congress have seemingly decided not to increase federal motor fuel taxes, i.e., highway users won’t be asked to pay the full cost of the federal spending that is intended.

In July 2015, the Senate passed the Developing a Reliable and Innovative Vision for the Economy [DRIVE] Act, which was intended to provide a somewhat longer-term solution. This bill effectively papered over the funding problem by levying certain corporate taxes (having nothing to do with US highways) and dedicating the resulting revenues to the HTF. It also included several unrelated provisions, including an extension of the Export-Import Bank charter.

SAFE concluded that the House should bin the Senate bill and draft its own bill along different lines. Fixing the Highway Trust Fund,

•Disregard the DRIVE Act on grounds that it is a revenue bill that should not have been proposed by the Senate. (Article I, Section 7 of the Constitution requires that revenue bills originate in the House.)

•Come up with a descriptive title for the House bill, such as the Funding Roads and Bridges Act, and restrict the provisions of the bill to that general subject.

•Before agreeing to revenue increases, focus on measures that would reduce the amount of expenses being funded with motor fuel tax revenues, e.g., terminate funding of rapid transit facilities, bike paths, etc. through the HTF.

•If and only if additional revenues still appear necessary, raise motor fuel tax rates to cover the projected shortfall – as Senator Tom Carper (D-DE), for one, has repeatedly urged. 

Our conclusions were noted in an e-mail to the members of Congress from Delaware on
8/5/15 (scroll down for two responses).

In early December, a bill resembling the DRIVE Act – now named the Fixing America’s Surface Transportation (FAST) Act - was passed by both chambers and signed into law. Obama signs $305B highway bill, Keith Lang,,

The $300 billion measure, which authorizes six years of projects [including rapid transit as well as highways], is the longest term highway bill in a decade. It is designed to make up for a long-standing shortfall in the highway trust fund, which gets its money from an 18.4 cent federal tax on each gallon of gas drivers buy. That tax has not been raised in 20 years and therefore has not kept up with growing traffic needs across the country.

The six-year cost of the FAST Act was $173B lower than the president’s initial request of $478B, but even so motor fuel taxes had to be supplemented by $70B from a hodgepodge of other federal revenue sources.

The offsets in the agreement that was announced on Tuesday include changes to custom fees and passport rules for applicants who have delinquent taxes.  Additional mechanisms include contracting out some tax collection services to private companies — over the objection of unions that represent federal IRS workers — and tapping dividends from the Federal Reserve Bank.

The president called this bill “an important first step in the right direction.” More money was needed, however, and also a more stable funding source.

As we applaud the kind of bipartisan compromise that was reached last night, we should also recognize that we still have work to do. Congress should pass a bill like the GROW AMERICA Act I’ve proposed in the past, one that supports even more jobs and invests even more in our roads and highways than the bill passed last night so we can meet our country’s infrastructure needs.

Meanwhile, on the campaign trail, Hillary Clinton proposed a supplementary infrastructure spending plan of $250B over five years, with an additional $25B to create a national infrastructure bank that would access private capital sources. Hillary Clinton’s modest infrastructure proposal, Russell Berman,,

Trump subsequently proposed to provide $550B in infrastructure spending, plus throwing in a private funding mechanism that would raise the total available for additional infrastructure to $1 trillion over five years. And note that the term “infrastructure,” was intended to be open-ended, including not only surface transportation, but also air and water transportation, broadband, etc.

It’s envisioned that funds could be made available without raising taxes or increasing deficits; here is how (in general) the plan would work. Most of the funds would be put up by private firms (which would then charge tolls or user fees to earn a return on their equity investment); the federal government would sweeten the pot with tax credits to cover repayment of the private firms’ debt; and the government’s revenue loss due to the tax credits would be offset by growth in government revenues due to faster economic growth fueled by the infrastructure investment. Trump’s infrastructure plan: Potholes or a smooth ride, Paul Davidson,,

Hmm, sounds like a “free lunch,” but everyone knows there is no such thing so let’s consider possible flaws in the scheme.

B. Spending discipline - Studies have suggested that this country’s infrastructure is not being adequately supported and considerably more money should be made available to modernize and repair it. Perhaps, but these findings come from “experts” whose views may well be influenced by self-interest or ambition. Whatever amount of money is made available will be spent, no doubt, but there is no guarantee that it will be spent wisely. Trump’s trillion-dollar infrastructure plan, Randal O’Toole,, 11/15/16.

merica’s infrastructure needs are not nearly as serious as Trump thinks. Throwing a trillion dollars at infrastructure, no matter how it is funded, guarantees that a lot will be spent on unnecessary things. As Harvard economist Edward Glaeser recently pointed out in an article that should be required reading for Trump’s transition team, just calling something “infrastructure” doesn’t mean it is worth doing or that it will stimulate economic growth.

It might be prudent to start by encouraging infrastructure investment that the private sector is willing to make on its own dime if the government will simply create the proper conditions. Consider the case for supporting completion of the Dakota Access pipeline, for example, which after clearing a meticulous government permitting process is still being obstructed by left-wing protestors. This facility would provide considerable advantages – in terms of both cost and safety – versus transporting Bakken oil from North Dakota to Illinois via rail or highway. No tax credits or other subsidies are needed, just require the protestors to obey the law and hold the people who are funding them accountable. Pipeline anarchy, Paul Driessen,,

These thousands of militants are trespassing. They’ve wiped out forage that ranchers were depending on to feed their cattle and bison during fall and winter months. They blockade roads and rail lines, set fires to make passage impossible, and harass reporters who question their actions. One tried to shoot a deputy. They have burned bridges, destroyed millions of dollars of construction equipment, chased livestock until they lose their calves or die of exhaustion – and killed, maimed or eaten cattle, horses and domesticated buffalo. They’ve promised far more destructive actions, and even issued death threats against their critics.

Similarly, the government should consider approving the northern stretch of the Keystone XL pipeline, which was previously blocked for unconvincing reasons after years of review, if private investors are still willing to undertake this investment. An update on the Keystone pipeline,

And to the extent that more publicly-supported infrastructure is deemed necessary, which we would concede is a possibility, the type of projects and need for federal government support should be nailed down before funds are authorized instead of creating a pot of money and empowering government bureaucrats to decide how to spend it.

C. Financial hocus pocus
– Whether the government directly funds infrastructure projects or pays off nominally private firm debt with tax credits, taxpayers will wind up paying the bill. This being so, a straightforward financing arrangement is preferable so that all concerned will be clear as to what is going on. Randal O’Toole, 11/15/16.

Most public-private partnerships for projects that have no revenue stream are entered into by the public party to get around some borrowing limitation. If the infrastructure spending is really necessary, it makes more sense to simply raise that borrowing limit than to create a byzantine financial structure that, Trump imagines, will have the same effect.

Additionally, the creation of a new infrastructure investment tax credit would run counter to Trump’s promise to reform the tax system. The main reason why this system is currently such a mess is that Congress has amended the tax law year after year on a piecemeal basis. The solution is to cut tax rates substantially, while eliminating as many tax preferences (exemptions, deductions and credits) as possible. Five don’t dos for tax reform,

Politicians on both sides of the aisle proclaim their support for tax reform, and yet the Internal Revenue Code keeps getting longer, e.g., grew from 504 pages in 1939 to 74,608 pages in 2014. *** The driving force for tax complexity has been the practice of enacting tax preferences and penalties to influence individual and business behavior, an expedient way of keeping government costs out of the budget so they won’t be subject to close scrutiny.

D. Economic stimulus is a weak argument – Even if some wasteful projects get approved as a result of a big infrastructure plan, advocates say, that’s fine because the important thing is to boost the economy and put people back to work. As resources will be inevitably diverted from the private sector, however, the foregone return on private sector investments should be counted as an opportunity cost.

John Maynard Keynes, a famed British economist and Nobel laureate, advocated robust public sector “investment” during economic downturns to counteract a reduction in private investment. Many politicians have enthusiastically embraced this conclusion, while largely ignoring Keynes’s corollary about running budget surpluses during economic booms. Where Keynes went wrong, Hunter Lewis,

At the start of the Obama administration, the US was in the throes of a major recession, and there was much discussion of the need to provide fiscal stimulus so as to bring the economy back. Most economists agreed, although it was suggested that whatever package was approved should be “timely, targeted and temporary.”

SAFE wasn’t convinced of the need for a two year, $800B economic stimulus package. The government’s deficit was already soaring due to falling tax revenues, and much of the proposed spending seemed directed at expanding the government versus giving the economy a temporary boost. Economic stimulus package: what’s the rush?

No need for immediate action, should consider alternative ways to bolster the economy – just a spending bill, not a stimulus bill (targeted, timely and temporary).

Our analysis did not affect the decision, but the subsequent trajectory of the government deficits and debt (which nearly doubled during the Obama administration) – coupled with a painfully slow economic recovery – might be taken as demonstrating that our points had some merit.

In any case, the arguments for extraordinary fiscal stimulus are currently even weaker than they were in 2009. The economy is not in recession now, it is simply not growing as fast as we would like, and the official unemployment rate has fallen below 5%, which is generally considered to represent full employment.

Further, the government is already running a substantial (and we believe irresponsible) deficit, so this is hardly the time to boost the government’s financial commitments for projects that aren’t truly essential while continuing to short the private sector. The trouble with Trump’s infrastructure plan, Tyler Cowen,,

Stimulus . . . pulls workers out of producing organizational capital. In the short run, measured GDP goes up, yet the economy may or may not be doing better overall, especially in the longer run. In desperate situations, it is indeed prudent to emphasize the short run, but that is not obviously the case in 2016, when we are nearing full employment and last quarter’s GDP growth was estimated at a respectable 2.9 percent.

Or as another observer noted, spending money is easy but spending it wisely is another matter – particularly if the money is controlled at the federal level while the needs are basically local. Trump’s infrastructure illusion, Steve Chapman,,

There are several reasons for deep skepticism about this whole proposed endeavor. One is that the federal government has a lousy record of investing for the maximum payoff. *** Remember that "bridge to nowhere" that Alaska Gov. Sarah Palin bragged about stopping? It was part of a federal highway bill. When Washington lavishes money on transportation, it typically puts politics above economic merit.

One might hope that the infrastructure plan will be delayed or pared down in Congress, as might be inferred from House Speaker Paul Ryan’s response to a recent question about the matter. Paul Ryan gets unanimous GOP vote as House speaker, AP,,

Ryan refused to answer directly when Congress would go along with Trump’s plan to spend $1 trillion on infrastructure. “These are things we’re working on. … The point is Donald Trump wants job[s],” he said.


Best path is to concentrate on reversing or fixing actions of the previous administration. - SAFE director

Thanks for being so faithful to revealing faults of socialists. They are truly determined to change "the rules." - Family connection

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