One of Donald Trump’s big campaign promises was to overhaul America’s failing infrastructure in the biggest and best way possible. He swore that he’d outdo anything Hillary Clinton had in mind, but the only way to do this is by increasing taxes which is giving the Republican party pause.
Donald Trump has vowed to rebuild the nation’s roads, bridges, airports and railways, but the path to delivering on that promise is full of potholes. When President Barack Obama tried to do it, a Republican Congress fought him at almost every turn, and Trump would have to contend with his party’s deep-seated dislike for government spending and higher taxes to meet the $1 trillion tab for his proposals.
The transportation industry sees hope in Trump’s plans, which he made the first policy issue in his Wednesday victory speech.
“We are going to fix our inner cities … We’re going to rebuild our infrastructure, which will become, by the way, second to none,” he said. “And we will put millions of our people to work as we rebuild it.”
But Trump has been vague what about he’d do and what it would cost. During the campaign, he said he’d double the $275 billion boost in government infrastructure spending proposed by his Democratic opponent, Hillary Clinton. A recent paper by Trump advisers calls for using federal tax credits to generate $1 trillion in private sector infrastructure investment over a decade. To offset the cost of the credits, U.S. corporations would be encouraged to bring home profits parked overseas to avoid taxes, in exchange for a low tax rate.
If that corporate tax “repatriation” idea sounds familiar, it’s probably because Obama has been urging Congress to do that, and Clinton cited repatriation as the way she would pay for her infrastructure plan.
Some Republicans, including House Speaker Paul Ryan, have also expressed support for the concept. But other Republicans and influential conservative pressure groups who want to shrink government have said the idea sounds too much like a tax increase because it raises money. Trump’s vice president-elect, Mike Pence, was among a vocal minority of Republicans in the House who favored going in the other direction by stripping the federal government of most of its transportation responsibilities.
There’s been bipartisan support in Congress for addressing the nation’s aging and inadequate infrastructure if funding questions can be resolved. Congress passed transportation bills in 2012 and 2015 to shore up the strained federal Highway Trust Fund, which provides highway and transit aid to states, and to provide modest increases in transportation spending – far short of what Obama and congressional Democrats said was needed.
Lawmakers struggled to pay for the plans by cobbling together spending cuts and revenue increases elsewhere in the federal budget, some of them more fiscal sleight of hand than real money. By 2021, the fund is expected to show a $18 billion gap between spending and gas-tax revenue.
Raising money for infrastructure through corporate tax repatriation has a greater likelihood of success if can be part of a larger tax overhaul effort that also cuts rates more generally, said Robert Poole, transportation policy director for the libertarian-leaning Reason Foundation.
Repatriation is also just a temporary fix. Some industry lobbyists are pushing for a longer-term solution to the Highway Trust Fund’s woes, such as raising the federal gas tax and tying future increases to inflation.
But Trump’s advisers aren’t “going to want Trump to sign onto big increases in taxes of any kind,” Poole said.
Even with tax credits, infrastructure projects like roads and bridges are only attractive to investors if they have a guaranteed revenue stream such as highway tolls to make them profitable. There are only a very few projects in the country that meet the conditions needed to make them work.
“You aren’t going to find those projects in all 50 states, and you may only find those projects in the most heavily populated states,” said Pete Ruane, president of the American Road and Transportation Builders Association. “There’s a political problem with that.” Trump’s support has been strongest in rural and rust-belt areas that are less likely to have such mega projects.
The importance that Trump, a real estate developer, places on using tax credits to leverage private sector investment is highlighted by his choice of Shirley Ybarra to head his transportation transition team. Ybarra, a former Virginia transportation secretary and Reason Foundation policy analyst, is best-known for her advocacy of such public-private partnerships.
Standard & Poor’s has estimated that each government dollar spent on infrastructure would return $1.30 in economic growth, which could be a boost to the economy and job creation.
But financing construction projects through tax credits might minimize the benefits, said Josh Bivens, research and policy director at the liberal Economic Policy Institute. This is because the credits often improve the profit margins for existing projects while failing to help projects in impoverished communities that are less likely to generate a sizeable return.
“You run the risk of using the money to provide a windfall to people who would have been building anyway,” Bivens said.