So this is kind of cute. While most of us were tearing our hair out over the FBI and Hillary Clinton’s emails last weekend, Donald Trump’s campaign quietly released a plan to privatize new infrastructure development in the United States. I know, that’s not very sexy on the surface. But given that the man might be president come Tuesday, it seems worth remarking upon. Because it could mean we’ll all be paying to drive on more roads built for profit.
Trump, as you might have noticed during this long, emotionally torturous campaign, likes to wax poetic about America’s collapsing bridges and “third-world” airports, and he has vowed to fix up the country by doubling Hillary Clinton’s proposed spending on infrastructure. At the same time, he’s also promised to pass gargantuan tax cuts while limiting the budget deficit.
This has all raised an obvious question: How, exactly, does America’s angriest clementine plan to pay for all of this building? I mean, Mexico isn’t going to cover the wall and repairs to I-95, is it?
Thankfully, we now have an answer from two of Trump’s chief economic advisers. In a report from Oct. 27, University of California–Irvine professor Peter Navarro and private equity honcho Wilbur Ross outlined how the candidate would transform about $137 billion of federal tax credits into $1 trillion of infrastructure spending.* Factor in the effects of economic growth, they argued, and the cost to taxpayers would amount to zero, zilch, nada. Or, as they put it, the whole thing would be “budget neutral.”
Of course, it‘s not really free. Americans would just end up paying for the construction a bit later on.
Under Trump’s plan—at least as it’s written (more on that in a minute)—the federal government would offer tax credits to private investors interested in funding large infrastructure projects, who would put down some of their own money up front, then borrow the rest on the private bond markets. They would eventually earn their profits on the back end from usage fees, such as highway and bridge tolls (if they built a highway or bridge) or higher water rates (if they fixed up some water mains). So instead of paying for their new roads at tax time, Americans would pay for them during their daily commute. And of course, all these private developers would earn a nice return at the end of the day.
The federal government already offers credit programs designed to help states and cities team up with private-sector investors to finance new infrastructure. Trump’s plan is unusual because, as written, it seems to be targeted at fully private projects, which are less common. That may or may not be what the campaign entirely intended; in an email exchange, Ross and Navarro suggested to me that the tax credits could also be used for public-private partnerships, but they were a bit vague and muddled on the details. In any event, one obvious disadvantage of relying so heavily on private developers, as the Washington Post notes, is that it would mostly encourage new building in wealthy areas that can afford to pay high user fees. Private companies go where there are private profits to be earned, after all. Poorer areas—areas where infrastructure may be more likely to be crumbling!—could end up being neglected.
Despite the Trump campaign’s sales pitch, it may also be a pretty expensive plan for building new roads. Governments can borrow for much, much less than your typical private company. That gives them a big, built-in cost advantage when it comes to infrastructure. If a corporation wants to compete, it has to be hyper-efficient about construction. And some might be! But between the higher interest rates they pay on their debt and the need to turn a profit, chances are a lot of private developers would end up just charging a boatload in tolls and fees—more, over time, than the government would have to levy in taxes. The federal tax credits Trump would offer are designed so companies would be able to charge less in fees, of course. But that’s still money coming out of the public coffers.
The one upside to a plan like Trump’s is that it might solve some political problems. Americans like new roads and bridges. They don’t like paying for them. By incentivizing private companies to take on these projects with some tax credits, it might make the work look relatively inexpensive. States wouldn’t have to add any bonds to their books. The federal government wouldn’t have to add much to its debt.
But a lot of the savings to taxpayers would likely be illusory. The main beneficiaries, in all likelihood, are the Wall Street investors who would love to skim some cash off your ride to work.
*Correction, Nov. 21, 2016: This post originally misstated that the tax credits in Trump’s plan would be worth $167 billion. That is the amount of equity Ross and Navarro believe would be required to spur $1 trillion in spending. The tax credits would cover 82 percent of it, or $137 billion.