Economics / Finance

As Trump’s Infrastructure Plan Takes Shape, Many Already Have Concerns How It Will Be Funded

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Part of President Trump’s promise to voters was to deliver his $1 trillion infrastructure plan to congress within his first 100 days in office. While it now seems unlikely to be completed in that time horizon, or possibly even in 2017, work has begun to shape what Trump’s infrastructure plan will resemble and it already has many from both sides concerned.

One of the major road blocks to Trump’s proposal is how it will be financed. Trump has pledged to cut taxes and reduce government spending, both of which are hurdles to funding a $1 trillion infrastructure deal. So how will Trump fund his infrastructure plan?

In his first address to congress last month, Trump provided a brief statement on his plan. “To launch our national rebuilding, I will be asking the congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States – financed through both public and private capital – creating millions of jobs.”

President Trump during his first address to congress (Photo by Jonathan Ernst/Reuters)

One issue both republicans and democrats see with this is the use of the private sector to help build the country’s infrastructure. Trump’s proposal calls for tax credits to be provided to companies who invest in and create roads, track’s, bridges, etc. while allowing the private companies to then charge tolls to recoup costs. These types of projects have had some success in the past, but they are often limited to large scale projects in populated areas. Rural communities tend to not like this solution as companies are not going to want to create new roads that have small potential earnings. No private company will build anything unless it can make some money off of it. So many needed projects would never be built.

Additionally, citizens, especially those needing to use these roads, bridges, etc., tend to dislike this system as they are essentially charged a tax every time they make use of the infrastructure. Although, often they are well maintained, as some of the money made is used on continual maintenance. This is a problem with most of the current U.S. roads and bridges, as they are often just patched like sticking on a band aid.

Another way Trump plans to finance the plan is with a repatriation tax holiday that he believes will bring back around $200 billion in funding to the United States, a repatriation tax holiday being a brief period where U.S. companies can bring cash earned overseas back to the U.S. at a lower tax rate than normal. The issue with this is that many economists and other experts believe that a repatriation tax holiday will only lead companies to bring back cash to pay shareholders via dividends or to buy back their own stock. While good for shareholders, there wouldn’t be a significant increase in U.S. investments or jobs. The only way the money would be spent on new investments is if firms that were capital constrained needed the money to make investments. Although with the current record low borrowing rates, they would have just borrowed money if an investment was worthwhile.

One additional option available to Trump that both he many others are most likely against, is to raise the money needed by selling U.S. Treasury securities, the issue of course being that doing so will further increase the federal deficit, something that is already being looked at with Trump’s planned tax cuts.

We will hopefully know more about the future of American infrastructure, but one thing is for certain: figuring out how to fund it will be heavily debated.

Sources:

http://www.businessinsider.com/how-will-trumps-infrastructure-plan-be-paid-for-2017-1

http://www.usatoday.com/story/news/politics/2017/02/28/full-transcript-trump-speech-to-congress/98535746/

http://thehill.com/policy/transportation/323784-work-begins-on-1t-infrastructure-plan

http://www.cnbc.com/2017/03/14/both-parties-say-trumps-infrastructure-plan-needs-repair.html

 

 

 

 

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