Republican vice presidential nominee Mike Pence’s rough landing at New York’s aging LaGuardia Airport Thursday evening was a scary moment for the Indiana governor and the campaign staffers and reporters who were aboard the plane.
The aircraft, a Boeing 737, reportedly fishtailed upon landing and tore up two tracks of concrete on the runways before coming to a stop. The airport, first opened in 1939, has been the scene of other near fatal mishaps. It is a reminder to some of the growing need for a major facelift of the nation’s infrastructure, from highways and bridges to electrical grids and airports.
Ironically, on the same day of the mishap at LaGuardia, the Trump-Pence presidential campaign unveiled the details of an eye-popping $1 trillion in new infrastructure investment over the coming decade. Trump campaign advisers say the plan would not necessitate raising a dime of federal taxes and potentially could add as many as 6 million jobs to the economy.
Both GOP presidential nominee Donald Trump and Democratic nominee Hillary Clinton have vowed to make infrastructure spending a top priority of their administrations. Clinton proposes to finance $500 billion worth of new infrastructure spending over five years by raising $275 billion of new federal taxes on businesses and creating a national infrastructure bank operated by the government to encourage private investment.
Trump earlier this year promised to at least double Clinton’s infrastructure investment target, and he does so in a detailed proposal drafted by two of his economic advisers, Peter Navarro, a University of California-Irvine business professor and Wilbur Ross, a billionaire private-equity investor.
However, unlike Clinton, who would opt for more traditional federal government approaches to spurring state and local infrastructure construction, Trump’s plan would depend heavily on private investors, with the federal government encouraging investment by providing highly generous federal tax credits.
The Trump plan is premised in part on the assumption that developers and other business interests would be eager to borrow money to finance major construction projects at a time of historically low-interest rates.
To encourage investors to commit huge sums to these projects – and to reduce the cost of the financing – the federal government would provide a tax credit equal to 82 percent of the equity amount. That would lower the cost of financing the project by 18 percent to 20 percent, according to the plan’s authors.
No increase in federal taxes would be needed, the plan stresses. While the tax credits would cost the government a considerable amount of foregone tax revenue, Navarro and Ross said that those losses would be offset by income tax revenues collected from the crews of workers and the companies taking part in the new projects.
“If there’s ever a great time to do it, it’s got to be now,” Ross told Yahoo Finance, which first reported on the plan. “With interest rates so low, this has got to be the best time from a break-even point of view, from a societal point of view.”
Joseph Kane, a senior research analyst at the Metropolitan Policy Program at the Brookings Institution, described Trump’s plan as a novel but “radical departure” from traditional infrastructure financial approaches and that there were still many unanswered questions about whether it would be viable.
“The nuances of Trump’s plan are still somewhat difficult to discern because the model he lays out for tax credits provided to the corporations and the remaining real balances are effectively privately borrowed -- that model of infrastructure financing isn’t really the standard template we have seen in recent years,” he said. “So, it’s certainly ambitious, but the devil is in the details and really more remains to be seen.”
There is little controversy among federal, state and local officials and policy experts that the U.S. is woefully behind the curve in keeping up with its infrastructure needs, even after Congress approved a $305 billion five-year extension of the highway bill in December 2015 financed with gasoline tax revenue and $70 billion of budgetary offsets.
The American Society of Civil Engineers has pegged the nation’s infrastructure needs at $3.6 trillion worth of new construction by 2020. Taken together, the federal government and states and cities spend roughly $420 billion a year on infrastructure. That would suggest a glaring $2 trillion “gap” over the next four or five years, which Trump would partially plug with his proposal.
The Trump advisers describe infrastructure as a “critical part” of any economic growth strategy. They say that every $200 billion of additional expenditures creates $88 billion more in wages for average Americans and increases real Gross Domestic Product growth by more than a percentage point.
If every GDP point creates 1.2 million additional jobs, then Trump’s proposals are geared to create at least 6 million new jobs in the coming years.
The generous new federal tax credit in Trump’s plan would apply only to projects with a dedicated source of revenue that attract private investment. That might include, for example, new toll roads, airports or utilities that are financed in part by user fees paid by motorists, airlines, and travelers or utility users.
In that regard, Trump’s proposals would be a major step towards privatizing future infrastructure construction, rather than leaving it up to state and local governmental authorities.
Traditionally, much of America’s infrastructure has been financed through public authority issuance of bonds with interest paid to investors deemed tax exempt. Trump’s idea to use tax credits to encourage investment in projects is far from new and has been used historically to target real estate investment.
However, according to Navarro and Ross, “the concept of offsetting a major portion of project costs with income tax credits that are repaid as issued using the tax revenues generated just by the construction is new.”