Trump’s $1Trillion Infrastructure Plan Raises a Red Flag for Dems
Policy + Politics

Trump’s $1Trillion Infrastructure Plan Raises a Red Flag for Dems

REUTERS/Jeff Haynes

Democrats say that President-elect Donald Trump’s call for massive new spending on highways, bridges, airports and other infrastructure is one of a handful of GOP proposals they heartily agree with – all but assuring that it will be high on the legislative agenda when a new Republican-controlled Congress begins work in January.

Less than two weeks after Trump’s stunning victory over Hillary Clinton, Democrats including House Minority Leader Nancy Pelosi of California,  Sen. Chuck Schumer of New York, the incoming Senate minority leader, and Sen. Bernie Sanders of Vermont have embraced Trump’s idea for a costly national  face lift designed to boost the economy and create millions of new jobs.

Related: Trump Proposes $1 Trillion for Infrastructure Without Raising Taxes

But as Democrats take a closer look at Trump’s plan – one largely financed with private investments fueled by new federal tax credits and other incentives -- they are beginning to have doubts.

Schumer said in an interview aired yesterday by Fox News Sunday that he has spoken privately with Trump about his infrastructure proposal and that “I do think it’s possible under certain terms we could get a major infrastructure bill done . . . maybe even in the first 100 days.”

“But that infrastructure bill has to have certain things for us to support it,” he added. “It can’t just be tax credits.  That won’t be enough.” In short, Schumer and other Democrats are calling for a more traditional government financed public works program hearkening back to the New Deal.

While many Democrats reeling from Clinton’s startling loss to Trump are debating whether to find common ground with Trump and the GOP leadership or dig in to fight the new political order, Schumer is taking a far more pragmatic approach in seeking common ground with the president elect.  

While Harry Reid of Nevada, the outgoing Senate minority leader, denounced Trump in an angry floor speech late last week, Schumer has been aggressively sounding out Trump and Vice President-elect Mike Pence on potential areas of commonality – even as he vows to lead a tough challenge to any of Trump’s cabinet appointments or Supreme Court nominations out of the “mainstream.”

Schumer’s charm offensive appears to be having some effect. Trump on Sunday tweeted high praise for his fellow New Yorker saying, “I have always had a good relationship with Chuck Schumer. He is far smarter than Harry R and has the ability to get things done. Good news!”

Schumer so far has advanced a shortlist of areas where he believes Trump and the Democrats can do business. Those include revising the North American Free Trade Agreement (NAFTA) and scrapping the Trans-Pacific Partnership Agreement; repealing the so-called “carried interest” tax loophole that has saved hedge fund and private equity investment managers billions of dollars in taxes over the years and launching a major new infrastructure program that would eclipse the Obama administration’s $831 billion stimulus program begun in the depths of the Great Recession in 2009.

In an interview with Huffington Post last Friday, the new Democratic leader confirmed that rebuilding the nation’s roads, bridges and other critical transportation and communications systems is of paramount importance.

Related: Here’s Why It Will Be So Hard for Trump or Clinton to Rebuild America

“It’s got to be large and bold — a trillion dollars makes sense,” Schumer said. “It’s got to be real new expenditures. The idea you can do this with tax breaks, tax incentives isn’t going to get the job done. And, it cannot cut existing programs” such as Medicare or social services.”

Schumer told Huffington Post that he was not convinced Trump could push such a plan through Congress, especially after the Republicans repeatedly rebuffed President Obama’s previous proposals for dramatically increasing the nation’s infrastructure spending to make the U.S. more competitive with China and other global rivals.

“He won a lot of the blue-collar areas on a Democratic message on trade, on carried interest, on transportation, on infrastructure,” Schumer said of Trump. “Well, we’re going to challenge him. Break your promise to the blue-collar world, or work with us and split with the right, the Republican establishment, which hates these things.”

Trump and Clinton both promoted major infrastructure plans during the campaign. However, Trump doubled down on what the former secretary of state was suggesting. He unveiled an eye-popping $1 trillion infrastructure proposal in late October that he insisted could be financed without raising taxes.

Related: As Roads Crumble, Infrastructure Spending Hits a 30-Year Low

Trump’s latest plan was devised by two of his economic advisers, Peter Navarro, a University of California-Irvine business professor, and Wilbur Ross, a billionaire private-equity investor.  Clinton’s more traditional approach would spur state and local infrastructure construction with federal spending, not unlike the current federal highway trust fund spending financed with the gasoline tax. She also discussed the possibility of creating an “infrastructure bank” to encourage public-private investment strategies.

By contrast, Trump’s plan would depend far more heavily on private investors -- with the federal government encouraging investment by providing highly generous federal tax credits.

Related: As Roads Crumble, Infrastructure Spending Hits a 30-Year Low

The Navarro-Ross high concept is to move from old-fashioned government public works projects to privatized investment in the next generation of transportation, waterways, airports and internet communications systems.

Their plan is largely premised 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.

The Trump team stressed that no increase in federal taxes would be necessary. While the tax credits would unquestionably cost the government tens or hundreds of billions of dollars 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 construction companies taking part in the new projects.

“If there’s ever a great time to do it, it’s got to be now,” Ross said. “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.”

Related: Trump’s Economic Plan: Spend Like a Democrat, Regulate Like a Republican

Democrats and many conservative Republicans are highly skeptical and suspicious of this approach. Essentially, they are arguing that the federal government will have to have a lot more budgetary skin in the game – in the form of actually spending and investment -- if the new infrastructure program is to be a success.

In a searing critique of the Trump plan, Ronald A. Klain, a prominent Democrat and former aide to Obama who was instrumental in implementing the 2009 American Recovery and Renewal Act, warned Democrats against falling into a Trump infrastructure trap.

His op-ed in The Washington Post this weekend argued that Trump’s plan is not really an infrastructure plan at all, but a “tax-cut plan for utility-industry and construction-sector investors, and a massive corporate welfare plan for contractors.”

Klain, who served as an adviser to Clinton’s campaign, argues that Trump’s plan doesn’t directly fund new roads, bridges, water systems or airports, as Clinton’s plan would have done. Instead, Trump would provide overly generous tax breaks to private-sector investors who back profitable construction projects.

Related: Five Things Trump Wants to Do That Liberals Would Love

“There’s no requirement that the tax breaks be used for incremental or otherwise expanded construction efforts,” he wrote. “They could all go just to fatten the pockets of investors in previously planned projects.”

Because there would be no traditional funding mechanism for the new projects, Trump’s approach potentially could add as much as $137 billion to the deficit, Klain calculates.

To be clear, there are other ideas floating around to cover the cost of the new, historic round of infrastructure spending Trump is advocating. Some are calling for tax reform measures that would repatriate billions of dollars of revenue that U.S. multi-national corporations are sheltering overseas that could be used to finance some of the new construction.

And many conservative House members favor straight up government spending on infrastructure but offset by cuts in other government programs – an approach that Democrats say would be self-defeating and a zero-sum game in attempting to stimulate the economy.

Schumer told Chris Wallace of Fox News Sunday that Trump will have no choice but to go along with a major boost in federal spending on infrastructure, “not just tax expenditures,” if he hopes to attract Democratic support to his plan. And as for conservative Republicans’ call for offsetting cut, Schumer asserts that “it can't cut the basics like Medicare and education and other things to pay for it.”

“But if [Trump] wants to do a major infrastructure bill focused on infrastructure and with those criteria, it's very possible,” Schumer concluded.