Understandable Skepticism on Trump’s Infrastructure Plan

Share this page

The Trump administration unveiled its long-awaited infrastructure plan with great fanfare last month. While the nation has many infrastructure needs, however, the plan seems to be generating little interest in Washington.

It’s not hard to see why. While the administration has promoted this as a $1.5 trillion program, it actually calls for only $200 billion in federal funding over 10 years. The remaining $1.3 trillion is supposed to come from state and local governments as well as the private sector as the result of federal incentives.

There are widespread doubts that $200 billion would be sufficient, doubts that were underscored by a recent study by the non-partisan Penn Wharton Budget Model (PWBM). But as The Concord Coalition has previously pointed out, the administration has failed to present a credible plan to provide even that amount.

In fact, President Trump’s budget has proposed $200 billion in cuts to transportation and other infrastructure spending. This “one step forward, one step back” approach to federal infrastructure funding hasn’t been clearly explained by the White House.

On Wednesday Senate Democrats unveiled their own infrastructure plan, calling for $1 trillion in federal funding over the next decade — five times what the Trump plan envisions.

The Democrats have at least spelled out how they would finance their plan: reverse or scale back some individual and corporate tax cuts that Congress approved late last year. This is an easy “pay-for” on paper but getting the votes for the tax changes would obviously be very difficult to achieve.

Administration officials have indicated they are open to possibly raising revenue — notably through a federal gas tax increase — but so far Trump is not providing much public leadership in this direction.

On Wednesday House Transportation and Infrastructure Committee Chairman Bill Shuster urged Trump to publicly support an increase in the gas tax to finance the administration’s infrastructure plan. Trump has reportedly expressed support in private for an increase.

A 25-cent increase in the federal gas tax — such as the U.S. Chamber of Commerce has proposed in its infrastructure plan — would be reasonable. The current gas tax of 18.4 cents per gallon has not been increased in 25 years despite inflation and more fuel-efficient vehicles.

Even if the administration had a solid plan for $200 billion in federal funding, economists across the political spectrum are skeptical that this would induce state and local governments to commit far more money to meet infrastructure needs.

The new PWBM study indicates this skepticism is justified. It concludes that the administration’s plan would at most result in an increase of only $30 billion in state, local and private funding — a far cry from the $1.3 trillion envisioned at the White House. And the plan could even result in a reduction in state, local and private spending.

Citing the government’s past experience, the study says, “most of the grant programs contained in the infrastructure plan fail to provide strong incentives for states to invest additional money in public infrastructure. Indeed, an additional dollar of federal aid could lead state and local governments to increase infrastructure spending total spending by less than that dollar since state and local governments can often qualify for the new grant money within their existing infrastructure programs.”

Administration officials have frequently claimed that the infrastructure plan would be a tonic for economic growth. But the PWBM study rejects such predictions: “We estimate that the plan will have little to no impact on GDP.”

The study does note, however, that the plan would produce “slightly better” economic outcomes if it were funded by user fees rather than deficit-financed.

Infrastructure construction and repairs, if properly funded, would certainly qualify as reasonable long-term investments in the nation’s economic future.

But unless Washington can do a better job of setting priorities and putting the country on a more sustainable fiscal path, such pro-growth investments are likely to be squeezed tighter and tighter in the federal budget in the years ahead.

Share this page

Related Blogs