The Trump administration has rolled out its 2019 federal budget, which includes a plan to boost investment in the nation’s infrastructure.
I see five components to President Trump’s infrastructure policies so far.
First, Trump approved business tax cuts in December, which will boost private capital investment in pipelines, broadband, factories, and much else. The private sector owns more than three-quarters of U.S. infrastructure, so the tax cut will create wide-ranging benefits.
Second, the administration is taking steps to reduce costly regulations and speed permitting on infrastructure projects. The new budget proposes to “shorten the process for approving projects to 2 years or less.” The number of federal rules creating roadblocks to construction has increased over time. Kudos to Trump for removing some of the barriers.
Third, the budget proposes spending an additional $200 billion over 10 years of federal dollars on infrastructure, as summarized here. There is a new “Incentives” program, a “Transformative Projects” program, and a “Rural Infrastructure” program.
These new programs are unaffordable, especially given that last week’s budget bill exploded annual deficits to more than $1 trillion. Creating a new $50 billion program for rural areas is particularly ridiculous given that the government already has a range of wasteful rural subsidies.
In general, new federal subsidies for infrastructure are not needed. Any state wanting to improve its infrastructure can do so with its own funding. States can raise funds through taxes, debt, user charges, public-private partnerships (PPPs), and privatization. Federal infrastructure subsidies are often counterproductive, as I discuss here.
Giving Trump’s new subsides fancy titles such as “Transformative Projects” program” will not make them more efficient than current bureaucratic federal efforts. All federal spending for infrastructure comes from taxpayers who live in the 50 states, and there is no “transformative” magic that happens when cash is sent through Washington.
Fourth, the Trump plan would boost incentives for the states to pursue PPP deals, including expanding various loan programs and broadening eligibility for private activity bonds. Here the end goal is a good one, but a better way to encourage PPPs and privatization would be to end federal subsidies altogether and repeal the tax exemption for municipal bond interest. That exemption dissuades the states from privatizing facilities such as airports.
Fifth, the Trump plan would make reforms to federal control over lands and structures. It would create a “capital revolving fund” to allow agencies to buy real property that they currently lease. That may save money, but the administration should instead focus on reducing the government’s size and its need for office space in the first place. (The government currently owns or leases 275,000 buildings). The Trump plan would also allow agencies to generate more revenues from public lands, and allow “for the sale or lease of federally owned assets.” That sounds positive.
In sum, Trump’s infrastructure plan includes both big government and small government policies. The plan states, “President Trump’s proposal will return decision-making authority to State and local governments, which know the needs of their communities.” But the best way to do that would be to end federal subsidies and all the related string-pulling from Washington.