Caleb O. Brown: This is a Cato Special Podcast. I am Caleb Brown. In President Trump’s infrastructure plans, there’s too much focus on big, new, federally managed spending, and too little focus on devolving control of assets to states and private entities. Chris Edwards, director of tax policy studies at the Cato Institute, says the president should look at Canada and England for workable plans for privatization.

Chris Edwards: Well in Donald Trump’s address to Congress he did touch on infrastructure. He called for a “national plan on infrastructure” and he reiterated his one trillion-dollar pledge. Now, what we don’t need in infrastructure in reality is a national plan. The vast majority of government infrastructure in the United States is owned by state and local governments. They own it, they should be responsible for it, and there’s lots of negatives if the federal government has a big, grand plan and starts telling the states what to do.

Caleb O. Brown: What do those grand plans tend to look like?

Chris Edwards: Well, the problem is that you know, the federal government comes in and they give aid to the state and local governments for infrastructure, so we give about $45 billion a year to the states for highways and another $15 billion or so a year for urban transit systems. The problem is that that spending comes with top-down regulations. So we impose so-called Davis-Bacon rules or labor requirements on the states that receive federal money for highways. It essentially requires union labor on highway projects, which inflates the price of highway projects by 20%. Similarly, federal rules on environmental rules attached to all transportation projects have pushed up the costs greatly of the state’s building highways and bridges and other sorts of projects. So the federal government is a negative here, not a positive.

Caleb O. Brown: Is there anything that you can pluck out of what his plans are? When I spoke with Randal O’Toole it seemed like a great deal of his infrastructure plans substantively end up being transfer payments to state government contractors.

Chris Edwards: Right. So, what is Trump’s plan? He keeps throwing the trillion-dollar number out. Now that could mean a lot more federal government spending, but I don’t think that’s what he means and I don’t think that’s where his advisers want to go. His advisers Wilbur Ross and Peter Navarro came out with a plan in the fall which would provide tax credits to private investors for investments in public private partnerships. That’s the wrong way to go, the tax credit idea. Here’s the basic problem: Right now, governments can borrow in the muni bond market, the tax-free bond market for government infrastructure projects. But private companies, investing in everything from pipelines to cell phone towers and the like, have to use taxable finance. So we already subsidize government projects in the muni bond market, which I don’t think we should. The Wilbur Ross and Peter Navarro project would add subsidies for equity but the right way to go, I think, is to create a level playing field to eliminate the muni bond exemption and make private and public projects equal in terms of the financing. And that would encourage state and local governments. For example, when they are thinking about a new airport, to maybe go for a private airport rather than a government-owned airport.

Caleb O. Brown: When public officials, at least in my experience, at the state and local level talk about infrastructure, they tend to define it very broadly, and it includes things like arenas and other projects that in a very real sense may be very sexy, may get you headlines and increase your incumbency as a politician, but they are not the sort of hardnosed things that cities and rural areas need.

Chris Edwards: Right. So here’s the thing with infrastructure. If you look at national income account data, the vast majority of infrastructure in the United States is provided by the private sector. And again, I’m talking about things like pipelines, and oil refineries, and cell phone towers, you know, most of the internet, you know, all of that stuff is private sector stuff, and that’s great. But a lot of what U.S. federal state and local governments do now, like airports and seaports, for example, have been privatized around the world. For example, in Europe, half of all the airports are private now. Heathrow was the first, back in the 1980s. So there’s a lot of scope here for the United States to go the way of the rest of the world to increase efficiency, to bring in private sector investment by moving these assets to the private sector. So here’s what I would suggest to Donald Trump in a three-point infrastructure plan. The first point would be do his business tax cut. If you lower the corporate tax rate, you will get a lot more investment in things like oil refineries and pipelines. That would be great and very positive. The second thing would be to privatize stuff that the federal government does own. The air traffic control system was privatized in both Canada and Britain. It’s been a big success. We should do that here. Federal dams, those can and should be privatized. I mean a lot of dams in the United States are already owned by the private sector. I think we ought to sell off the federal dams. And then the third point would be remove barriers to state and local privatization. As I said, most of government assets, airports, highways, bridges, seaports, are owned by state and local governments, but the federal government puts barriers in the way of privatization. To give you one example, airports, they are owned by state and local governments, but they get federal subsidies. If a city or a state wanted to sell off their airport, they would have to pay back all the federal aid they got in the past for the airport. So that creates a barrier to them, to selling their airport. Again, we are behind the times here. The Canadian airports are private, most British airports are private, airports have been privatized around the world. They are more efficient, they are self-funded, they are unsubsidized. That’s the way to go. So if Trump wants to get a trillion more dollars in infrastructure, he would do his business tax cut, and he’d open the door to privatization.

Caleb O. Brown: Chris Edwards is director of tax policy studies at the Cato Institute. Subscribe to and rate this podcast at iTunes and Google Play, and follow us on Twitter, @CatoPodcast.