This article is by Legislative Analyst Sarah Babbage for Bloomberg Government. It appeared first on the Bloomberg Terminal.
President Donald Trump called on Congress to find $1 trillion in public and private funds to invest in infrastructure during his first address to the legislative branch of the U.S. government.
“Crumbling infrastructure will be replaced with new roads, bridges, tunnels, airports and railways, gleaming across our very, very beautiful land,” he said.
A trillion dollars is at least three times more than any serious investment plan put forward in recent years. Hillary Clinton proposed investing $275 billion during the 2016 election, while the 2009 federal stimulus package (Public Law 111-5) appropriated only $150 billion for infrastructure.
Trump’s proposal to include public dollars will face opposition from Republicans worried about adding to the deficit. Senate Majority Leader Mitch McConnell has said he doesn’t want a “trillion-dollar stimulus,” while House Speaker Paul Ryan has said he’d like to see $40 in private investment for every federal dollar.
For more information on Trump’s infrastructure plans and their prospects in the 115th Congress, see Bloomberg Government’s OnPoint: Funding Trump’s Infrastructure Plans.
To fund the push, Trump’s campaign proposed several options, which are being explored.
His tax plan called for a one-time, 10 percent deemed repatriation tax on the approximately $2.6 trillion in earnings that U.S. companies hold abroad, with some of the revenue to be used for infrastructure. House Republicans’ blueprint for rewriting the tax code would use the revenue from a repatriation tax — which independent analyses have estimated would generate $138 billion to $200 billion in revenue over 10 years — to offset other tax cuts.
Treasury Secretary Steven Mnuchin has proposed an infrastructure bank, which would pair federal seed money with private dollars to fund larger projects. Trump was critical of Clinton for offering a similar proposal during the campaign.
Tax credits, municipal bonds
Trump also proposed offering tax credits to private investors. In a white paper, his advisers Peter Navarro and Wilbur Ross, now Commerce secretary, estimated that an 82 percent credit would generate $1 trillion in investment, at a cost of $137 billion to the federal government. That cost could be recouped as new tax revenue from contractor profits and construction worker wages, according to the document.
Trump supports some existing transportation funding mechanisms. He told the U.S. Conference of Mayors in December that he wants to keep the federal tax exclusion for municipal bond interest, which helps cities and states borrow for infrastructure projects at lower rates. The exclusion, estimated to cost almost $37 billion in fiscal 2017, has been frequently identified as a target for potential cost savings.
Trump’s campaign expressed support for Build America Bonds, a program from the 2009 stimulus package that provided federal support to help municipal governments issue bonds with higher yields. Some state and local infrastructure proponents would like to see the program resurrected.
Water priorities and EPA budget cuts
The campaign also promised to triple funding for state revolving loan fund programs administered by the Environmental Protection Agency. The program helps state and local governments upgrade drinking and wastewater infrastructure. The EPA allocated more than $2 billion in loans through the revolving funds in fiscal 2016.
At the same time, Trump’s budget proposal reportedly includes major cuts to the EPA’s $8.3 billion budget. His transition team has said the agency’s workforce could be cut to a third of its current size.
Options for bipartisanship
Although infrastructure improvement is a bipartisan goal, it’s preceded by health care and tax reform on Congress’ to-do list. Having completed a five-year, $305 billion reauthorization of surface transportation programs in the December 2015 FAST Act (Public Law 114-94) and a water infrastructure bill at the end of 2016 (Public Law 114-322), additional infrastructure financing may not be a top priority for Congress.
Democratic leaders have said they’re willing to work with Republicans on infrastructure, but wary of funding it through tax breaks. Senate Minority Leader Chuck Schumer has said tax credits alone won’t do the job: “We need significant, direct spending.”
Transportation Secretary Elaine Chao has called for innovative funding approaches that use both federal and private dollars.
For now, Trump has appointed real estate developers Richard LeFrak and Steven Roth to head a task force of 15-20 builders and engineers to refine the details of his plan.
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