Earlier today Donald Trump talked with Stuart Varney of Fox Business about his plan for a YUGE public works scheme to create jobs. Leon has the details in his post.
As Leon notes, capital intensive infrastructure projects are not an engine of economic growth. If they were, then Communist China would be the richest nation in the world because they specialize in this kind of a project. (If you are interested Google ‘china ghost cities’ for what large scale infrastructure looks like in practice.) In the final analysis all of these projects depend upon taxpayers footing the bill to pay contractors and developers, like Trump, to build stuff that may or may not be needed and use the money to lobby for more construction.
When I first saw the proposal I was struck by how similar it is to a proposal by Democrat Congressman John Delaney. Delaney was elected to Congress in 2012 from the formerly Republican stronghold of Maryland’s Sixth District. He wasn’t elected because he was even vaguely conservative. He was elected because the Democrat legislature gerrymandered the living crap out of MD-06 and a feckless octogenarian GOP congressman, Roscoe Bartlett, tried to hold onto power well past his sell-by date. Delaney’s proposal is called the “Partnership to Build America.”
- The Partnership to Build America Act would finance the rebuilding of our country’s transportation, energy, communications, water, and education infrastructure through the creation of an infrastructure fund using repatriated corporate earnings as well as through utilizing public-private partnerships.
- The legislation would create the American Infrastructure Fund (AIF) which would provide loans or guarantees to state or local governments to finance qualified infrastructure projects. The states or local governments would be required to pay back the loan at a market rate determined by the AIF to ensure they have “skin in the game.” In addition, the AIF would invest in equity securities for projects in partnership with states or local governments.
- The AIF will be funded by the sale of $50 billion worth of Infrastructure Bonds which would have a 50 year term, pay a fixed interest rate of 1 percent, and would not be guaranteed by the U.S. government.
- U.S. corporations would be incentivized to purchase these new Infrastructure Bonds by allowing them to repatriate a certain amount of their overseas earnings tax free for every $1.00 they invest in the bonds. This multiplier will be set by a “reverse Dutch auction” allowing the market to set the rate.
- Assuming a 1:4 ratio, meaning a company repatriates $4.00 tax-free for every $1.00 in Infrastructure Bonds purchased, a company’s effective tax rate to repatriate these earnings would be approximately 8 percent and the $4.00 could then be spent by the companies however they chose.
- The AIF would leverage the $50 billion of Infrastructure Bonds at a 15:1 ratio to provide up to $750 billion in loans or guarantees.
- At least 25 percent of the projects financed through the AIF must be Public-Private Partnerships for which at least 20 percent of a project’s financing comes from private capital using a public-private partnership model.
Of course, you never really know what Trump is talking about but the similarities in what Trump is wheezing about and Delaney’s bill are obvious. Both focus on large scale public works projects. Both require private investment. Given Trump’s total pig-ignorance of or even curiosity about public policy it is hard to believe he didn’t crib the idea from somewhere and Delaney’s bill has been kicking around for a while. And it isn’t like Trump doesn’t have deep ties to the Democrat party…