Trump Abandoned His Infrastructure Plan—So What Now?

The president may be simmering that Steve Bannon got the better of him in the Alabama special election, but let’s not forget that—not too long ago—Bannon was in a much more powerful position at the president’s right hand, and that he had big dreams.

Moreover, some close Trump advisers see infrastructure as a way to pull Democratic voters, including some minorities, into a new political coalition that will remake the Republican Party and keep it in power for decades. “With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything,” Trump campaign CEO and now chief White House strategist Steve Bannon told the Hollywood Reporter soon after the elections. “Shipyards, ironworks, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution—conservatives, plus populists, in an economic nationalist movement.”

But those grandiose plans haven’t yet come to fruition, and after Bannon was shown the door in August, he said that his dreams were as dead as his brief White House career:

Former White House chief strategist Stephen Bannon is declaring the impact of the Trump presidency “over.”

“The Trump presidency that we fought for, and won, is over,” he told the Weekly Standard on Friday. “We still have a huge movement, and we will make something of this Trump presidency. But that presidency is over.”

It was never quite clear how well Bannon’s vision of a massive 1930s-style infrastructure mobilization jibed with the plan the Trump team floated in December during the transition. The money was right. Trump was talking about a trillion dollar bill, which won instant praise from Chuck Schumer. It was a lot more money than Trump had promised in September on the campaign trail, and nearly four times as large as Hillary Clinton’s $275 billion proposal. On the other hand, Paul Ryan had laughed the much smaller September number straight out of town.

House Speaker Paul Ryan burst into laughter and repeatedly tapped the arm of his chair when asked in September if he would help a President Trump pass an infrastructure plan costing $550 billion or more.

“That’s not in the ‘Better Way’ agenda,” the Wisconsin Republican said, referring to his conservative agenda for the House.

The early signs were that the Trump administration would be looking for a lot of Democratic votes:

Trump’s influential son-in-law, Jared Kushner, told business leaders at a breakfast last week in Manhattan that Trump is closer to Schumer than to Senate Majority Leader Mitch McConnell (R-Ky.) when it comes to infrastructure spending.

McConnell told reporters at a news conference earlier [in December] that “it will be interesting to see how” Trump’s infrastructure plan is put together.

“I hope we avoid a trillion-dollar stimulus,” he said.

Yet, the Democrats were highly critical of the basic concept of the infrastructure proposals. In The Nation, Michelle Chen called Trump’s plan “a full-on privatization assault.”

Trump wants private investors to basically direct $1 trillion in infrastructure projects nationwide through a “revenue neutral” financing plan, which banks on financing from private investors, allegedly to control deficit spending (which the GOP generally deems wasteful, while promoting tax breaks as a wiser redistribution of public funds into corporate coffers). To draw some $167 billion to jumpstart the $1 trillion, 10-year infrastructure plan, Washington would grant a giant tax break “equal to 82 percent of the equity amount.” The goal isn’t fixing bridges so much as fixing the corporate tax codes to promote privatization and unregulated construction with virtually no public input.

The basic concept of the plan was spelled out in a paper authored by Wilbur Ross (now the Secretary of Commerce) and UC-Irvine Professor Peter Navarro (now Director of the White House National Trade Council), which was released on October 27th. The facts and figures in that paper were used by Chen in her critique. They also informed a critique we published by Christopher B. Leinberger in our March/April/May 2017 issue called “The Thinking Person’s Guide to Infrastructure.” By the time that article went to press, more details had come out both in the December announcement and in a speech Trump delivered in February.

In the feature piece, Leinberger noted that Trump would need Democratic help and made the case against gargantuan and indiscriminate building projects based on huge tax incentives to private developers.

Trump will almost certainly need large numbers of Democratic votes to pass any substantive infrastructure bill. That means Democrats will likely have significant leverage in determining the shape of such a bill.

What should Democrats demand in return for their support? For one thing, that Trump drop the idea his advisers floated in December for $85 billion in new tax credits for infrastructure investors. The private sector must be involved in America’s infrastructure build-out, but tax credits are a very expensive way of making that happen. Tax credits attract private investors and corporations needing high rates of return to offset their tax liabilities—returns in the range of 18 to 35 percent annually. But infrastructure investments don’t typically produce those kinds of high returns unless the risks are somehow shifted onto others, typically taxpayers. With interest rates at 3 percent, it’s much cheaper and less risky to the public for the federal government to simply borrow the money and have it paid back by local sources, both public and private.

The Trump administration has taken no procedural steps on infrastructure to get around a Democratic filibuster, so they know with certainty that they’ll need eight Democratic senators, at least, to pass a bill. And that’s probably why Trump unexpectedly trashed his original plan this week:

President Trump told lawmakers this week that he was abandoning a key element of his planned $1 trillion infrastructure package, complaining that certain partnerships between the private sector and federal government simply don’t work…

…The president acknowledged the new approach during a Tuesday meeting with Democrats from the House Ways and Means Committee, who came to the White House to discuss the administration’s tax code rewrite set to be unveiled Wednesday,

During the meeting, Trump “emphatically rejected what everybody assumed was his position relative to financing infrastructure,” said Rep. Brian Higgins (D-N.Y.), who attended and asked Trump about the proposal. “He dismissed it categorically and said it doesn’t work.”

If the administration is scrapping the Heritage Foundation‘s neoliberal wet dream for infrastructure in an effort to win Democratic votes, it’s probably a good time to go back and read Leinberger’s piece because he has a lot more to say than just what the Democrats should reject. And he might not disagree with the White House’s new view that “wants to force states and localities to foot most of the bill.” That all depends on the details.

Leinberger doesn’t think we should repeat the stimulus pattern of 2009 by opening “the federal funding spigot and spraying infrastructure dollars haphazardly.” Instead, we should focus on meeting the growing demand for more walkable communities. We can do that partly by changing the current system under which suburban sprawl-friendly highway projects get much larger matching federal funds. We can also take a lot of the decision-making power out of where it is now, in Washington and the states’ capitals, and give it to “municipal governments, metropolitan-wide entities, and local governance organizations.” In return, “Washington should insist that localities have skin in the infrastructure game—that is, that they find local sources for the funds needed to maintain the infrastructure and service the debt that federal grants and loans make possible.” Leinberger argues that federal loan repayment could come in the form of “pledged sales or property tax increases, or as a percentage of the increased value of adjacent real estate, paid for by private-sector developers.”

The last idea is nearly the opposite of the original Trump plan. Instead of giving developers a giant tax cut to incentivize them to build, we should ask them to give us a cut of the increased property value they get when, say, a brand new rail station is built near their holdings.

It’s an innovative idea that falls between the privatization of public infrastructure plan originally floated by the Ross and Navarro, and the kind of demands the Democrats are making to “pay for infrastructure upgrades through direct federal spending — either by paying for projects with new tax revenue or by taking on debt.”

Remember, the Trump administration may need Democratic votes, but they need Republican votes, too. And they’re not going to get a lot of Republican votes for classic firehose stimulus spending on shovel-ready projects. Even this tradeoff may not be good enough. For example, the Republicans may like the sound of local control, but it doesn’t seem as good when that local control moves from the state capitol to the big city or inner suburb. Still, the idea offers a potential way out of an impasse. Trump wants a win on infrastructure and agrees more with the Democrats about the scope and size. The Republicans want to find a way to say ‘yes’ to the president, but they need talking points to buttress their move away from conservative orthodoxy. And this could be a way to hold down the overall cost and risk without it becoming a massive privatization scheme.

I don’t know if this Republican Congress can ever get to ‘yes,’ on anything, but the Democrats, at least, should be willing to propose something along these lines.

To get a fuller picture, take some time and read “The Thinking Person’s Guide to Infrastructure.”

Martin Longman

Martin Longman is the web editor for the Washington Monthly and the main blogger at Booman Tribune.