[co-author: Shane McCarthy]
In his recent address to a joint session of Congress, President Trump echoed one of his major campaign pledges and emphasized the need for a massive investment in America’s infrastructure. Elected officials from both parties have long been searching for the best solution to revamp America’s roads, bridges, ports and other projects, and in his speech the president called on Congress to approve the investment of up to $1 trillion to meet these needs. Although the political will to move forward on such an undertaking has begun to gain momentum, many questions remain as to how the initiative will be funded and how Congress will prioritize infrastructure compared to the rest of its agenda.
The administration has floated several proposals for funding this infrastructure investment, eager to appease conservatives on Capitol Hill who are wary of such significant government spending. One measure, which has the support of both Trump and the House GOP, as well as some Democrats, would be to implement a one-time repatriation tax on all income held by U.S. companies overseas. Currently, around $2.6 trillion in earnings are held abroad by American corporations, and independent groups estimate that, if implemented, Trump’s proposal would generate anywhere from $138 billion to $200 billion in revenue over the next decade. Proposals for this type of repatriation tax are not uncommon, and at one point President Obama called for a similar tax of 14 percent on overseas income brought back to the U.S.
Another proposal that the president has put forward is a tax credit for investment, under which corporations would receive an 82 percent credit for investments in infrastructure projects, which would eventually be paid back to the government in the form of tolls or other user fees. Although this plan has the potential for eventual revenue neutrality, it may limit the potential pool of investors. Those without any U.S. tax liability, such as pension funds and international firms, may be less incentivized to provide the capital for infrastructure investment. Additionally, projects in rural or sparsely populated areas would be less attractive to potential investors, as it would harder to recoup those investments.
Similarly, the potential for an infrastructure investment bank, which would pair federal funding with private investment for projects, has been floated by the administration. Such a project has been considered by Congress in the past, and the model for an infrastructure bank has been used by several dozen states, the EU and China. However, this plan would also face limitations. Generally speaking, investors are less likely to get involved in projects that do not generate tolls or other guaranteed revenue streams, and many of the necessary infrastructure projects, such as transit, are less profitable overall.
Outside of congressional action, the administration has already begun to act independently to pursue its infrastructure priorities. These executive actions, several of which were mentioned in the president’s speech, include regulatory overhaul, more streamlined approval for infrastructure projects and new “Buy American/Hire American” rules for companies involved in government-backed projects.
At the end of 2016, states were encouraged, through the National Governors Association (NGA), to provide lists of infrastructure projects in need of funding. The NGA ultimately submitted more than 400 potential projects throughout the nation. While still in the remedial stages, the White House’s infrastructure taskforce has begun facilitating meetings to vet potential projects and determine a viable path forward. The largest unresolved issue, as with previous transportation reauthorization legislation, will be how to pay for such a bill.
And despite his pledges for more investment, the president’s “skinny” budget proposal lays out major cuts to federal transportation programs. One major item which has been singled out in the budget proposal is the Transportation Investment Generating Economic Recovery (TIGER) grant program, which was established under the 2009 economic stimulus package. Since then, TIGER grants have provided $5.1 billion to more than 400 surface transportation projects in the U.S. These grants are incredibly popular among states and localities eager to find funding for their infrastructure projects, and lawmakers view them as a favorable alternative to earmarks. In her confirmation hearing, Transportation Secretary Elaine Chao also expressed her support for the program. However, Republicans in the House have often criticized the grant program and frequently tried to eliminate or significantly decrease funding in the annual appropriations process.
With the reauthorization of many surface transportation programs in last December’s FAST Act, many on Capitol Hill see less need for immediate infrastructure investment than they have in the past. That said, President Trump’s push and the continuing decline of American infrastructure overall has kept the pressure on Congress to come up with a viable solution.