When President Barack Obama took office, in January of 2009, he had inherited the Great Recession—the worst economic crisis that America had had since the 1930s. Similar to what had worked then, he asked Congress to fund a sizable Economic Stimulus Plan, which would put Americans back to work. Government spending!
Although Congress approved the Plan, they downsized the funding considerably, and (now Speaker) Paul Ryan cautioned the Administration: warning of a budget deficit; a downgrading of our credit rating; and he suggested that no one would buy our bonds. None of that Doom and Gloom, however, ever came to pass. That’s what is so ironic that President-Elect Donald Trump has suggested doing the same thing as President Obama. Well, at least he says it is!
Trump has suggested selling U.S. Treasury bonds and using the proceeds to fund the much-needed re-building and upgrading of dilapidated roads, bridges, tunnels, wastewater systems, environmental disasters, etc.; however, the similarity begins to fade right there. It is an excellent time to sell T-bonds to borrow now, given the current historically low interest rates.
A Plan to Re-build America would help our Nation, both physically and economically—by fixing things and creating jobs. Ideally, the government would retain control of the projects—both in construction and the management phase afterward—and reap the future revenue stream which some projects might generate. But remember, Donald Trump is not prone to giving much detail!
Trump’s vision of Infrastructure, however, would be to sell the same T-bonds; but, focus only on those projects, which corporate buyers could profit from. The U.S. Treasury would raise $800 billion in debt, sell (really “out-source”) the actual projects to large corporations—mostly public utilities and construction companies. Those corporations would, in turn, then receive the revenue from the projects, which they would own in perpetuity. And, believe it or not, his outsourcing plan gets even stranger. Tax breaks!
After the Trump Administration finances the projects, the corporations would then be given tax-credits of up to 82% of the equity capital that they had invested. Now, unlike a tax-deduction, which is deducted from taxable income, a tax credit provides for a 100% reduction of the actual taxes payable proportionately by the various corporations.
As such, the corporate partners would collectively borrow $800 billion from the Government, put-up just $200 billion, and they would only have to commit $36 million, as a group, after their collective tax bill is reduced by the $164 million tax credit. The real problem, however, is that the out-sourcing would only apply to those projects that could be turned into profit centers. Repairing levees, cleaning-up hazardous waste, and other projects without recognizable revenue streams, would remain in the same sorry states.
The Trump Infrastructure Plan is not really intended to repair, re-build and clean-up America after all. It is designed as the continued GOP out-sourcing of America, and it is a true form of Corporate Welfare. The U.S. Government finances the projects, extends exorbitant tax breaks, gives-up complete control, it would have no guarantee that Americans would even be hired.
Consider that: America would take the risks under a Trump “Infrastructure” Plan, and the corporations would reap both the tax breaks and the virtually-guaranteed profit benefits. I’ll leave it to the reader to figure-out how some of the corporate welfare recipients might scam the Trump Infrastructure Scam.
NOTE: The Trump’s Plan also provides for a Corporate Tax Holiday. The last time that one was implemented was 2005, at a tax-rate of 5.25%, corporations laid-off 20.000 employees and retained the overseas profits offshore, waiting for the next Tax Holiday. A prior blog posted on this subject is linked as follows: https://thetruthoncommonsense.com/2016/10/20/corporate-tax-holidays-just-dont-work/.