Michael Bloomberg characterized Donald Trump quite accurately, when he referred to him as “A Con (Man)”, at the Democratic National Convention, last July. Trump’s initial Infrastructure Plan, which he revealed last October, was just another version of Corporate Welfare. It was a complete scam at the time and, although he keeps touting it in his current rambling monologues, he seems afraid to reveal what changes have been made, if any.
Prior to November’s Election, economist Peter Navarro, who is now a Special Advisor to the President, and Wilbur Ross, Trump’s Secretary of Commerce, had drafted a Plan, which, seeming to explain it, appeared to be intended more to obfuscate by using obtuse numbers and financial illusions. There seemed to be no attempt to explain it so the average American might understand it. Their final analysis, released on October 27, 2016, was titled: “The Trump Private Sector Financing Plan”.
The gist of Trump’s Infrastructure Plan, as far as I can see, can be explained from what is cited, in four paragraphs, on Page 4.
1. “For infrastructure construction to be financeable privately, it needs a revenue stream from which to pay operating costs, the interest and principal on the debt, and the dividends on the equity.” This quote seems to suggest that only projects, with revenue streams—toll roads, bridges, tunnels, etc.—would be included. Side road repair, clearing impassible waterways, environmental clean-up, obsolete levies, etc. wouldn’t.
2. “…we are assuming that, on average, prudent leverage will be about five times equity. Therefore, financing a trillion dollars of infrastructure would necessitate an equity investment of $167 billion, obviously a daunting sum.” That means the private companies, who would cumulatively be buying complete control of the projects, including the long-tam revenue streams, will provide only one-sixth of the equity in the total Capital Structure. But, it gets even more interesting in Numbers 3 and 4.
3. “…to reduce the cost of the financing, government would provide a tax credit equal to 82% of the equity amount. This would lower the cost of financing the project by 18% to 20% for two reasons.” The true numbers will be revealed in #4.
The Treasury will provide a “Tax-Credit” for the bulk of the corporations’ Equity Capital—their investment exposure. Keep in mind that, unlike a tax-deduction, which merely provides benefits at the tax-rate, a tax-credit is fully deductible—dollar-for-dollar—from the final taxes payable. Now, see #4.
4. Now, here’s where it can all come together. “First, the tax credit reduces the total amount of investor financing by 13.7%, that is, by 82% of [the]16.7%. The elegance of the tax credit is that the full amount of the equity investment remains as a cushion beneath the debt, but from the investor point of view, 82 percent of the commitment has been returned.” Plain as mud, huh? Let me put those numbers into a more-understandable format:
U. S. Treasury sells $1,000 Billion to finance entire Project.
in Project: $Taxpayers Debt Exposure833 Billion — 83.3%
Corporate Equity (financed by Treasury): $167 Billion — 16.7%
Treasury absorbs Corporate Tax-Credit: $137 Billion — 13.7%
U. S. Treasury Debt equals Taxpayer Debt: $970 Billion — 97%
Cumulative Corporate Debt to Treasury: $30 Billion –3%
In summary, America is literally giving away valuable revenue streams ON MONOPOLIES, perhaps in perpetuity, assumedly without any control about future prices, continued maintenance, and there is nothing mentioned which requires that American workers be used, with regard to re-construction, on-going maintenance, or the long-term operation. Now, perhaps Donald Trump and Speaker Paul Ryan are making this more digestible; but, I sure would like to see a summary of the particulars before I hear how “hugely” great it will be, or anymore.
And as Donald always says: “This will be Budget-Neutral. Just trust me!”