Posts Tagged Infrastructure
WHEN WILL WE GET AN UPDATE ON THAT INFRASTRUCTURE PLAN THAT DONALD KEEPS SAYING WILL BE THE MOST “HUGELY” GREATEST EVER?
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!”
When President Barack Obama took office, in January of 2009, he had inherited the Great Recession—the worst economic crisis that America has 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 calls it the same thing!
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 that are falling apart, and thereby 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 part of the GOP’s 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 the Trump “Infrastructure” Plan, dated October 27, 2016, 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 other 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. In a prior blog, posted on this subject, I described how Corporate Tax Holidays have just not worked in the past!