America’s tax credit plan for infrastructure ‘risky’

President Donald Trump has promised to revitalize America’s aging roads, bridges, railways and airports, but a plan put forward by his economic advisers relies on a transportation financing scheme that has not been tried before and comes with significant risks. 
The plan was set out just before the election by billionaire leveraged buy-out specialist Wilbur Ross, Trump’s pick for commerce secretary, and conservative economics professor Peter Navarro, whom Trump has tapped to head his National Trade Council. They recommended the government allocate $137 billion in tax credits for private investors who underwrite infrastructure projects.
Ross and Navarro estimate that over 10 years the credits could spur $1 trillion in investment. That is how much Trump promised to spend on infrastructure — a key part of his job-creation plan.
Trump has not yet said whether he will try to carry out the Ross-Navarro plan or seek an alternative, although the administration’s preference for addressing the problem with private dollars is clear. 
Transportation Secretary Elaine Chao emphasized at her confirmation hearing that the administration wants to “unleash the potential” of private investors and come up with creative ways to tap their capital.
But there is skepticism even among free-market oriented Republicans that the Ross-Navarro plan could work on a massive scale. Infrastructure projects like roads and bridges are attractive to investors only if they have tolls or some other way of generating revenue. There are relatively few projects in the country that meet those conditions. Tax credits offer additional incentive, but economists and transportation experts warn the government could end up rewarding investors in projects that would have been built even without credits.
“I don’t think that is a model that is going be viewed as successful or that you can use it for all of the infrastructure needs that the US has,” said Douglas Holtz-Eakin, a former head of the Congressional Budget Office and economic adviser to John McCain’s 2008 presidential campaign.
Business and labor executives told a House transportation committee hearing last week that private investment would not provide nearly enough to address America’s infrastructure woes. While public-private partnerships can help, “what needs to happen is to increase the gasoline and diesel taxes” to pay for more direct federal spending, said FedEx CEO Fred Smith.
The White House and Navarro declined requests for comment.
The Transportation Department said in a statement that Chao is “open to exploring all infrastructure funding options in order to ensure that the resulting solutions provide the greatest benefit to the public.”
Public-private partnerships are not a new concept and many have been successful. Federal tax credits have been used to spur private investment is housing, resulting in tens of thousands of low-income housing developments over the past 30 years. The credits are sold to private entities such as banks and equity firms that invest anywhere from 70 cents to $1.10 in the housing developments for every $1 they receive in credits, a ratio that fluctuates with economic conditions.
Vince Bennett, president of McCormack Baron Salazar Inc., a St. Louis-based firm, said tax credits are “probably the single-biggest tool that federal policymakers have” for producing affordable housing. His company has built 137 low-income housing developments financed by the federal program in more than 20 states. Its $3.1 billion of projects have been aided by about $1.3 billion in federal tax credits.
Some state transportation officials see advantages as well. Missouri recently sought a six-month extension under a federal pilot project allowing tolling to rebuild a 200-mile stretch of Interstate 70 between suburban St. Louis and Kansas City. The state lacks the needed $2 billion to $4 billion for construction but is waiting to see whether Trump could jumpstart the dormant plans.

Source: Arab News