Trump’s Infrastructure Plan is Revenue-Neutral Only Under Unrealistic Assumptions

[Commentary] President-elect Donald Trump wants $1 trillion to be spent on infrastructure projects, but he doesn’t want the government to be the one spending it. So he is proposing a scheme based on tax credits intended to stimulate private investment.

The projects will then repay the cost of the tax credits through “incremental tax revenues that result from project construction in a design that results in revenue neutrality,” as Peter Navarro explains. He goes on to claim “Two identifiable revenue streams for repayment are critical here: (1) the tax revenues from additional wage income, and (2) the tax revenues from additional contractor profits.” The problem with Navarro’s logic is that he ignores a fundamental part of economics: opportunity costs. First, he assumes the people who work on the project would have been unemployed or for other reasons paying no taxes if not for the Trump plan. To the extent they were already employed and are working on Trump-plan projects instead of something else, then their tax payments are not incremental. Second, he assumes that contractors would be less profitable without the plan. That could be true if they would not have had work or if the plan allows them to charge more than they would have otherwise.