The Jan. 18 PowerPost article “These economists aren’t buying Trump team’s infrastructure plan” reported on principal elements of the Trump administration plan and leading economists’ criticism of its proposed investment tax credits for private investors, but unfortunately failed to mention relevant fiscal history.
An investment tax credit based on capital equipment purchases by private enterprises was proposed by President John F. Kennedy and later enacted as an effective tool for stimulating economic growth and job creation. The Kennedy investment tax credit was for a modest 7 percent of the purchase price of eligible equipment; President Trump’s proposal calls for a credit equal to 82 percent of the equity investment needed for infrastructure projects. The government would bear nearly all of the equity risk of project losses while private investors would receive 100 percent of the profits of a successful project.
The proposed credit would be a bad deal for the government. Such a generous tax credit should be limited to demonstrably needed, high-priority, high-risk infrastructure projects that the government determines are soundly structured, viable projects that would not be able to raise the required equity and debt financing without such a tax credit.
Complementary to this would be renewal and expansion of the Obama administration’s Build America bonds program that supported infrastructure projects by state and local governments. Also, privately sponsored infrastructure projects that face challenges in raising capital and may not be eligible for a strictly limited tax credit could be incentivized by loan guaranties issued by a government-sponsored infrastructure bank.
Brian Christaldi, Chevy Chase