You’re probably thinking: What? I didn’t hear about any tax increase in Trump’s State of the Union speech.
That’s right. You didn’t. Because it’s hidden in the fine print.
What you probably heard is that the Trump administration wants to spend $1.5 trillion on America’s infrastructure.
Here’s how Trump plans to make you pay for it.
In the State of the Union speech this week, President Trump announced:
Tonight, I am calling on the Congress to produce a bill that generates at least $1.5 trillion for the new infrastructure investment we need.
On the surface this sounds like he wants Congress to authorize $1.5 in infrastructure investment. Notice the curious turn of phrase though “a bill that generates $1.5 trillion.”
He doesn’t explain this term in detail, but he does say:
Every Federal dollar should be leveraged by partnering with State and local governments and, where appropriate, tapping into private sector investment -- to permanently fix the infrastructure deficit.
Let’s look at what this statement means—and specifically, what it means to average Americans.
In June, Trump proposed spending $200 billion over 10 years with the goal of attracting $1 trillion in private investment. Apparently, that $1 trillion has increased to $1.5 trillion. There are no proposals to spend any more.
This means the Trump plan is looking for the difference—a whopping $1.3 trillion—from:
- State governments
- Local governments
- The private sector
How do these entities operate?
State and local governments
The two most common ways for state and local governments to raise money is through tax increases or by taking on more debt by issuing bonds.
State governments could raise state income taxes, state sales taxes, sin taxes, estate taxes, luxury taxes, or corporate taxes. We know they won’t raise any taxes on the wealthy or corporations, because these groups have enough lobbying power to prevent it. This means any of that $1.3 trillion that comes from local or state governments could come from tax increases on the 99 percent.
Or they could take on more debt. State or local debt would also eventually be borne by state and local taxpayers.
The private sector
Great, you say. The private sector will pay for infrastructure. I don’t have to pay.
On the surface this sounds enticing until you remember that the private sector doesn’t make investments unless they expect returns that are greater than the investment.
Remember that this is, by definition, what the private sector does: they make a profit on the investment.
This means that the private sector will expect to make more than any part of that $1.3 trillion they invest back in return for their investment. For example, if the private sector invests $800 billion, they will want that $800 billion back plus a hefty profit on top of that $800 billion.
Wait … So you’re saying that it’s now going to cost more than $1.3 trillion?
If it’s through the private sector, yes. It will be $1.3 trillion plus the profit that the investors expect.
Now let’s look at how they’re going to make this investment back, plus turn a profit. The Trump plan was developed by two real estate billionaires: Richard LeFrak and Steven Roth. A report from the group DemocracyForward highlights how the plan maximizes opportunities for private profit:
On the rubric for judging infrastructure grant applicants under the President’s proposal, 70 percent of a project’s score would be based upon the availability of non-federal revenue, compared to 5 percent for a project’s “economic and social returns.” At the same time, the plan limits federal funding to 20 percent of a project’s overall cost. This formula will favor projects that can more easily generate revenue for private financiers, as states will need to attract investors to fill in the federal funding gap.
Once they sell the infrastructure to private investors, said private investors will turn around and charge the public fees or tolls.
In Virginia, two private companies, Macquarie and Skanska, hold tolling rights for the tunnels in Hampton Roads until the year 2070. Macquarie has been criticized for sending invoices of up to $18,000 to low-income drivers.
By definition, these fees/tolls will be more than the original investment so that the investors can turn a profit.
Voila. Infrastructure is paid for by you, the public.
But didn’t I just get a big tax cut?
The recent Republican tax plan that passed also coincidentally had a $1.5 trillion number over 10 years.
However, 60 to 70 percent of the benefits were targeted toward the wealthy and our largest corporations. So Republicans provide a tax cut to average people of half a trillion or so, then they figure out ways to charge people $1.3 trillion to pay for infrastructure.
The net is a tax increase of at least $800 billion on average people.
Talk to the people you know
This is a story that has some traction. People tend to think, “Oh, private investment means I don’t have to pay.”
This isn’t the case at all. Private investment in infrastructure means private investors want returns that are greater than their investment. If they invest $800 billion, they are going to expect more than this in return. This means that in some way the public is going to spend more than $800 billion.
Or in the case of Trump’s plan, the 99 percent are going to have to spend an additional $1.3 trillion on infrastructure.
David Akadjian is the author of The Little Book of Revolution: A Distributive Strategy for Democracy (print or ebook).