Experts Doubt Trump’s Infrastructure Plan Will Boost Economy

WASHINGTON — Independent analysts are beginning to forecast that President Donald Trump’s infrastructure plan will pack much less of an economic punch than the administration predicts and is unlikely to jump-start new spending on roads, bridges and other critical projects.

Trump has promised that his plan, which includes $200 billion in federal spending, will leverage a total of $1.5 trillion in new infrastructure spending over the next decade, with $1.3 trillion coming from state and local governments and the private sector. A new forecast from the University of Pennsylvania’s Penn Wharton Budget Model predicts the plan would yield far less investment: $20 billion to $230 billion in combined public and private infrastructure spending over the next decade, including the $200 billion federal investment.

The Penn analysis predicts the Trump proposal would have “little to no impact” on economic growth over the decade. Trump’s Council of Economic Advisers forecast this week that a 10-year, $1.5 trillion plan would boost average annual economic growth by 0.1 to 0.2 percentage points.

The budget model’s forecasts draw on a wide range of economic literature that finds federal grant programs, similar to the ones Trump proposes to employ for infrastructure, often do little to encourage states and localities to spend more than they would have otherwise in the intended area. Instead, states often claim federal money to fund existing plans, and then free up state funds for other, unrelated spending, said Kent Smetters, an economist who served in the George W. Bush administration and now directs the budget model.

“When we reviewed the literature,” he said, “there just really is no set of studies that support that massive multiplier effect, where you can get $1.5 trillion.”

Other analysts have expressed similar skepticism that Trump’s combination of matching grants and other incentives will mobilize the promised infrastructure investment. Kevin DeGood, the director of infrastructure policy at the liberal Center for American Progress think tank, said that since the plan requires states to fund the vast majority of new projects with their own money to qualify for federal funds, “there’s a real strong case to be made that many states won’t bother.”

The administration disagrees and says that the $200 billion in federal spending, combined with quicker permitting that allow projects to get started fast, will incentivize a wave of projects. Elaine L. Chao, the secretary of transportation, said this month that a goal of the administration’s plan is “to use federal dollars as seed money to encourage infrastructure investment by the states, localities and the private sector.”

“We all want better infrastructure,” she said at a White House news briefing.

“But unfortunately, there’s just not enough money in the world to pay for all the infrastructure, which is why” Trump’s plan also puts an emphasis on the private sector, Chao said.

The White House has indicated it is open to some type of dedicated funding stream, such as user fees like tolls or a new type of tax, such as a gas tax, to help finance projects, though it has yet to officially propose such a plan.

The Economic Report of the President, which was released Wednesday, said that “additional resources can be secured for infrastructure investment, turning to some combination of user charges, specific taxes or general tax revenues.”

Democrats have criticized the administration’s proposal for the size of its federal investment and its lack of a dedicated funding stream, such as a tax increase, to support it. They have warned that the reliance on private spending could lead to high user fees, such as tolls, on new projects.

On Friday, Sen. Chuck Schumer, D-N.Y., the minority leader, said that “If we ever needed proof that Trump’s infrastructure plan is made out of thin air and would create Trump tolls, Trump tolls and more Trump tolls across the country, this independent study is it.”

The administration has consistently been more optimistic than outside analysts in forecasting the economic effects of his proposals. The Council of Economic Advisers projected this week that the $1.5 trillion tax cuts Trump signed into law last year would boost the economy by 2 to 4 percent, a much higher rate of growth than independent analyses have found. Top administration officials said this fall that faster growth from Trump’s economic policies, including the infrastructure plan and tax cuts, would generate enough additional tax revenue to more than offset any increase to the federal budget deficit from the tax cuts.

The Penn Wharton Budget Model, in contrast, forecast in December that the tax cuts would increase the size of the economy by 0.6 to 1.1 percent over a decade, and add as much as an additional $2.2 trillion to the national debt in that time. The Joint Committee on Taxation, the economic scorekeeper of Congress, predicted that the cuts would increase the size of the economy by 0.7 percent and add more than $1 trillion to the debt.