The so-called "infrastructure plan" that Trump released earlier this month says a meager $200 billion in federal spending will somehow trigger an additional $1.3 trillion in spending by states and private corporations, but Trump's alma mater tells us a very different story.
The Wharton School of Business at the University of Pennsylvania has released their own analysis of the "plan" and I can only describe the results as hilarious.
The Wharton School says the plan wouldn't trigger anywhere near the amount of spending it's suppose to.
President Trump recently released his updated infrastructure plan along with the Fiscal Year 2019 Budget. The plan proposes to increase federal infrastructure investment by $200 billion to provide incentives for a total new investment of $1.5 trillion in infrastructure.
However, based on previous experience reviewed herein, most of the grant programs contained in the infrastructure plan fail to provide strong incentives for states to invest additional money in public infrastructure. Indeed, an additional dollar of federal aid could lead state and local governments to increase infrastructure total spending by less than that dollar since state and local governments can often qualify for the new grant money within their existing infrastructure programs. We estimate that infrastructure investment across all levels of government, including partnerships with the private sector, would increase between $20 billion to $230 billion, including the $200 billion federal investment.
We estimate that the plan will have little to no impact on GDP.
In other words, the plan may contribute to a $20 to $30 billion increase in spending by states and private companies, not $1.3 trillion.
So, what's going on here?
The Wharton study explains that states already spend as much as they're able to on infrastructure projects which the federal government contributes to with matching grants. Wharton's model found that state spending would increase by an average of less than $1 (in some cases only 50 cents) for each additional dollar the federal government spends, but not all of that would be invested in new infrastructure projects. Trump's "plan" would allow states to use their grants for existing projects that wouldn't represent new spending.
Wharton's model did find that the plan could increase the size of the economy if it's financed through taxes or fees, but no one expects that will happen. Our Republican-controlled Congress has already ruled out raising the gas tax and no senator is going to vote for a bill that allows states to place tolls on existing federal highways.