Saturday, February 11, 2017

Financing Trump's Infrastructure Plans


Navarro and Ross, pretty detailed. Full document here.

Revenue neutral to placate the old debt morons; non-zero US government backed returns on the new debt for the USD zombies.

A true win-win!!!!

Maybe the Japanese also want in on this for the implied 5% on the debt portion (tired of their own permanent ZIRP) and Abe is discussing taking a big league position in it with Trump over golf this weekend.


The Trump Private Sector Financing Plan The Trump infrastructure plan features a major private sector, revenue neutral option to help finance a significant share of the nation’s infrastructure needs. For infrastructure construction to be financeable privately, it needs a revenue stream from which to pay operating costs, the interest and principal on the debt, and the dividends on the equity. The difficulty with forecasting that revenue stream arises from trying to determine what the pricing, utilization rates, and operating costs will be over the decades. Therefore, an equity cushion to absorb such risk is required by lenders. The size of the required equity cushion will of course vary with the riskiness of the project. However, we are assuming that, on average, prudent leverage will be about five times equity. Therefore, financing a trillion dollars of infrastructure would necessitate an equity investment of $167 billion, obviously a daunting sum. 
Companies paying the ten percent tax on the repatriation of overseas retained earnings could use the tax credit on infrastructure equity investment to offset their tax liability on bringing the money back. This would effectively convert a tax liability into an equity investment in an infrastructure project. The mechanics of this are straightforward: Repatriate $1 billion, incurring $100 million of tax, and invest $121 billion in the equity of an infrastructure project. The 82 percent tax credit on the $121 thereby fully extinguishes the repatriation tax so at the end of the day they have a $121 million infrastructure equity investment and no tax bill while the US has more and new infrastructure.



5 comments:

Tom Hickey said...

Too complicated in an uncertain future. Infrastructure is a no-brainer public good.

The probability is that the private sector will be excessively rewarded (economic rent) or the projects won't support the debt load, so either deprecation will be taken with out adequate repair or government will have to pony up.

This is just more cosmetics.

Matt Franko said...

Its just how Acquisitors have to approach it... they dont know any other approach this is how they do things...

Egalitarianism to them would be if you had a project, and got 10 people to put in 10% each... then that would be egalitarianism everybody is in for an equal share....

they feel stuck with the debt morons being intransigent so they have to come up with a (to them) creative way to finance the expenditures other than UST issuance which might expand "the deficit!" over some accounting period they look back at...

This paper reads like one of Ross's monologues on the CNBC...

I think we should get used to this kind of thing from these people...

Noah Way said...

Bottom line, we can't afford infrastructure so we have to privatize it for profit.

What a load of BS. What's next - water? Air?

My next film is going to be a horror flick titled Attack of the Harvard MBAs.

Bob said...

So... no surprises? No "innovation"?

Matt Franko said...

No Bob just "business as usual..."

There is only about 1,000 to 2,000 of us who know what is really going on...