The president’s new spending plans on infrastructure and the military teeter on the edge of fantasy.
Donald Trump called for $1.5 trillion in infrastructure spending in Tuesday’s State of the Union address.
“Tonight, I’m calling on Congress to produce a bill that generates at least $1.5 trillion for the new infrastructure investment that our country so desperately needs,” the president announced. “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.”
Where does this $1.5 trillion come from?
The fine print of the plan includes just $200 billion in federal spending, with the rest coming from state and local governments and the private sector. This appears far more manageable. But the question remains: Where does this money come from?
Through new taxes? Increased deficit spending? Cuts to other programs (which ones?)?
Trump just signed legislation cutting taxes, so the notion of him reversing course to fund this proposal appears preposterous. The deficit — the real one rather than the infrastructure one — predicted to rise to $1 trillion in 2019 and again in 2020, cries for a reduction, not further boosts. Creating the funding through offsetting spending cuts looks like the greatest fantasy of all.
Politico reported earlier this week that Republicans want $100 billion more in defense spending. Democrats signal a willingness to go along, provided that they receive increases in domestic spending that match the defense increase. In other words, Congress looks to boost spending by the exact amount Trump would need it to cut to offset the cost of his infrastructure bill.
This proposed compromise helps explain the singular direction of government spending. A prudential meeting of the minds might see spending cuts matching a defense increase. In Washington, the response to spending always comes as more spending.
So, with no appetite for new taxes, no responsible means to increase already massive deficits, and no will to cut programs — to say nothing of a political incentive for Democrats to work with the president — the infrastructure dream seems destined to remain in the realm of the imagination.
But must it?
The same day that the president announced the massive spending initiative a businessman even more successful than Donald Trump hinted at a means by which the federal government could fund new projects. Warren Buffett, in announcing a new joint venture with JP Morgan Chase CEO and chairman Jamie Dimon and Amazon CEO Jeff Bezos, called healthcare “a hungry tapeworm on the American economy.”
The trio of business titans seek to provide “simplified, high-quality, and transparent health care at a reasonable cost” for their employees, and — who knows? — perhaps for workers outside of their orbit should they prove successful. If politicians cannot fix what ails our healthcare system, then businessmen look to do so.
The federal government now spends more on healthcare than defense, Social Security, or any other category. The total figure exceeds $1 trillion annually. It matches the amount the federal government spent on everything in 1989.
The key to funding Donald Trump’s proposed plan — or reducing the deficit or instituting a new round of tax cuts for that matter — centers on healthcare. Congress failed on reform last summer. But if it wishes to indulge Trump’s wish to boost infrastructure spending it must kill the “hungry tapeworm on the American economy.”
“This, in fact, is our new American moment,” the president announced. “There has never been a better time to start living the American dream.”
But some dreams become nightmares once realized. The new infrastructure spending strikes as one such fantasy that works better in the imagination than in reality.
That is, unless Congress decides to tackle the issue that it punted on this past summer. Possibilities open up once that becomes a reality. Kill the hungry tapeworm and then there truly will never be a better time to start living the American dream.
Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of five books.
Warren Buffett (Wikimedia Commons)