Proposed infrastructure tax credits to increase private sector investments in the US are an unneeded subsidy considering the amount of private capital ready to be deployed into the market, according to Western Asset Management's Robert Amodeo.
Amodeo, a portfolio manager and head of municipals at Western Asset, said at a meeting of infrastructure investors hosted by Legg Mason in New York this week that the plan written by billionaire investor Wilbur Ross and Peter Navarro, a public policy professor at the University of California, Irvine, is “unnecessary and, depending on how it's executed, could even prove unproductive”.
The Ross-Navarro plan was published last October leading up to the US election. The plan, which supports Trump's call for $1 trillion of infrastructure investments, said this can be funded through a “major private sector, revenue neutral option”.
Ross and Navarro suggest tax credits of up to 82 percent of the equity amount would lure in private investors. To offset the credits, Trump would raise tax revenues from additional wage income from workers and from additional contractor profits.
“There is a unique opportunity to institute an innovative financing plan, one that preserves the lower cost and more rapid execution of a private sector solution to the provision of public infrastructure,” the plan says.
According to Amodeo, however, the plan “could act as a first-loss subsidy”.
“The taxpayer deposits capital into a project, but they don't extract the economics from it like the other equity owners that will.”
He argued that the $137 billion in tax credits proposed to fund $1 trillion of infrastructure, as the plan suggests, is currently unnecessary given the significant private equity money already waiting to be deployed into infrastructure investments. He said a subsidy of that size would distort asset valuations.
Amodeo did agree with the plan on the need to implement a regulatory framework that streamlines a project's permitting process to start development faster. The Ross-Navarro paper said a big reason why the US faces a growing infrastructure gap is “a mountain of red tape”.
Ross is waiting Senate confirmation to become Trump's Secretary of Commerce, and Navarro was selected to head the newly created National Trade Council.