Right now, we have an administration that is considered to be business friendly. I would prefer that this part not go debated, because it isn’t the focus of the question. Let’s say any administration changes the tax code, regulations, and laws in a way that is objectively business friendly. Why would one administration alone be enough to change long term business plans of a company? Looking at historical American politics, it is very likely in 2-6 years we will have an administration that could change all these policies.

  • maybe 2-6 years is enough to make their money and be done with it, like a super cheap coal claim. – dandavis Feb 19 at 18:08

Once a program/ tax benefit exists there is a well defined constituency that benefits from that program that will loudly object if a future administration takes the benefit away. And, in general, humans suffer from loss aversion-- losing a dollar that we had yesterday is felt much more strongly than gaining a dollar that we didn't have yesterday. Plus, since every administration wants to grow the economy, if a program actually results in increased business activity, no administration is going to be eager to kill it.

When Social Security was being designed, there was an argument about whether it would act like a traditional private pension plan where it would collect and invest contributions for a long time and make payouts to those that retired after decades of contributions or whether it would be a "pay-as-you-go" program where the contributions of current workers mostly went to pay current retiree benefits while the financial reserves were kept (relatively) modest (History of Social Security). Though the traditional pension plan was more financially stable, the pay-as-you-go model allowed the program to start making payments much easier. That created an immediate constituency that would oppose any future decreases in benefits. It was much easier for the Republicans opposed to FDR to argue against a program in theory. It was much harder to argue for taking away a check that individual retirees had become dependent on.

You see the same sort of pattern with, say, the mortgage interest deduction, the charitable contribution deduction, Obamacare, etc. Although various policy analysts may suggest that in theory these programs should be reformed, once you have large numbers of people and businesses that depend on the benefits and that have organized their financial lives around those benefits, it is much, much harder to cut them than it would have been to prevent them in the first place.

With infrastructure programs in particular, you also have issues where it may make sense for the next administration to try to salvage something if construction is already underway. Imagine a project that costs $100 M to build and will generate $75 M in benefits over its life. If the first administration overestimates the benefits and manages to build half of the project at a cost of $50 M, the next administration is in a bit of a bind. Even though the project as a whole is going to lose money, it still makes sense to spend another $50 M to get the $75 M benefit rather than leaving a half-completed project that delivers $0 value. Continuing the program nets a $25 M gain for the new administration rather than a $0 gain for doing nothing (probably less than nothing because you now have to deal with the ridicule of a half-completed project, angry people and businesses that were benefiting from construction, etc.)

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.