Here's who should really pay for Trump's new roads and bridges

Does anyone become wiser when they are spending somebody else's money?

Our current system of federal funding for transportation means that taxpayers in New York fund highways in Montana and drivers in Utah pay for New York's airports. If President Trump wants to seriously improve American infrastructure spending, he should champion a new federalism for transportation, in which infrastructure is funded by states, localities and especially the users themselves.

Too often, public debates devolve into a simplistic argument of "more" infrastructure versus "less." In many ways, America's infrastructure is woefully deficient, but we have also wasted billions on bridges to nowhere and highways in the middle of nowhere. The right question is how to get better infrastructure.

The best decisions are made when decision-makers bear the costs and reap the benefits. When companies invest, they agonize about whether future customers will pay enough to cover the production costs. Before Governor DeWitt Clinton built the Erie Canal, perhaps the most successful infrastructure investment in U.S. history, he had to convince a lot of skeptical New Yorkers. That's the kind of vetting that makes for good projects.

Having lived through Boston's Big Dig, I am well aware of how the promise of federal funding skews local decision-making. Local leaders stop asking themselves whether the benefits cover the costs because it's somebody else's nickel. In 1987, the Boston Globe's Editorial Page wrote that "Massachusetts could celebrate congressional passage of the massive, multi-year highway program, over President Reagan's veto," which enabled the "Central Artery reconstruction that will bring relief to the worst traffic mess in New England."

The federal government ultimately paid for only a small fraction of the Big Dig's $15 billion dollar plus price tag, but the project would have stalled without federal largesse.

Similarly, Detroit would have never built its absurd People Mover Monorail without federal encouragement and funding. The push for People Movers came not from the people of Detroit, but from the Federal Urban Mass Transit Administration, which was eager in the 1970s to demonstrate the upsides of this Disneyesque innovation. Those upsides certainly never materialized in Detroit.

New roads and bridges should be built when the benefits cover the costs. In most cases, the drivers themselves largely reap those benefits and they should pay for the costs through electronic tolls. Tolls also enable us to fight congestion by charging more during peak periods.

If new automotive infrastructure is meant to be self-financing, then the decision to build is a straightforward business investment and there is little need for large-scale federal funding. In the case of new roads, bridges and airports, there is no argument for artificially cheap access, since each driver or flier imposes significant costs on the other travelers and on the system.

The balance is a bit different for transit systems, as extra travelers impose lower costs and charging less actually reduces traffic congestion. It shouldn't be expected user fees to pay for every bus or subway ride. Yet the need for metro subsidies doesn't imply that Washington should pay.

The beneficiaries of metro systems are the businesses and commuters within a state. They could be funded with local property or sales taxes. My favorite metro funding model is in Hong Kong, where the city's private mass transit system funds itself by building high-rises atop new train stops. Federal funding for public transit could be limited largely to inexpensive transport options, especially buses, that primarily helps the poorest Americans get to their jobs.

President Trump has expressed enthusiasm for a plan, written by Peter Navarro and Wilbur Ross, to subsidize new transportation options with tax credits. These tax credits are justified by the new property tax and income tax revenues that infrastructure might deliver. Such credits would expand existing federal subsidy programs, like tax exempt Private Activity Bonds that have helped fund the High Occupancy Toll lanes on the Capital Beltway.

Small subsidies seem smarter than expansive federal funding for new projects, but there must be checks to limit the abuse of such subsidies. States should pay at least half of their cost. The tax credits should be tied to performance, so that the private companies only benefit if property values actually increase.

Critics of the tax credit proposal emphasize that America's biggest need is to maintain the existing system, and they're right. Neither tax credits, nor tolls, are likely to pay for repairing unsafe bridges and fixing potholes. Federal funding should be ruthlessly focused on the safety of the existing system.

The Department of Transportation can monitor road and bridge quality in each state. Federal highways funds can then be restricted for repairs until each state gets its roads back in shape. The DOT has a crucial role in coordinating and monitoring the system, even in a world in which we expect users and states to cover more of the costs of American infrastructure.

Fans of federal spending see New York's underperforming airports as logical recipients of more tax dollars. The opposite is true. More federal funding for dysfunctional airports just perpetuates the status quo. They would be far healthier if they were split apart from the larger agency and allowed to operate, compete and charge higher landing fees, either as independent self-funding public airports, as in the U.K., or as private entities.

President Trump is a businessman who has shown an enthusiasm for empowering states. He should create a new federalism for transportation, in which states take more responsibility for funding and new roads, like new high-rises, are built only when users will pay enough to cover construction costs.

Commentary by Edward L. Glaeser, a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and the Fred and Eleanor Glimp Professor of Economics at Harvard University.

Follow CNBC's Opinion section on Twitter @CNBCopinion.