Politics

How to Repatriate America’s Infrastructure

Congress can generate revenue to rebuild the nation by returning overseas profits, tying them to state bonds

Democrats and Republicans disagree dramatically on a wide range of issues, from taxes to health care to foreign policy. One issue that both parties and their supporters appear to agree upon, however, is the need to fix America’s crumbling infrastructure – our roads, bridges, ports, electrical grid, water systems, schools, airports, and rails. I have never heard any politicians contend that our infrastructure is not in need of dramatic improvement, especially after they’ve returned from a foreign junket and visited a spanking-new transit system or airport in a European or Asian city.

In fact, there is surprisingly broad agreement across the political spectrum that investment in our nation’s infrastructure will do an enormous amount of good — create good white and blue-collar jobs, boost productivity, improve overall growth, reduce potential for calamities such as bridge collapses and road congestion, reduce the deficit, improve income inequality, and raise the standard of living. There is no other issue that has such unanimous support and could do so much good for our nation and its people.

Further, experts agree that large infrastructure projects traditionally produce higher multiplier effects than in other forms of fiscal outlays — a 1.3 dollar to 1.6 dollar return for every dollar spent.

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Why, then, has an infrastructure plan not been formulated by the president and approved by Congress? It is because a significant dedicated funding source has not been identified to supplement the 18.4 percent gas tax that is the primary source of funding at the federal level for infrastructure projects (an insufficient funding source because of the reluctance of politicians, on both sides of the aisle, to increase it to meet ever-increasing construction costs). Further, there has been little appetite to eliminate federal restrictions on tolling interstate highways or for increasing taxes to pay for infrastructure improvements.

But there is a fiscal solution looming out there. According to the Citizens for Tax Justice and U.S. PIRG Education Fund, “At least 358 large U.S. companies collectively maintain 7,622 separate overseas subsidiaries holding $2.1 trillion in profits. (The estimated tax bill comes from corporate regulatory filings.)”

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My proposal would involve tapping into the $2 trillion in untaxed overseas profits of American companies sitting offshore in tax havens doing absolutely no good for the American economy. During the recent presidential campaign both candidates indicated a willingness to adjust the tax code to induce U.S. companies to bring back the funds. Trump proposed to permanently lower the corporate tax rate to 15 percent from 35 percent and to grant companies a one-time repatriation holiday rate of 10 percent in order to induce companies to bring parked funds back to the United States.

In 2005, the American Jobs Creation Act tried a version of this approach that offered companies the opportunity to bring funds back and only pay 5.25 percent on repatriated profits. The legislation indicated that companies were only to use the funds to create new jobs or make domestic investments, but this requirement was not generally heeded and as a result did not jumpstart domestic corporate investments.

Much of the repatriated funds were invested in U.S. assets such as Treasury bonds, stocks and bank deposits. Some of the funds were used for shareholder dividends, research and development, repurchasing of stocks and executive salaries. Some firms, like Interpool, a firm I co-founded, used the act to benefit our American workers by building a chassis-leasing factory that employed U.S. workers, using the $300 million that was repatriated. A repatriated number is difficult to target, but we usually use 33 percent as an allocation to labor so at least $100 million went towards jobs.

Here’s my simple three-part proposal, which I recently presented on the Fox Business Network. I’d reduce the federal tax to 5 percent versus the higher 35 percent rate, but require companies take 25 percent of the repatriated funds and purchase state bonds earmarked for infrastructure improvement projects. The remaining 70 percent would be the company’s to use however it decides. Keep in mind the 25 percent of municipal bonds remain on the corporation’s balance sheet, can it be sold into the market if they so choice.

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Under this proposal American companies would retain 95 percent of what they are repatriating. As stated earlier, 5 percent would be paid to the federal government. The remaining 25 percent, $500 billion, would go towards putting people to work rebuilding our nation’s infrastructure. The multiplier effect of creating good new jobs, as opposed to outsourcing would be extraordinary. This is a union-friendly, business-friendly and governor-friendly proposal.

We can make America great again by creating jobs and rebuilding our nation’’s aging infrastructure by leveraging overseas corporate tax money that is stranded in tax havens around the world.

Martin Tuchman is the former CEO of Interpool, Inc., a current member of the Joint Investment Committee and founder of the Martin Tuchman School of Management at the NJ Institute of Technology.

(photo credit, homepage image: Pudelek, Wikimedia; photo credit, article image: Sparkle, Flickr)

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