In trying to do an end run around conservatives in Congress who are blocking adequate funding for badly needed improvements to our strained transportation networks and the jobs those improvements would create, is Congress and the Obama administration setting us up for another corporate tax ripoff?
The Obama administration says it isn’t, but there are danger signs that a well-intentioned effort to open up more money to pay for better roads and public transportation will reward the corporate tax-dodging the administration and a majority of the American public want to eliminate.
President Obama in his recent State of the Union address broached the idea of an “infrastructure bank” that would be a source of capital for highway and public transportation projects. That bank would be financed in some yet-to-be-specified way through proceeds from corporate tax reforms he hopes – against all odds – to push through Congress.
He asked Congress to “work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs right here at home.” He then proposed to “take the money we save from this transition to tax reform to create jobs rebuilding our roads, upgrading our ports, unclogging our commutes — because in today’s global economy, first-class jobs gravitate to first-class infrastructure.”
Part of the context for this is a deadline of September 30 – the end of the fiscal year – which is when the authorization for the current surface transportation program expires. Congress typically authorize funding in five- or six-year cycles for what are generally long-term capital projects, but during the last authorization vote Congress could only agree on a two-year plan.
The other crucial element was spelled out dramatically in the latest Congressional Budget Office 10-year budget outlook. The government faces a $100 million shortfall by 2020 in the primary source of revenue for transportation infrastructure projects – a federal gasoline tax that has not increased since the mid-1990s. Not only has inflation eroded the buying power of the 18.4-cent-a-gallon tax, but increased fuel efficiency means revenues from the tax aren’t increasing even as more people are driving.
One obvious response would be to increase the gasoline tax at least to reflect the effects of inflation. That would mean drivers would spend an extra 12 cents a gallon at the pump. If that were in effect today, a gallon of gas would, when inflation is taken into account, still be cheaper than it was at the end of 2007, before the Great Recession hit. Nonetheless, talk of raising the gasoline tax is a political no-no in Congress and in the White House right now.
What is gaining currency is an infrastructure bank plan by Rep. John Delaney, D-Md. Delaney would allow corporations that have parked profits overseas to bring some of that money back into the U.S. tax-free in proportion to the money they use to purchased infrastructure bank bonds.
Howard Gleckman of TaxVox, the Urban Institute/Brookings tax blog,
“The firm willing to accept the lowest foreign earnings exclusion per dollar of bonds would bring home that amount of money tax-free (plus it would get the bonds). While the market would set the amount, Delaney assumes firms would bring back something like $4 tax-free for every $1 they invest in the infrastructure paper.”
Citizens for Tax Justice concluded that not only would this bill be “a strange and problematic way” to fund infrastructure, but “Delaney’s bill will provide the greatest benefits to corporations that are engaging in accounting schemes to make their U.S. profits appear to be generated in offshore tax havens, further encouraging such tax avoidance and resulting in a revenue loss in the long run.”
The U.S. economy loses millions of jobs, and billions in tax revenue, because U.S.-based multinational corporations from General Electric to Google funnel huge shares of the profits they actually earn in the United States through subsidiaries in low-tax or no-tax countries. To escape paying U.S. corporate taxes, these companies have kept some $2 trillion in profits parked overseas or in American accounts designed to evade U.S. taxes.
President Obama and Congress have campaigned on ending this gamesmanship, and corporate lobbyists have tried to neutralize the reform effort by promising to bring some of the overseas profits into the U.S. if the U.S. substantially lowers the tax rate. Delaney’s infrastructure bank idea plays off of that promise – we’ll help you fund infrastructure if you promise not to tax the profits we bring in from overseas.
That line should sound familiar. In 2004 Congress and the Bush administration gave corporations a form of tax amnesty with their overseas profits, based on their promise that money they brought back into the U.S. would be used for job-creating investments. But when they got the tax holiday they wanted, they broke their promise, using the money instead for stock buybacks and executive bonuses, even as they cut rank-and-file jobs.
This is also a fundamentally flawed way to fund our national infrastructure needs. Gleckman at TaxVox calls the Delaney plan “a bit of a shell game” because taxpayers, instead of funding the infrastructure bank directly, are funding the incentive corporations are being given to coax them to buy the bonds. And this Rube Goldberg funding mechanism would easily collapse under any plan that eliminates the tax advantage of holding profits overseas in the first place.
It would make more sense for President Obama to use his bully pulpit in the service of a bold plan for rebuilding the nation’s public infrastructure – roads, public transportation and the like – to meet the needs of the 21st century, and to build support for a 21st-century way to pay for the investments we need. A properly structured infrastructure bank can be part of the solution, such as the one that would be created through a bill by Rep. Rosa DeLauro that would be seeded with $5 billion a year in federal funds and would sell bonds to the general public.
It is true we need fresh ideas, we well as leadership willing to help us sensibly weigh their merits. What we don’t need is yet another way for the rich and powerful to avoid their responsibility to help pay for the building and maintenance of the country from which they profit. That’s one toll the American public is not prepared to pay, and elected officials who are fighting for an infrastructure and jobs program should make sure that stops getting political traction.