Bills Aim to Raise Infrastructure Funding by Lowering Taxes on Overseas Profits

This story appears in the May 20 print edition of Transport Topics.

A Republican senator and a Democratic representative are each proposing to rebuild the nation’s infrastructure by giving tax incentives to U.S. corporations to bring overseas profits home.

Sen. Rand Paul (R-Ky.) introduced a bill May 9 that would reduce the tax rate for overseas profits to 5% from 35%, with the revenue flowing into an emergency transportation project fund.

Meanwhile, Rep. John Delaney (D-Md.) is scheduled to introduce a bill this week that would allow investors to reduce the tax on overseas profits by buying bonds to support a new infrastructure fund.

The bills are independent of each other and pick up on a lingering idea to reduce taxes on repatriated corporate earnings.

Paul said in a statement that his bill increases the incentive to bring money back to the United States for reinvestment.

“While we are faced with a fiscal crisis, our nation also has critical infrastructure needs that demand immediate attention,” Paul said. “My plan will not only save our infrastructure from collapsing but also encourage reinvestment here at home without increasing the debt.”

Paul spokesman Brett King said of the proposed rate, “The tax revenue off the 5% would be split in half between [transportation] and deficit reduction.”

Cash held overseas by U.S. corporations, many of them leading technology and energy firms, totals billions. Apple, for example, had $102 billion in cash overseas, according to its latest filing with the Securities and Exchange Commission, dated March 30.

A March Wall Street Journal report that analyzed SEC filings of 60 big U.S. companies — including Apple, IBM, Microsoft, Exxon Mobil and Chevron — found that they kept a total of $166 billion offshore last year.

“That shielded more than 40% of their annual profits from U.S. taxes, though it left the money off-limits for paying dividends, buying back shares or making investments in the U.S.,” the newspaper’s March 10 report said.

Delaney’s bill, the Partnership to Build America Act, would provide loans to states and municipalities for infrastructure projects.

“It doesn’t have the federal government picking winners or losers, and it doesn’t create a new bureaucracy,” Delaney said in a statement. 

“My bill requires zero appropriated funds.”

The money for the infrastructure fund would be generated by the sale of bonds to those looking to reinvest overseas profits. The bond buyers would be able to return to this country as much as $4 free of taxes for every dollar they invest in the bonds. The bonds would have a 1% interest rate.

The fund would operate like an infrastructure bank. Some states have infrastructure banks, and various proposals have been made by President Obama and members of Congress to create a federal model.

However, those proposals have depended on Congress being willing to appropriate a start-up sum of money. In his fiscal 2014 budget unveiled last month, Obama asked for $8.83 billion over 10 years for an infrastructure bank.

Patrick Sabol, a senior researcher at The Brookings Institution, called the Paul and Delaney approaches “novel” in terms of repatriation and infrastructure.

“Generally speaking, we’re always a little nervous about just the general moral hazard with these repatriation things, but in terms of assigning the money in a really smart way, I think it’s really important to target it, which is what these proposals are both doing,” Sabol said.

The last time the nation allowed overseas profits to be returned at a lower tax rate, in 2004 and 2005, the tax breaks did not produce jobs or investment, Sabol said. Instead, corporations largely used the money to buy back their own stock, he said.

However, investing in infrastructure is one of the most effective ways to produce jobs quickly, Sabol said. In addition, the Paul and Delaney approaches may garner bipartisan support because Republicans are interested in the repatriation issue and transportation is still a bipartisan issue, he said.