- Marrying Infrastructure and Tax Reform Will Jump-Start the Economy
- September 26, 2017
In Washington, all eyes are turning to tax reform as the next big initiative. The administration and congressional Republicans have been hammering a theme of “pro-growth” tax reform that fails to engage Democrats in Congress.
Democratic leaders have signaled that they are willing to work together on the issue, with a caveat, that there has to be something in it for middle-class Americans. The key for getting big deals like this done is to find common ground, and one area of broad agreement already stands out. As Rep. John Delaney (D-Md.) recently — and rightly — argued, it is combining tax reform with infrastructure investment.
Both parties agree that investments in infrastructure create jobs and improve the economy. President Obama made infrastructure investment a central part of his economic plan, and President Trump campaigned to do the same.
Private companies from a wide variety of sectors — from technology and telecommunications to shipping and aviation, as well as energy — have already been investing in infrastructure projects throughout the country that are creating jobs and instilling major improvements in local communities.
Corporations like AT&T, ExxonMobil, Walmart, Apple and Energy Transfer Equities all invested millions of dollars in 2015 in capital investment projects, and are expected to continue that trend for years to come.
In 2015 alone, telecommunications companies Utility and energy distribution companies spent more than $27 billion maintaining and improving the way fuel is transmitted across the country, creating thousands of jobs in the process.
Our leaders in Washington can take a page from the corporate playbook here to move our economy forward. “Do we fund infrastructure?” has not been the question. It has only been: “How do we fund it?”
Tax reform gives us the answer.
The president campaigned on improving America’s infrastructure and investing $1 trillion in combined private and public investment. He proposed offering $137 billion in tax credits to encourage companies to support infrastructure projects. While many in Washington believe infrastructure investment to be a good idea, some were reluctant to embrace the plan because they were worried about the cost.
However, there is a growing consensus to leverage corporate profits that are stashed overseas to avoid the country’s high corporate tax rate to invest in America. Leaders from both parties, as well as heads of major U.S. businesses, are backing the idea.
It could work like this.
Most developed nations do not tax companies on their overseas profits. The U.S. does. So a big company like Apple or Google or Ford has to pay the full 35 percent corporate tax rate on money made from its foreign subsidiaries. But these companies pay the tax only when they bring the money back to the United States (called “repatriation”). As long as it stays overseas, it is not taxed.
Experts estimate that more than $2 trillion is being held overseas because as soon as it’s brought home it will be taxed at 35 percent. There is a growing consensus that if that much money came home and were taxed at a much lower rate, it could give the economy a real boost.
Then the government could do even more good by dedicating some of the tax revenue to infrastructure investment.
The idea has found a lot of supporters. All the way back in November, Senate Minority Leader Chuck Schumer (D-N.Y.) backed it. A bipartisan group of U.S. House members has already introduced two proposals based on the idea.
Apple CEO Tim Cook has been outspoken in his support of the proposal. The government should “use that money for a significant infrastructure spend in the U.S., because it creates jobs,” he said.
Most of Apple’s $257 billion in cash reserves are sitting overseas. Those overseas earnings are not generating economic growth or tax revenue back home. They are just sitting in foreign countries.
The United States has a great opportunity to bring that money home and put it to use creating good jobs here. By using a portion of it to invest in infrastructure projects, the country can make the money go even further. Those projects will employ thousands of Americans. And better infrastructure improves the flow of goods and services, which reduces economic inefficiency, which leads to more long-term growth.Marrying tax reform and infrastructure investment is a smart way to invest in the American economy. The political parties and business leaders agree, so what are we waiting for?