In the last congress, Rep. John Delaney (D, MD-06) introduced H.R. 2084, the Partnership to Rebuild America. On the surface, it appeared to be a way to offer as much as $750 Billion in infrastructure loans to states and cities, but its primary goal was really to repatriate part of the $2 Trillion in corporate profits held overseas by offering tax amnesty. Now he has reworked that bill into H.R. 625, the Infrastructure 2.0 Act. The basic idea of each bill is to put $50 Billion into a new entity called the AIF, the American Infrastructure Fund. The AIF would leverage the $50 Billion into $750 Billion worth of loans and guarantees to state and local governments to be used for infrastructure projects.
Originally, Rep. Delaney's proposal was to sell bonds to corporations with foreign held profits, and allow them to repatriate funds several times the amount of the bond sale. In one example, he uses a 4:1 multiplier to estimate the amount repatriated from the sale of $50 Billion in bonds to be $200 Billion.
Normally, if a corporation wants to repatriate foreign profits to the U.S., they would be liable for the difference in the U.S. tax rate, which is approximately 35% (depending on the amount), and the taxes they have already paid. So for example, a multinational corporation with headquarters in the U.S. that has earned profits in Ireland will have paid 12.5% taxes to the country of Ireland. This means their repatriated profits would be subject to a U.S. tax of 35% - 12.5% = 22.5%. A company which has earned profits in the countries of Bermuda or the Bahamas will have paid zero taxes, and be subject to the full 35% U.S. rate.*
There's really no telling how much the federal government would have lost in taxes with H.R. 2084, Delaney's original bill, because it's not known how much those corporations have already paid their foreign host countries. Assuming that they have probably paid much less than the average global tax rate of 22.6%, for this example let's use 10% in foreign paid taxes. That would leave a remaining burden of 25% to the U.S. government. 25% of $200 Billion is equal to ... $50 Billion which is as much as was being raised from the sale of the bonds. In other words, with this example, the government would lose $50 Billion in a scheme to raise $50 Billion.
Now enter the Infrastructure 2.0 Act. Here, Delaney doubles down, proposing the repatriation of the entire $2 Trillion in foreign held corporate profits at a tax rate of 8.75%.
The Infrastructure 2.0 Act establishes deemed repatriation at an 8.75% tax rate for existing overseas earnings. This produces enough revenue to provide an additional $120 billon to the Highway Trust Fund, enough for six years of solvency at increased levels, as well as funding for the creation of a new $50 billion dollar American Infrastructure Fund, which will be leveraged to finance $750 billion in new infrastructure projects
$170 Billion could be raised with this plan. $120 Billion would go directly to the Highway Trust Fund, maintaining its solvency and preventing an increase of the federal gas tax. This leaves $50 Billion to start the AIF, the entity tasked with offering infrastructure loans.
On the plus side, the new revised bill rectifies my biggest concern which was that the AIF was originally going to be a private entity using privately raised capital to make loans at a profit. As far as I could tell, it would not have been subject to any banking oversight or regulations.
My second biggest criticism with H.R. 2084 was that it made it look like all this infrastructure spending was free money. The original plan was touted
At no cost to the taxpayer, this legislation will finance a massive investment in U. S. infrastructure,
"No cost to the taxpayer," yeah right. Compared to issuing federal bonds, the private bond offering would have saved the taxpayers the interest that they would otherwise have to pay the bondholders, but just because it didn't cost the federal government anything doesn't make it free - the states still have to repay that money and the loan interest.
The privatization aspect of H.R. 2084 was just a shell game. Federal money or state money, what difference does it make? The taxpayers are still going to have to foot the bill. Privatization would only serve to funnel the loan interest into the private AIF. And if you think that would come "at no cost to taxpayers" then you should also be shopping for a bridge.
So H.R. 625 takes care of its predecessor's privatization problem, but makes the ultimate goal much more clear: This is not an infrastructure bill, this is a repatriation bill. How much would the Infrastructure 2.0 Act cost us? If the entire $2 Trillion were to be repatriated at the full tax rate of 35%, the revenue would be $700 Billion. Repatriating that money at the new proposed rate of 8.75% would generate $175 Billion in tax revenue.
The difference is $525 Billion in foregone taxes.
Congressman Delaney recently wrote an op-ed in the Washington Post, claiming that the most vocal members of his party are acting like a left-wing Tea Party full of radicals who are not in line with the party ideology. Delaney's plans for corporate coddling and dreams of privatization are what's not in line with party ideology. He believes we can tax our way out of the climate change problem. He calls earned benefit programs entitlements and as he does he strengthens the Republican position. He is ignoring the growing problem of collateralized debt obligations (CDOs) by saying the banking committee is "relitigating the past." Most recently, he voted for the TAA fast track under the thinking that we must let Obama negotiate this trade agreement lest his successor draft a worse one.
I don't think there is room in the Democratic party for the likes of John Delaney.
* This is sometimes called "double taxation" but that is a very dishonest description. Though technically accurate, these taxes are cumulative, adding up to an aggregate rate which is the exact same as what would have been paid domestically. Everyone agrees that "double taxation" is unfair, but there is nothing unfair about making an international corporation pay the exact same as a domestic corporation. It's about as fair as you can get. What IS unfair is when a U.S. corporation funnels all their profits through an office in the Bahamas to avoid paying foreign taxes, and then sneaks that money back into the U.S. during a tax amnesty and avoids paying U.S. taxes too. If you ever hear someone use the term "double taxation" to describe repatriated profits, you should know that that person is trying to lie to you.