A Tax Deal That Fixes U.S. Roads?
Democrats and Republicans might get what they want.
Bloomberg, May 27, 2015
My wife leaves for work earlier than I do, giving her first choice of which car to drive. She has a longer drive than my three-minute jaunt to the train station, so I don’t mind. That often means I get the rear-wheel drive convertible in the snowy winter months, and the all-wheel drive Jeep in the summer.
But recently she keeps taking the bouncy Orange Crush Rubicon. The reason? The broken roads and potholes make the tight suspension of the BMW a horror to drive, despite the fair-weather retractable hardtop.
I was thinking about this as we kick off a new federal budget season. About this time, I usually lament the state of U.S. infrastructure, the highway-fund gas tax stuck in the early 1990s and other assorted indignities (see this, this, this and this). The people who live in civilized nations shouldn’t have to face this sort of failure of basic government.
And yet this year a few things are giving me a small measure of hope that we could see an uptick in infrastructure funding:
• States such as Utah have been raising local gas taxes to pay for infrastructure needs;
• Various disasters (Amtrak derailment) and media coverage (“60 Minutes” on bridge collapses) are raising the public’s awareness and increasing pressure on a do-nothing Congress;
• A major White House push to make infrastructure a priority.
There is something unusual in that last bullet point, one that might make it possible to make headway. The clever twist is that President Barack Obama has taken boosting infrastructure spending — a favorite policy of Democrats — and tied it to a favorite policy of Republicans — reforming corporate taxes. Thus, this opening bid has generated some interest from both sides of the aisle.
More than $2 trillion of overseas corporate profits are stashed away in overseas accounts. Audit Analytics notes that these “indefinitely reinvested foreign earnings” have more than doubled since 2008 (see also this, this and this).
In response to this cash hoard, the president wants a one-time 14 percent tax on these accounts, with the revenue earmarked for infrastructure projects, and to allow the funds to be repatriated to the U.S.
The devil is always in the details, so let’s look more closely at them: The proposed six-year, $478 billion infrastructure upgrade to highways, bridges, and public transit in the U.S. would also replenishthe Highway Trust Fund. Companies could reinvest repatriated funds in the U.S. without paying any additional tax (aside from the one-time 14 percent levy). For foreign profits earned in the future, the minimum tax would be 19 percent.
Compare that with the current structure. U.S.-based multinational corporations are taxed at a 35 percent rate on worldwide income. Of course, no one pays that rate. Between inversion deals and those companies that pay no taxes at all, 35 percent is at best a nominal rate. Studies have shown that the effective corporate tax rate is something on the order of 12.6 percent.
Currently, taxes don’t have to be paid on overseas earnings until they are repatriated or paid in a dividend. At least, I think that is what the rules are; the tax code is beyond complicated, and I have precisely zero expertise in such things. But overseas taxes can be deferred indefinitely so long as the earnings are kept abroad. Yet, keeping the money abroad isn’t always advantageous if there are domestic investment opportunities.
The White House proposal is a good start to the debate about taxes. The U.S.’s infrastructure needs are large and growing. The country is way behind Japan, China, Germany and Switzerland. But before we can even think about trying to catch up with those nations, we need to do the desperately needed basic road and bridge maintenance.
Corporate tax reform can also be a positive, so long as the lobbyists don’t pry too many giveaways from their friends and future revolving-door contestants in Congress.
I don’t want to get ahead of myself, but maybe we have a good old fashioned political horse trade: Corporate tax reform for infrastructure repairs. Both are long overdue.
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Originally published at: A Tax Deal That Fixes U.S. Roads?
The infrastructure demand is growing in the heart of Tea Party country due to the recent flooding. I expect the requests for federal funding from people who don’t believe the federal government should fund anything to start rolling in any day now. The requests will be for bridges, roads, and US Army Corps levees to prevent flooding of newly developed land, as well as defending the right to subsidized flood insurance.
http://www.therepublic.com/view/story/137a5afb786f414fa532f5fcfc937c3f/OK–Severe-Storms-Oklahoma-Highways
http://dotearth.blogs.nytimes.com/2015/05/26/in-texas-the-race-to-develop-in-harms-way-outpaces-flood-risk-studies-and-warming-impacts/
nah. Texas will only care if the right people are bothered by it
The GOP used the understand the importance of infrastructure and education for economic development.
No more. Which is why I now consider myself a “conservative independent.”
Michigan is literally falling apart, and the dittoheads in the legislature are unable to find a way to raise revenue to fix the problem (they mostly fantasize about spending cuts elsewhere). They put a complex, convoluted stupid ballot proposal up in May that lost 20/80 %.
Ohio cobbled together some funding via a turnpike lease out deal which will cost motorists for eons.
GOP legislators are too busy bootlicking the Koch brothers to do their jobs.
@ STR……Come on over to ILLANNOY for a real site…..
Given that Rauner now has to hack away at a 6bil bust in current budget deliberations – ‘infrastructure’ (defined in any number of ways) is gonna get hit hard again.
Chicago ILLANNOY region has potholes all over the place and the roads in general – city, county and state routes are literally falling apart – patch repairs on bridge structures, rail system that is falling apart, and yet somehow someway – unions continue to get their outrageous pensions with recipients harboring in FL and AZ without a care in the world. I got in the wrong business me thinks!!!
Given recent determination by the liberal loaded ILLANNOY Supremes – the only answer is increased taxes in a state that last i looked is now the second highest taxed state in the country – property taxes last I looked were second or maybe even first in the worst category.
Folks are leaving here at an increasing rate to other states. Chicago last year gained on net 82 – yep eighty two residents. Chicago bonds are now junk – cost of debt going up in turn causing more folks to leave.
What clever little names you come up with. Blame others (Unions) and parrot ill-founded Illinois Policy Institute right wing nonsense.
If YOU would leave the state we wouldn’t have just voted in Rauner who cut taxes that proved there is no crisis.
Enjoy Kansas.
Yeah what outrage – you promise people a pension, and then fail to rob them of it later.
Tfffany Stock is Up 10% today.
http://finance.yahoo.com/q?s=TIF
Jack Bossidy explains how the wealthy justify it on CNBC today, “There will be no tax reform because the President refuses to lower top marginal rates.”
So you see. in this Era of the Greedy Rich they are holding your infrastructure hostage, you health insurance, you bank protections, immigration, EVERYTHING for tax cuts for themselves.
It’s never enough. I say we attach tax hikes for the rich to every bill, keep pushing to raise taxes on the wealthy at every opportunity until they shut the fuck up and let the country continue on its way.
My complaint here is there is too narrow a view of infrastructure. It isn’t limited to roads and bridges. Wireless and wifi everywhere, fiber everywhere, updated grid and more solar, electrify some trains, make them autonomous (Google should be able to do this), more battery research, more basic research, more research into improving healthcare efficiency. There are a world of ideas out there.
I’m not inclined to make excuses for Texas politicians (esp. at the federal and state level) because they’re all a bunch of idiots. Just idiots. But Dallas is spending on infrastructure.
Come to Dallas and you’ll see new infrastructure everywhere you look. The highway building alone represents billions in spending (not sure about the financing mechanisms there, whether taxes or long-term debt or what). You’ll have plenty of time to contemplate the highway construction because you’ll be sitting in slow-moving (or no-moving) traffic everywhere you go. People are bitching about potholes now (because cleaning up after an ice storm created so many new ones and the near constant rain has made them worse, plus it obviously slows down the repair efforts), but generally Dallas at least does OK in the “keeping things fixed” department and the “building new stuff” department. The gigantic new Parkland hospital ($1.3 billion) is set to open in August and another large hospital opened recently about a block away from it. The “Arts District” in which my office is located is full of stuff that didn’t exist 10 years ago. A park, a symphony hall, a museum. The DART rail system now goes to Plano, DFW airport and 5 other suburbs.
Dallas seems to be swimming in money, and they’re spending it on stuff other than new housing/commercial construction, though there’s lots of that, too. Can’t vouch for the rest of the state.
most of our (Dallas) infrastructure spending of late came from either the Feds. or its from the addition of lots and lots of toll roads. which ,makes me wonder what happens to businesses who depend on customers driving to their business, who decide not too because of the toll roads. course they will cross that bridge when it happens
For a while now, I have admired Barry’s an ongoing penchant for bashing the U.S. infrastructure with, what seems to me, an emphasis on the U.S. roads network.
After a recent STL-TPA-STL road trip, I can’t help but agree.
Seems to me that Building roads (primarily the “Eisenhower Interstate System”, as I believe it is called) in the name of Progress was probably perceived as a “gamechanger”, as well as being a noble and easy to support cause from most any perspective vs. maintaining roads is a thankless task that must be doled out to a myriad of contractors. I can only imagine how inefficient that process has come to be over the last 50+ years.
Also seems that championing the re-development of the U.S. Infrastructure would be a great “legacy” for President Obama, whom generously has had an undistinguished tenure, IMHO. I wish him nothing but the best in getting some work done on this issue.
CD – Obamao had his shot – for some odd reason many in our nation seem to forget a near 900 billion dollar Infrastructure package he signed into law earmarked to rebuild roads etc. What happened to all that cash?The $787 billion American Recovery and Reinvestment Act of 2009, mid-recession/despression, was for:
1) Extended Unemployment Insurance Benefits;
2) Temporary tax cuts;
3) Shovel ready projects
None of those things address long term maintenance or improvements to infrastructure
What is undistinguished about it is the lack of understanding of what was done despite Congress and his refusal to take credit for it. Using TARP money to provide bankruptcy money for GM And Chrysler is one of the most outstanding accomplishments that everyone wants to act like it never happened including him. Read up on what a total closure of GM would have meant to the economy.
well its a lot harder for politicians to take credit for ‘fixing’ the roads. especially when they can offer tax cuts to the 1%. most havent noticed that the taxes they always want to cut is theirs, the rest of us not so much. but then we also seem to get confused with local/state taxes and federal ones. you do notice that a lot of the states with conservative legislatures never seem to do much more than cut taxes for the 1% right (to be fair, Congress does the same thing) wonder why that is?
Don’t count on local municipality spending to pick up any of the slack. In fact they are slack creators.
http://www.marketwatch.com/story/despite-bond-selling-spree-cities-states-spending-less-on-infrastructure-2015-05-27?page=1
Just an observation — the commenters here are by and large sane, even when I don’t agree with them. The Bloomberg comments are reliably filled with crazy people.
I thought the 2009-10 close to a trillion dollar stimulus package was for infrastructure.So much for shovel-ready projects that we were sold a bill of goods on.Does anyone really buy into another infrastructure scheme shilled from the current White House?Less than a third went to infrastructure, and even that was short term shovel ready fixes like paint and potholes
Just when I made the remark about commenters being sane, the nonsense begins ;-)
Just completed a 2008.9 mile round trip from Illinois to Alabama. EVERY state has road construction. The roads are the worst in Illinois. Drivers are the rudest and craziest in Illinois. For the record, I was born in Illinois and lived here 64 of my 70 years.
Politest drivers were in Alabama despite my “Land of Lincoln” license plates. Judging from the many establishments with signs saying “No weapons allowed beyond this point”, maybe Alabama drivers are afraid the other guy is packing heat.
But what a pleasure driving I-65 through Birmingham vs driving I-294 through the Chicago suburbs.
Venn – soak 50 cent comment herewith in.
Illinois is just a lame corrupt state with no hope – stick a fork in it. There is indeed life outside of blue leftist controlled states – go breat the air in other locales please for all our sakes!!! :)
Don’t count on Chicago building any roads anytime too soon…..
BREAKINGVIEWS-Chicago bonds catch mild version of Moody’s blues
Reuters 5/27/2015 4:27 PM ET
Print Article
By Kevin Allison
CHICAGO, May 27 (Reuters Breakingviews) – Chicago’s bond investors have caught only a mild version of the Moody’s blues. The city priced about $670 million of general obligation bonds with yields approaching 6 percent on Wednesday, two weeks after Moody’s Investors Service cut the city’s credit rating to junk. The pricing is, in the end, a fair reflection of the city’s simmering fiscal mess.
Mayor Rahm Emanuel might be tempted to view the bond issue as a victory of sorts. It’s part of a plan to wriggle out of a series of derivatives bets that backfired on the city. Longer-dated bonds maturing in 2042 priced with yields of 5.84 percent. That’s about 260 basis points more than the best-rated U.S. cities might pay. But it’s less than the 300 basis-point spreads the city’s bonds were trading at recently in the wake of the Moody’s downgrade.
The US made the choice long ago to favor sprawled development and personal transportation rather than concentrated cities and high-density public transit. It costs more to maintain the sprawl. So here we are. That’s why the comment above by Lord is important: there are infrastructures improvements other than roads that might have the effect of decreasing traffic and lowering overall long-term costs.
We really should calculate life-cycle costs when making these decisions… except, do we really make these decisions or do we just let stuff happen?
It goes back to the state’s and localities. Old white people keep on voting in people that won’t spend on infrastructure. Sounds like treason to me.
they are too busy cutting the 1%’s taxes.
Always money to fund out $1 Trillion+ per year ‘total defense budget’, never enough to fix America, or take care of it’s citizenry. Think of the real employment possibilities if we were rebuilding our sad infrastructure rather than paying to blow holes in foreign countries.
The GOP is too busy reigning in the couple hundred thou we waste protecting guys who have carried the nuclear football.
The GOP should rename itself the Meaningless Symbolism party.
http://www.businessinsider.com/senate-republicans-are-pushing-a-bill-to-rein-in-the-allowances-of-former-us-presidents-2015-5
If we could twenty million illegal immigrants to pay a dime a year we’d cover this expense.
Simple question, why not just say bring that money back and pay ALL the taxes you owe, instead of a huge tax break for doing it? Why not 35% instead of 14%?
Doesn’t letting them bring it back at 14% make huge suckers out of all the companies that DID pay their taxes?
Please run for the Senate in Illinois. You’ve got my vote.
This is an encouraging development. Get the one time shot Long Term stimulus (& real) of Building (restoring) Long Term Assets of America.
Corporate Income taxes only represent 1.3%, 1.2%, & 1.6% of GDP for 2010, 11 & 12 per OMB.
Help small business by ZERO taxes on income less than 300,000. Why are they left out of the equation. They probably have a much higher effective rate than the giants.
Lower maximum tax rate immediately to 28% then reduce by 1% a year for 10 years. Eliminate all special tax breaks & credits to pay for most of this. Eventually ending at a real rate of 15 -18% would make us competitive & would probably generate just as much total revenue at a lower cost.
Make us competitive with the world. Stop all the wasted energy & noneconomic activity designed just to reduce reported taxes.
This would bring cash that is locked up overseas back home as our tax rates would then be competitive. So we are not in the same mess of cash trapped overseas & borrowing money at the same time. Encouraging investment in the USA.
If you want additional creativity make dividends deductible at the corporate level. Putting dividends on par with interest expense. This would reduce the tax subsidy of leverage & encourage capital structures that are right for each corporation on its own merits. Note at same time make dividend taxable as ordinary income at the personal level. Dividends & Interest would be taxed the same….. only be Taxed ONCE