A relatively new and innovative infrastructure funding proposal has been quickly gaining steam over the last several months. This new idea could provide Congress with a way to pay for a large, bipartisan infrastructure investment package. Last fall, Congress passed a short-term extension to the Surface Transportation (MAP-21) program and is struggling to find a way to pay for a long-term solution. This approach, passing small, incremental funding fixes, has generated long-term uncertainty that inhibits infrastructure project growth. Hanging over the head of Congress is the consensus that something must be done sooner rather than later. Innovative funding sources could reverse this trend while infusing new financing for infrastructure.
This new and innovative proposal for infrastructure funding, called repatriation, takes advantage of the $2 trillion in foreign earnings that U.S. corporations have kept overseas. Rather than paying corporate income tax, at a rate of 35 percent on their foreign earnings, many companies have opted to keep those earnings outside of the United States. Repatriation would bring some or all of this money back to the United States and is being discussed as a solution to America’s infrastructure financing issues. Members from both sides of the aisle have introduced bills taking advantage of repatriation, and even the President has supported the idea in his FY16 budget proposal. The primary reason it has gained such bipartisan support is it establishes a new funding source for infrastructure.
The driving force behind repatriation as a source of infrastructure funding has been Representative John Delaney (D-Md.). As a freshman congressman in the 113th Congress, Representative Delaney introduced the Partnership to Build America Act, which utilized repatriation to fund an infrastructure bank called the American Infrastructure Fund. The fund is capitalized with $50 billion in one-time repatriated foreign earnings, which could be leveraged to finance $750 billion in infrastructure investment. His Partnership to Build America Act had gained significant support, with more than 80 equally bipartisan co-sponsors during the 113th Congress.
Representative Delaney has continued his support for finding a solution to our infrastructure funding problem into the 114th Congress. He reintroduced the Partnership to Build America Act (H.R. 413) and introduced legislation that takes the repatriation idea to fund infrastructure further. The Infrastructure 2.0 Act (H.R. 625) would also create the American Infrastructure Fund in addition to financing the Highway Trust Fund (HTF) for six years. To ensure corporations will repatriate the $2 trillion in earnings they have been keeping offshore, the 35 percent tax rate would be eliminated and replaced with a one-time mandatory 8.75 percent tax. The Infrastructure 2.0 Act would also give Congress a deadline for reforming the international tax code 18 months after enactment. If Congress does not meet this deadline, the international tax code would be reformed to a lower rate, tiered to the host country’s tax rate.
After seeing the popularity of the Partnership to Build America Act in the 113th Congress, other members have drafted their own legislation using repatriation for infrastructure investment. The Invest in Transportation Act of 2015, which has not yet been introduced in legislative form, is a bipartisan plan by Senators Barbara Boxer (D-Calif.) and Rand Paul (R-Ky.). The Invest in Transportation Act has a few key differences from Representative Delaney’s Infrastructure 2.0 Act. First, companies would not be mandated to repatriate their overseas earnings. Second, the tax rate for repatriated income would be lowered to 6.5 percent. Finally, all of the revenues that would result from lowering the tax rate would go directly to the HTF. By lowering the tax rate to 6.5 percent, the Invest in Transportation Act will make the tax rate comparable with other industrialized nations, thereby reducing the incentive of corporations to keep their overseas earnings overseas.
The President’s recently released FY 2016 budget proposal also utilizes repatriation as potential source of infrastructure funding. Under the President’s budget proposal, a one-time mandatory 14 percent tax would be levied on overseas earnings. After this one-time tax, the international corporate tax rate would be lowered from 35 to 19 percent.
All three proposals — the Infrastructure 2.0 Act, the Invest in Transportation Act of 2015 and the President’s FY 2016 proposal — all take advantage of repatriation. There are important and significant differences between the different proposals. Nevertheless, encouraging investment in American infrastructure by eliminating the ability of corporations to take advantage of tax havens has already become popular with both ends of the political spectrum. The difficulty now is generating enough support that repatriation as an infrastructure funding source can become law.
NUCA has been a firm supporter of repatriation as a source of funding for infrastructure projects. It appears that others are beginning to realize that repatriation is a smart choice for infrastructure as well. It cleverly brings corporate overseas earnings back to America to fund vital infrastructure projects and programs, all without raising any taxes. It is important to understand, however, that repatriation is not, in any of these proposals, a permanent funding source for infrastructure, but it would provide some long-term certainty for the infrastructure environment.
Brian McLenigan is NUCA’s Government Affairs Intern.