Jobs, offshore profits and infrastructure

By Cate Long
June 8, 2011

Our nation is in a serious economic crisis. Both political parties dance around each other with varying demands for cuts in entitlement programs, tax increases and a rise in the debt ceiling. It’s a doomsday prospect and the American people are feeling the chill of economic malaise.

The policy response thus far has mainly been to engage in deficit-spending, to give tax breaks, to broaden the social safety net and to print money. It sounds potentially inflationary to me.

It’s time for the political class to stop acting so small and embrace a way to rebuild our nation. It’s time to face the fact that we have a twentieth-century infrastructure at the beginning of the twenty-first century. But building new high-speed transit, offshore wind power, solar power arrays and new energy transmission grids is hugely expensive. Who will pay the cost?

Public infrastructure is a common good and must be financed as such. We can borrow financing models from the private sector but we must look more creatively for solutions. The first and most obvious place to look for public funding is from the defense budget. Diverting part of the money spent on wars to develop alternative energy infrastructure would allow us to begin to break our dependence on foreign oil. This crushing addiction has kept us involved in wars and nation-building in Iraq, Afghanistan and  Libya, among other places.

The other place to look for infrastructure funding is the $1 trillion of profits U.S. corporations are storing overseas. American companies are lobbying Congress to repatriate profits earned in overseas subsidiaries at tax rates as low as 5%. Perhaps Congress could legislate a compromise and tax half of returning profits at 0% if corporations loaned the other half of profits to a national infrastructure bank for a term of 10 years and at an annual interest rate of 5%.

This nation needs jobs, new energy infrastructure and, most importantly, a spirit of hope and belief in the future. We can achieve these goals but our political class must turn to the needs of the people and the future. Our international competitors are aligning their nations for the future. We must do the same.

Further reading:

Wikipedia: National Infrastructure Reinvestment Bank

Wall Street Journal: The Case for an Infrastructure Bank

Business Insider: 108 Giant Chinese Infrastructure Projects That Are Reshaping The World

Photo: On 140 acres of unused land on Nellis Air Force Base, Nev., 70,000 solar panels are part of a solar photovoltaic array that will generate 15 megawatts of solar power for the base.

16 comments

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The concept of a foreign tax repatriation holiday is nothing new to Zero Hedge, and has been discussed extensively before (here and here). There are those who believe that this “holiday”, should it be allowed by Congress, will have a far greater stimulus on the economy than the ongoing “QE to infinity” rolling fiat destruction, which does nothing for real asset values and merely revalues prices in nominal terms. Today we present the thoughts of Citi’s FX strategist Steven Englander on the topic of a second “Homeland Investment Act” which soon enough may be the last trump card to jump start a once again sputtering “recovery” despite the ongoing impact of QE2 and the unwind of the SFP program.

http://www.zerohedge.com/article/citis-s teven-englander-usd-impact-second-homela nd-investment-act

Posted by Cate_Long | Report as abusive

Why would the government borrow at 5% for 10 years? It could create a huge “infrastructure bank” by borrowing at just 2.93% for 10 years, as of 8:15 this morning.

Posted by MitchW | Report as abusive

[...] Jobs, offshore profits and infrastructure Cate Long » More Analysis & Opinion [...]

The current proposed legislation for a national infrastructure bank states:

The proposed legislation confers on the “Bank” the power to issue government bonds backed by the full faith and credit of the United States Government.[3] The United States Constitution Article 1, Section 9 states “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”

I think it would be more likely that to get this done there would be no government guarantee of the bank. It would not be the Fed gov borrowing.

Posted by Cate_Long | Report as abusive

Private companies built the railroads of yore and should be allowed to build the infrastructure for the 21st century and beyond. Spending your own money and facing the risk of going broke focuses the mind on ventures that will be profitable. When the government gets involved its all about the next election cycle and there is no risk to them. I don’t think we need high speed rail unless it can be shown that there are enough folks willing to pay for the costs of this service, without government subsidies of any kind.

Posted by zotdoc | Report as abusive

[...] –Infrastructure Investment: Cate Long calls for more infrastructure investment to boost employment. “It’s time for the political class to stop acting so small and embrace a way to rebuild our nation. It’s time to face the fact that we have a twentieth-century infrastructure at the beginning of the twenty-first century. But building new high-speed transit, offshore wind power, solar power arrays and new energy transmission grids is hugely expensive. Who will pay the cost? Public infrastructure is a common good and must be financed as such. We can borrow financing models from the private sector but we must look more creatively for solutions. The first and most obvious place to look for public funding is from the defense budget. Diverting part of the money spent on wars to develop alternative energy infrastructure would allow us to begin to break our dependence on foreign oil. This crushing addiction has kept us involved in wars and nation-building in Iraq, Afghanistan and Libya, among other places.” Separately, Jared Bernstein also calls for infrastructure investment in his wider prescription to reduce the jobs deficit. [...]

All of these cutesy tricks won’t work. You have to pay your bills, especially for the past mistakes that got us into this mess, whether you like it or not. That is why we need both tax increases and spending cuts, particularly in the military area. We need priorities, not flim-flam.

Posted by Jim1648 | Report as abusive

First off, the last comment is completely wrong. Private money did NOT build the railroads unless you completely overlook the governments gift of huge amounts of land to the railroad companies – way beyond what the need for the tracks. And some of these railroads later swapped their free land grants in the southwest of prime government timber lands in the northwest!! So the US government subsidized and funded a great part of major infrastructure in the USA: railroads, highways, bridges, the whole US southwest water system, and actually the internet.

There should be NO TAX HOLIDAY for corporate offshore cash. The very companies that are hoarding cash have not created jobs in 20 to 30 years. Job creation in the US is almost 90% from small to medium size companies that definitely do not have offshore cash accounts.

Under Bush2 Congress passed a tax giveaway to corporate offshore income with the caveat that these companies increase their employment. Well the companies, like Pfizer, got HUGE tax savings and kept on eliminating jobs.

Tax policy should address where jobs are created in the USA, not where there is political clout.

Posted by Acetracy | Report as abusive

[...] –Infrastructure Investment: Cate Long calls for more infrastructure investment to boost employment. “It’s time for the political class to stop acting so small and embrace a way to rebuild our nation. It’s time to face the fact that we have a twentieth-century infrastructure at the beginning of the twenty-first century. But building new high-speed transit, offshore wind power, solar power arrays and new energy transmission grids is hugely expensive. Who will pay the cost? Public infrastructure is a common good and must be financed as such. We can borrow financing models from the private sector but we must look more creatively for solutions. The first and most obvious place to look for public funding is from the defense budget. Diverting part of the money spent on wars to develop alternative energy infrastructure would allow us to begin to break our dependence on foreign oil. This crushing addiction has kept us involved in wars and nation-building in Iraq, Afghanistan and Libya, among other places.” Separately, Jared Bernstein also calls for infrastructure investment in his wider prescription to reduce the jobs deficit. [...]

Good comments but I understood that Bush2 tax holidays had no caveats… just “bring the money home”.

Cate Long for president!

Okay… not going to happen, but her thoughts on America’s future should be required reading for everyone in Congress.

Posted by breezinthru | Report as abusive

If defense money is to be used it should involve defense contractors (and their sub-contractors) so that we don’t lose that manufacturing capability. It then becomes a win/win, just a shifting of priorities, and if a real threat manifests the industry still exists to meet that need.

Posted by longthinker | Report as abusive

I’m all for diverting some of our massive military spending to upgrade our country’s infrastructure. Our government should stop inventing enemies so they can maintain these gross military expenditures. We basically live on an island with no really hostile land borders. Put that money to smarter use.

Posted by ronryegadfly | Report as abusive

1. The dollar must fall much further.

2. Imported goods and services need to become much more expensive.

3. “Outsourced” (i.e. exported) jobs out to be taxed heavily.

4. Israel spending (i.e. everything MENA) must be cut by at least 75%.

5. The election process needs serious reform to grant representation to groups or parties who get over 2% of the vote. No more winner take all, no more gerrymandering, no more lifetime judges at any Federal level.

6. We need a maximum headcount for the armed services and a ban on armed contractors.

7. We need out of Iraq, Afghanistan, Libya, and Yemen, and now.

Posted by txgadfly | Report as abusive

Bravo Cate-Will mail an attach of this great post to Mr Obama and Fla Governor Rick Scott.

America is way to independent.
Interdependence is the word we must all practice in the future. Sadly not taught too often by parents, schools, and especially business schools who teach shareholder wealth at the cost of all else.
Best
jp in Fla

Posted by Conservastore | Report as abusive

It’s refreshing for someone to put some concepts on the table, at least for discussion, that deviate from the boring chants of tax-the-rich versus let-’em-eat-cake versus hold-your-nose-and-keep-on-borrowing-for ever.

On the other hand, the mention in this article of a “political class” inadvertently defines the real problem: simply that such an entity exists in our country. The wording of our Constitution would imply that that wasn’t what our founders intended.

Posted by Art_In_Seattle | Report as abusive

A lot of good ideas, however, education reform was never mentioned. Teaching the youth about ethics and not just trying to make the highest profit is a must. As, if you want to make the highest profit, it’s obvious to outsource to india/china where the standard of living is lower and thus, employees will work for less. Along with this concept, if it didn’t cost 1500 a month to live in a show box in a roach infested apartment in NY, you wouldn’t have to ask for 80000 a year to live. So, outsourcing and legal immigrants taking jobs for less money is pushing the average wages down, however, the standard of living in a majority of the cities where the job market is thriving is remaining the same if not rising. Should I even get started in the difference between cost and value of education in the states compared to Europe and other countries? Where you could go to great schools for next to nothing? Undergrad up to Graduate level and maybe further? Where if you wanted to do that in the states you’d be in 100′s of thousands of dollars in debt before even getting a job? Then having to take a job that is below you because the market sucks and never being able to buy a place unless you want to put your self further into debt…I mean there are so many flaws I don’t even know where to start… Where if you family isn’t well off and or connected the odds of becoming successful are stacked against you. Though there are exceptions to everything…

Posted by mattydee2 | Report as abusive

It’s really very simple if we look out 10 or 20 years. Will we have an energy infrastructure that makes us more competitive because a significant percentage of it has zero fuel costs (wind, sun, geothermal, hydro)? Or will we have a stagnant economy that gets shocked by rising costs for coal, oil and other fuels? There is a difference between “spending” and “investing.” You can tell the difference by what productive assets are created 10 and 20 years later.

John Howley
http://www.PacificAdvisorsLLC.com/john_h owley.html

Posted by HowleyGreen | Report as abusive

While you are building out 21st century infrastructure don’t forget the Internet backbone. Right now we receive as little as possible from the Internet giants AT&T, Verizon and Comcast et al who are more intent on providing their proprietary high profit entertainment content than supplying high speed, low cost Internet connectivity to all, even those in rural areas or with limited budgets. Take the Internet backbone out of the hands of these corporations then allow them to compete on a level playing field with their entertainment programming packages.

Posted by Vertigo | Report as abusive

[...] in strategic energy resource-rich nation-states such as Libya, Iraq, and Afghanistan. Read full article. This entry was posted in Uncategorized. Bookmark the permalink. ← Saleh, al-Ahmar, [...]

[...] I’ve put forward an idea of funding an infrastructure bank to rebuild our national energy grid, alternative energy and transit projects.  It would require half of overseas profits that corporations repatriate to be invested for a term of ten years or more in the bank; the other half of profits would brought back onshore at a low or zero rate. This could see $500 billion invested in the bank, conceivably generate 1,000,000 jobs a year and credibly rebuild our vital infrastructure. [...]

[...] I’ve been advocating a new type of effort involving the government and the private sector to rebuild and recharge America by creating a federal infrastructure bank funded by U.S. corporate offshore profits. These corporate profits would be repatriated at a 0% tax rate (current law requires their taxation at 35% if brought back to America). [...]