The infrastructure bank as political cover
If you have been around Washington much, you know that a lot of what happens is often kabuki. What may appear to be a geisha girl coyly teasing a samurai is really a young man with heavy make-up and mincing steps. It’s beautiful deception.
I think a little DC kabuki maybe happening with the renewed chatter around an infrastructure bank funded with corporate overseas profits. Bloomberg reports:
The Senate’s No. 3 Democrat [Senator Charles Schumer of New York] said yesterday that his caucus is exploring the potential of using the short-term revenue a [overseas profit] repatriation holiday would generate to fund an infrastructure bank. The focus on infrastructure, he said, would “guarantee” job creation and address a key line of Democratic opposition.
This is a mighty turn of events. In 2009 Democrats were against the idea of relieving taxes on profits earned overseas and brought back onshore. But maybe the political kabuki is different this time. By tying overseas tax repatriation with an infrastructure bank (and job creation) members of Congress can get cover to reward multinational corporations, who are often their largest contributors. It would not be a naked repatriation but would be dressed as “job creation.” It sounds good, but at what rate would these corporate profits be taxed when they’re brought home? And how many jobs would be created?
Bloomberg again (emphasis mine) :
Though a [repatriation] holiday loses money over 10 years, the Joint Committee on Taxation has said that it would generate $3.4 billion of revenue in 2011, $12.5 billion in 2012 and $9.6 billion in 2013 [$25.5 billion].
That revenue would go to the infrastructure bank Schumer said Democrats are considering as a way to address criticism that a repatriation holiday approved by Congress as part of tax legislation in 2004 didn’t prevent companies that took advantage of the program from reducing their workforce.
If this proposal was adopted it would be bald-faced political maneuvering. Using these figures we can deduce that corporations would be taxed at a 2.5% rate vs. the normal rate of 35%. As for the number of job creation, it would go from approximately 34,000 this year before peaking in 2012 at 125,000 and then declining to 96,000 in 2013.
So Congress would allow corporations to pay $25 billion in taxes on $1 trillion of profits while creating 250,000 jobs over three years. It’s weak sauce and it sounds like Apple, Google, Pfizer and other multinationals would win big. Surely this is not what Senator Schumer and other Democrats have in mind, dressing up a corporate free ride as a few bridges and new roads. After all, $25 billion doesn’t go that far in infrastructure land.
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.
We need big efforts that benefit the nation and the people, not small kabuki plays to benefit cash-rich corporations. America is down, Senator Schumer. Time to help lift it up.
Infrastructurist: Kerry, Hutchison Propose National Infrastructure Bank