One short-term fix that routinely gets attention is the idea of a repatriation tax holiday. Under this plan, U.S. companies would be permitted to bring back profits held overseas at a sharply reduced tax rate of about 5 percent. Although proponents argue it would provide a boost to the economy, critics rightly note that we’ve been down that road before — in 2004 — and the economic benefits never fully materialized.
That’s where a proposal championed by Rep. John Delaney, D-Md., and co-sponsored by 32 House Republicans, 31 House Democrats and proportional numbers of a bipartisan Senate working group holds promise. If passed, the Partnership to Build America Act would establish a federally chartered bank that works with local governments and private enterprise to build critically needed infrastructure in transportation, energy, communication and education.
Here’s how the PPBA would work: It establishes a bank, the American Infrastructure Fund, and funds it with $50 billion in private capital by incentivizing companies to purchase 50-year, nongovernment guaranteed bonds that pay below-market 1 percent interest. That $50 billion of initial capital would be levered at a ratio of 15 to 1, creating a $750 billion privately funded investment fund that states and cities could use to attack their infrastructure needs.
The motivation for companies to purchase these bonds is where the controversy lies: Those that do so would be eligible to repatriate a proportional share of their foreign profits to the U.S. tax-free (ultimately equivalent to a 13 percent tax rate, slightly higher than the average effective tax rate that corporations pay today after credits, exemptions and deductions). This doesn’t sit well with a lot of right-minded folks for reasons that I can certainly understand: It rewards bad behavior on the part of corporate executives who were holding out for a sweet deal.
My response to the critics would be this: Executives certainly bear a strong burden to be good corporate citizens and pay their fair share of taxes, but that’s hard to do when current tax laws were designed for a pre-globalized, pre-Internet-age world. Are corporations, many of whom go to absurd extremes to reduce their tax burden, innocent? Hardly. But is the tax structure in which they are forced to operate completely irrational and incongruous to their fiduciary responsibilities? Categorically, yes.