Tax code reform to fund infra part of 2016 budget

President Obama includes tax reform, a national infrastructure bank and other measures aimed at boosting infra investment, in the 2016 Executive Budget blueprint.

Requiring US companies to pay taxes on their foreign earnings now as opposed to deferring payment indefinitely, is one way the Obama administration is looking to fund infrastructure investment, a subject President Barack Obama has repeatedly addressed and is now looking to tackle through a series of measures put forward in his proposed budget for 2016.

Under current law, US companies with operations abroad do not have to pay US taxes on their foreign earnings until – and unless – they repatriate those funds. Changes the President is proposing to the tax code would require those companies to pay a one-time 14 percent tax on their previously untaxed foreign earnings. This ‘transition revenue’ would be the first step in reforming the corporate tax code. Going forward, new foreign profits would be taxed at a rate of 19 percent. However, companies would also receive tax credits for foreign taxes paid, according to a White House spokesperson.

“The President’s Budget proposes to use the one-time transition revenue from pro-growth business tax reform to fix the Highway Trust Fund (HTF) shortfall and to make critical new investments in our roads, bridges, transit systems, and freight networks as part of a $478 billion, six-year surface transportation reauthorization, extended from the four years proposed in FY2015 (paid for with the current Highway Trust Fund) plus $238 billion from the one time transition revenue,” according to the spokesperson.

The budget also includes a proposal to create an independent national infrastructure bank that would leverage private and public capital to support infrastructure projects; create new tax-exempt Qualified Public Infrastructure Bonds (QPIB), that would provide private companies involved in public infrastructure projects similar benefits that the public sector enjoys through the municipal bond market; and accelerating the permitting process by cutting red tape.

“We are pleased that the President has adopted the larger framework we laid out in the Infrastructure 2.0 Act, pairing international tax reform with increased infrastructure investment,” John Delaney, a Democrat representing Maryland in the US House of Representatives, said in a statement, referring to the latest bill he sponsored and introduced in the House last week.

The Infrastructure 2.0 Act, which replaces the Infrastructure and Global Tax Competitiveness Act Delaney introduced last December, would require US multinationals to pay a one-time 8.75 percent tax, replacing the deferral option and the current US corporate tax rate of 35 percent.

A portion of the funds worth $120 billion generated through this one-time tax would go towards funding the Highway Trust Fund for six years. Another $50 billion would be used for capitalising the American Infrastructure Fund, a national infrastructure bank that Delaney proposed in an earlier bill, the Partnership to Build America Act.

Under that draft legislation, the AIF would be capitalised through the sale of 50-year bonds, which US corporations would be incentivised to buy by repatriating a portion of their foreign earnings tax-free.

Delaney and fellow Congressman Mike Fitzpatrick reintroduced the Partnership to Build America Act on January 21, since the convening of a new Congress “wipes the legislative slate clean”, Delaney’s spokesperson explained. The bill currently has more than 40 Republican and 40 Democrat co-sponsors.

Finally, $25 million generated through the 8.75 percent tax proposed in the Infrastructure 2.0 Act, would be allocated to a pilot programme to create “regional accelerators”, similar to the West Coast Infrastructure Exchange (WCX), a spokesperson for the Congressman told Infrastructure Investor.

As in the case of the WCX – a partnership that was launched in 2012 by the states of California, Oregon, Washington and British Columbia – the regional accelerators would make it easier for projects that cross state lines to move forward.

Obama was scheduled to present the proposed budget to Congress later on Monday.