Congressman John Delaney, a Democrat representing Maryland in the US House of Representatives, has introduced the Infrastructure and Global Tax Competitiveness Act, a bill aimed at increasing infrastructure investment by reforming the corporate tax code.
Building on the framework of the Partnership to Build America Act, another bill introduced by Delaney in 2013 which has 39 Republican and 37 Democratic co-sponsors, the Infrastructure and Global Tax Competitiveness Act, goes further by including a more comprehensive tax reform component.
Under the new bill, a mandatory deemed repatriation tax of 8.75 percent – the same rate proposed by outgoing House Ways & Means Committee chairman Dave Camp – would be imposed on US corporate earnings currently held overseas. It also establishes an 18-month deadline for the passage of comprehensive or international tax reform.
“Constructive tax reform proposals have been put forward in both chambers, but Congress needs a deadline to cross the finish line,” Delaney’s office said in a statement released recently.
If reform is not enacted, a fallback option “would end deferral and establish new lower rates on international earnings, eliminating the lock-out effect that discourages repatriation and allowing for the free flow of profits back to the United States.”
The fallback option is based on “Option Z”, a framework developed by Senate Finance Chair Max Baucus but with different rates. Companies generating earnings in zero-tax jurisdictions would pay 12.25 percent tax to the US, while companies already paying the OECD average of 25 percent, would only pay an additional 2 percent to the US.
These tax revenues would then be used for a six-year reauthorisation of the Highway Trust Fund, the federal government’s primary funding mechanism for surface transportation projects. The Fund, which was set to go bankrupt this past August unless Congress took action, has been made solvent through May 2015.
In addition to reauthorising it for six years, Delaney’s new bill would also establish a bipartisan and bicameral commission charged with formulating a solution for long-term solvency of the HTF.
The proposed legislation would also capitalise the American Infrastructure Fund (AIF), a $50 billion fund, which would be leveraged to finance $750 billion of additional transportation, water, energy, communications and education infrastructure projects. Financing would be available only to state and local governments, according to the statement.
The creation of a $50 billion infrastructure bank had been the centerpiece of Delaney’s Partnership to Build America Act. However, under that bill, the bank would be capitalised through the sale of 50-year bonds, which US corporations would be incentivised to buy by repatriating a portion of their earnings tax-free.
The Infrastructure and Global Tax Competitiveness Act will not replace the Partnership to Build America Act, which Delaney will re-introduce in the next Congress, a spokesperson told Infrastructure Investor.
“A large bipartisan coalition has rallied behind the Partnership to Build America Act and we’ve proven that there is strong bipartisan support for tying international tax reform to new investments in infrastructure,” Delaney said in the statement. “The rising threat of corporate inversions, the looming insolvency of the Highway Trust Fund, and the daily problems caused by inadequate infrastructure all mean that we shouldn’t delay. It’s time for a new solution.”
Tying infrastructure investment to tax reform is in line with recent comments made by President Barack Obama earlier this month. At a Business Roundtable event, Obama said that tax reform was at the top of the list of issues his administration will look to tackle over the last two years of his term. Infrastructure would be part of that reform.