In the days after the Democrats in the U.S. Senate eliminated the ability of the Republican minority to filibuster presidential nominees, partisan cooperation is in rather short supply. But a relatively unknown freshman congressman has brought together 25 House Democrats and 25 House Republicans behind a creative plan to create jobs while shoring up the country’s crumbling infrastructure.
What may be more surprising is that Maryland Democrat John K. Delaney reports that he has received commitments from both Republicans and Democrats in the Senate that they will cosponsor companion legislation in the divided Senate when the Thanksgiving break ends.
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Delaney’s Partnership to Build America Act (H.R. 2084) relies on persuading businesses to capitalize the proposed American Infrastructure Fund with the purchase of $50 billion in below-market-rate, unsecured 50-year bonds.
Why, you ask, would any sane business invest in such a thing? Because the trade off is that for every dollar invested in the AIF, a company would gain the right to repatriate off-shore earnings tax-free. The exact exchange rate – dollars of investment to dollars repatriated – would be determined by auction. Delaney, the founder and former CEO of two New York Stock Exchange-traded public companies, estimates a likely ratio of about 1:4.
That means a company that purchased $5 billion in AIF bonds would gain the right to bring back $20 billion in overseas profit tax free. That cash would otherwise have been subject to the 35 percent corporate income tax rate.
The AIF would take the money raised through bond sales, and use it to lower the costs paid by state and local governments on money borrowed for infrastructure projects, either by directly issuing low-cost loans, or by offering loan guarantees.
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In an interview, Delaney said he sees two potential paths to passage for his bill.
“The first and perhaps most likely is to do this as part of corporate tax reform, if we come to some agreement there,” he said. “I think this sets us up for a nice compromise. But if nothing can get done, I think there is a fair amount of support for a standalone bill.”
The effort would supplement existing infrastructure funding programs, such as the National Highway Trust Fund.
Other efforts to spur infrastructure spending, including President Obama’s calls to create a national infrastructure bank in 2008 and 2010 have failed to find traction on Capitol Hill, but Delaney’s effort is unique in that it involves no direct spending by the government – meaning it neither increases taxes nor contributes to the deficit. In fact, because participating companies would see their net tax liability on overseas profits reduced, the bill could be construed as a tax cut. (Though, because the taxes in question might never have been paid, it also doesn’t reduce expected revenue.)
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Delaney reports that his proposal has received a warm welcome from both the transportation community and the technology sector. He has letters of support from, among others, the American Society of Civil Engineers and the American Highway Users Alliance.
But one group of potential beneficiaries has been strikingly silent about the plan.
The National League of Cities, which has a strong focus on infrastructure programs, has declined to take a public position on the bill out of fear that it could be used to undermine the tax exempt status of municipal bonds. Investors do not pay tax on earnings from municipal bonds, which means they are willing to charge a lower interest rate on them, driving down the cost of borrowing for cities.
Leslie Wollock, the NLC’s program director for infrastructure, said that the organization, “Recognizes our city government members need as many [funding] options as possible.” However, she continued, “We do not want anything to take away the dominance of the municipal bond tax exemption. We understand there are lots of tools in the tool box. But the municipal bonds exemption is the one that has been the best.” - Follow Rob Garver on Twitter @rrgarver
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