The repatriation-financed infrastructure bank plan, as structured, is a TERRIBLE idea

 The new iPad, and a bunch of money, from appadvice.com.

The new iPad, and a bunch of money, from appadvice.com.

By now everyone's heard of Apple's incredible network of tax shelters, which just in the last several years has saved them tens of billions of dollars in corporate taxes. Pretty much everyone except Rand Paul finds this reprehensible, but while Apple may be the best in the game when it comes to tax avoidance, they're far from the only player. Other big companies like Amazon and Microsoft do the same thing, keeping profits overseas so that they don't have to pay US taxes on them.

In many cases those companies would really like to bring that money back stateside, either to invest in their business here or (more commonly) to pay out dividends or buy back stock from investors. To do that, however, they'd have to pay 35% of those repatriated profits as tax. And no one wants to do that unless they have to.

Fortunately for these mega-corporations, they often don't have to. In 2004, under the Bush administration's leadership, Congress passed a law allowing a tax repatriation holiday, meaning that for a short period of time any profits brought back into the country would not be taxed. The purpose was to ensure that something productive would be done with that money--that it would be reinvested in US jobs and business needs. As the Treasury describes, however, this is not what happened:

In assessing the 2004 tax holiday, the nonpartisan Congressional Research Service reports that most of the largest beneficiaries of the holiday actually cut jobs in 2005-06 – despite overall economy-wide job growth in those years – and many used the repatriated funds simply to repurchase stock or pay dividends. Today, when U.S. corporations have ready access to cash they have accumulated and are holding here in the United States, it is even harder to make the case that a repatriation holiday will unlock new investment and job creation.

And perhaps even worse than all that, now that we have a history of allowing businesses to repatriate their earnings tax-free they have far more incentive to keep their money overseas as long as they can bear, waiting until the next time we forget ourselves and give them another opportunity to cheat the system--and the American public.

 "Hey."

"Hey."

On cue, in steps Congressman John Delaney (D-Md.).

His proposed legislation, the Partnership to Build America Act, would create a federal infrastructure bank funded by $50 billion of repatriated corporate profits. Companies would bring their money back to the US, buying infrastructure bank bonds that pay out a low yield over fifty years, and they would pay full taxes on the money repatriated to purchase those bonds. This sounds great because it would take money that's currently sitting overseas doing nothing and use it to fund up to $750 billion in infrastructure projects (via leverage) with a heavy focus on loans and public-private partnerships. It almost sounds too good to be true!

And of course it is, because the catch is that this is much more a repatriation tax holiday than it is an infrastructure fund. Although the ratio sounds somewhat up in the air, Delaney suggests that for every $1 brought back, taxed, and used to purchase bonds, $4 could be repatriated tax free*. In effect, this would reduce the tax burden of repatriated funds by 80%; instead of paying the full 35% corporate tax rate (which is admittedly too high), they would pay a mere 7%. This is exactly what companies like Apple have been waiting for, and would be an utter validation of their tax avoidance strategies.

I obviously care a great deal about funding the infrastructure investment this country needs, and it's difficult to pass up nearly any opportunity to further that cause. But the fact is that if an infrastructure bank is a good idea with repatriated funds then it's also a good deal with taxed or borrowed money. Especially in an era of rapidly falling deficits and near-zero borrowing costs, there's no reason to reward US corporations' dishonesty with a $14 billion windfall just to try to keep the lights on.

Hopefully this proposal will be seen for the stealth repatriation tax holiday that it is and get shut down quickly, and we'll find a more reasonable way to fund the maintenance and mobility investments we require.

*It's hard to be sure if this is exactly how it would work--the description at Transportation Issues Daily, the linked article that describes this proposal is not 100% clear. It might actually allow businesses to buy bonds with money already in the US so that they're actually not paying tax on any repatriated money.