Search This Blog

Thursday, July 20, 2017

An New Way of Rebuilding Infrastructure

Two of the big initiatives of President Trump are the rebuilding of America's infrastructure and the revision of the tax code.  It well may be that there is a way to combine these which will make both easier and more productive.

Let's start with infrastructure.  President Trump wants to spend one trillion dollars on these projects for highways, bridges, airports, railroads, ports and other infrastructure.  That's a lot of money.  True, the expenditure is to be made over ten years, but it's still 100 billion bucks each year.  It's money that the federal government doesn't really have; we would have to borrow it, thereby adding to the national debt.  Some in Congress want to raise taxes to pay for this expenditure, but that would just slow the economy and be counterproductive in job creation.  Higher taxes would also, most likely, lead to lower tax revenues if the economy falls into recession.

On taxes, a big issue is the more than two trillion dollars held by American corporations overseas so as to avoid US taxes.  Profits earned abroad are not taxed until those profits are brought into the USA.  This works to encourage companies to use their funds held overseas on investments made outside the USA.  In that way, the money is never taxed by the USA.  Bringing that money into the USA would provide a major boost to the American economy.

There is also the issue regarding infrastructure of government waste and inefficiency.  A construction project built by a private owner is generally done much more efficiently than one done by a government agency.  For example, the Long Island Railroad (a public agency in New York) built a train repair facility some years back on which the total cost ended up coming in at 250% of the estimated cost.  The overrun was more than a quarter of a billion dollars.  Private companies never have overruns like that.  Their costs may be underestimated, but not in numbers like the public ones are.  Private companies work to reduce cost overruns; most public owners don't even try.  As a result, President Trump has said that he would like to get private industry involved in building new infrastructure in order to keep costs in line.

Put all three of these points together and there may well be a way to achieve all three goals.  It would involve four simple points:

1.  The federal government would compile a list of infrastructure projects which are needed.

2.  The Congress would pass an amendment to the corporate tax code that lowers the tax rate temporarily on repatriated profits from 35% to 25%.  In addition, profits held overseas as of January 1, 2020 would be subject to a tax of 35% whether or not they are brought back into the USA.  There would be a tax credit offered of 80% of the repatriated money invested by American business in the approved infrastructure projects on the list mentioned above.

3.  Companies would be able to undertake projects on the approved list.  Initial design and construction parameters would need to be approved by the appropriate federal, state and local agencies but those approvals would have to be streamlined so that the process takes no more than six months after application.  Safety, environmental and workability requirements would be set up front.  The government would be unable to order changes after initial approval absent the consent of the Secretaries of Commerce and Transportation.  The process to get consent would also be subject to limitations guaranteeing swift action one way or the other.

4.  After construction of the infrastructure, the company building the project would be able to monetize the end product with things like airport user fees, rental of concessions in train stations, tolls on bridges and highways, etc.  After twenty years or some other appropriate time, the ownership of the project would revert to the federal or state government (depending on the project.)

Think what this would accomplish. 

a.  Companies with cash overseas would be heavily encouraged to bring their money home.  This would raise tax revenue for the federal government. 

b.  Companies would also be heavily encouraged to invest in infrastructure projects.  Imagine a $1 billion improvement at the Kansas City airport paid for with private funds by company A.  That company would really only be investing 200 million dollars since 800 million would come back as a tax credit on taxes otherwise due for bringing the cash into the USA. 

c.  Since the tax rate is only 25%, companies would also bring a great deal more cash back to the USA than needed for the infrastructure projects.  This would be an enormous boost to the economy.

d.  Infrastructure projects would be built by private companies with all the additional cost and schedule control that such a move entails.  Without a doubt, this would save billions in costs.

e.  The companies building the projects would get a stream of income which would more than pay them back for their 20% of costs not covered by the tax credit. 

f.  Literally hundreds of billions of dollars of infrastructure projects would go forward with no cost to the federal or local governments.

This would be the proverbial win-win situation for the country.  I was involved for many years with public construction.  It is a broken process which almost never works to produce a project on time or on budget.  Instead, we end up with results like the huge new transit station in lower Manhattan that came in years late, way over budget and with a leaking roof that makes the result in need of repair even before it opens. 

NOTE:  To be fair, the idea to use some of the money held by companies overseas for infrastructure is one I heard on a radio talk show.  I expanded it and added in the other components.  I would give credit to the caller who mentioned it, but I did not catch his name.

No comments: