A bipartisan plan in Congress proposes a novel way to pay for new roads and bridges: using corporations flush with overseas cash.
Those US firms would be allowed to repatriate a certain amount of money held overseas without paying taxes. The catch is that they would have to invest in bonds sold to fund the rebuilding of America’s dilapidated infrastructure.
These kinds of transportation bills are usually paid for through tax hikes. Giving incentives to corporations with overseas cash is being pitched as a way to pay for new highways that could win over Republicans, who often oppose tax increases.
The plan, first proposed by Democratic Congressman John Delaney, is gaining steam, and now has 25 Democratic and 25 Republican co-sponsors in the House of Representatives. About a week ago, a companion bipartisan bill in the Senate was introduced by Democrat Michael Bennet and Republican Roy Blunt, along with nine co-sponsors including Republican Lindsay Graham and Democrat Mark Warner.
Other ideas in Congress to pay for infrastructure improvements include a gas tax, a sales tax on oil producers, and corporate tax revisions. Many US roads and bridges are in poor condition following budget cuts.
Congress is focusing on cash held overseas by US companies because many have been keeping profits in other countries to avoid paying the up to 35 per cent tax for repatriated cash, which is one of the highest rates in the developed world.
Last November, Democratic Senator Max Baucus proposed imposing a one-time 20 per cent tax on repatriated overseas cash held by US companies. Since then, Mr Baucus has been nominated to be the next US ambassador to China.
US companies were criticised for failing to use their cash to create jobs in the US the last time they were given a tax holiday for repatriating cash, instead using it to reward shareholders.
Of US companies, technology companies hold most of the estimated $2tn in cash held overseas. While companies like Cisco have used some of the money to make overseas acquisitions, most of it sits idle in low-yielding investments.
Last spring, a Senate panel said Apple used a complex web of offshore entities and US tax loopholes to avoid paying taxes on $44bn in offshore income over four years. Apple chief executive Tim Cook testified in Senate that the company pays all the required taxes in every region where it operates.
The issue has also become a critical part of the global debate on taxation for multinational companies, with the subject coming up at the Group of 8 and Group of 20 summits of countries last year.
Apple declined to comment on the infrastructure bill. Some tech companies are more focused on broad tax reform to tackle the issue of overseas cash, which could be addressed this year. But there are midterm elections in November, making it difficult to get any broad bills through Congress.
Mr Delaney has carried out extensive due diligence and has talked to various corporations that expressed interest in the initiative, but an aide declined to identify them. The US Chamber of Commerce is also keeping track of the bill.
Under the plan, corporations could bring back a certain amount of overseas cash tax free for every $1 they invest in bonds that would fund the rebuilding of roads and bridges. The bonds would pay an interest rate of 1 per cent.
