May 9, 2017
Senior Policy Analyst
Lawmakers across the political spectrum recognize the need for additional spending to maintain and upgrade our nation’s transportation infrastructure. According to the Federal Highway Administration, there is a backlog of $836 billion in needed repairs and improvements to roads and bridges and an additional $90 billion backlog of public transit projects. Maryland Democratic Representative John Delaney has been one of the most vocal lawmakers in the debate over funding infrastructure and has recently proposed two bills seeking to significantly increase spending on these critical needs. Unfortunately, rather than just funding infrastructure, both of Rep. Delaney’s bills would make the problem of inadequate revenue worse by giving away billions of dollars in tax breaks to corporations.
Rep. Delaney’s Partnership to Build America Act would give companies a huge tax break on their offshore earnings in order to help fund an infrastructure bank. The legislation would allow companies to bring back up to $6 in offshore earnings tax-free for every $1 they invest in infrastructure bonds. This means that to “fund” the intended infrastructure bank with $50 billion worth of bonds, the legislation could allow multinational corporations to bring back $300 billion tax-free and receive tax breaks of up to $105 billion.
While Rep. Delaney’s Infrastructure 2.0 Act takes a different approach, it would similarly mean huge tax breaks for the country’s biggest offshore tax avoiders. The legislation would use a deemed repatriation at a tax rate of 8.75 percent to raise about $200 billion in revenue to pay for an infrastructure bank and increase funding for the Highway Trust Fund. The key problem is that companies currently owe about $767 billion in taxes on their $2.6 trillion in offshore earnings, so by cutting the repatriation tax rate by three-quarters (from 35 to 8.75 percent) Rep. Delaney is proposing to reward multinational corporations with a tax break of around $550 billion. Rep. Delaney’s proposal to only tax offshore earnings at a 8.75 repatriation rate is especially striking given that this rate is lower than the 10 percent rate previously proposed by Republican President Donald Trump.
It is important to note that both of Delaney’s bills would, at best, provide only temporary and limited funding for infrastructure spending. In fact, both bills could make the funding situation worse in the long run by giving profitable corporations billions in tax breaks that could be used to fund infrastructure, other public investment priorities, or to lower the deficit. Either way, what is needed is a more permanent solution to the continual lack of infrastructure funding.
One of the best and most sustainable ways to fund infrastructure would be for lawmakers to finally reform the federal gas tax by increasing the tax rate and indexing it to grow over time. The federal gas tax has been stuck at 18.3 cents per gallon since October of 1993, which means that this April 1st marked the all-time record for the longest period that Congress has gone without increasing it. Keeping the federal gas tax at the same nominal level for decades on end has meant that the revenue it raises has been substantially eroded by inflation and the higher fuel efficiency of motor vehicles. This growing gap between gas tax revenues and our nation’s infrastructure needs explains why, every few years, lawmakers have had to scramble to find revenue to fund infrastructure.
What may be leading lawmakers like Rep. Delaney to more convoluted approaches to funding infrastructure, rather than just raising the gas tax, is a perception that this reform is politically unpopular and will not garner bipartisan support. But this perception may not reflect reality. Since 2013, nearly two dozen states, led by elected officials across the political spectrum, have managed to make the fiscally responsible move to increase their gas taxes without running into significant political problems. In recent weeks, President Trump even mentioned the possibility of raising the gas tax to fund additional infrastructure spending, which has drawn much needed attention to the idea. Rather than continuing to rely on gimmickry and giveaways to corporations like those proposed by Rep. Delaney to fund infrastructure, it is about time lawmakers finally reform the federal gas tax instead.