As the debate about both tax reform and infrastructure spending begins to take center stage, an idea that has bounced around backrooms inside the Beltway for a few years is gaining new prominence. The Trump administration and some in Congress are proposing a one-time “repatriation tax” holiday for U.S. based multinational corporations on almost $2.6 trillion they have hoarded overseas. At least one iteration of the infrastructure plan floated by the Trump administration proposes to use the revenue from this tax to fund infrastructure.
Under current tax law, U.S.-based multinational corporations can defer payment of domestic taxes on their overseas revenue as long as the money is invested abroad. Once the money is returned home they must pay U.S. taxes, though they may deduct any tax paid in the country in which the revenue was originally reported.
While the details of the repatriation plans vary, they all share the same basic flaw: they rely on a one-time fix for a very large problem—our nation’s looming infrastructure crisis—giving a tax break to some of the largest, richest and most powerful corporations in the world. Proponents of the tax giveaway claim it will allow corporations to return their profits from overseas. S&P Global characterized the money stashed overseas as “effectively trapped because of the high cost of repatriation.” But let’s be clear: tax holidays like these only validate corporate tax evasion, wrapping it in a thin veneer of progress as they purport to solve the very pressing challenge of addressing our nation’s infrastructure problems. The real solution is to not let corporations hoard cash overseas in the first place.
In 2004 Congress passed the American Jobs Creation Act which provided a onetime 85 percent reduction in the tax rate for repatriated funds. Supporters of the tax holiday argued that the repatriated funds would be used by companies to create more jobs for American workers. While the rate cut lead to a one time increase in repatriations, multiple studies have concluded that the repatriated funds were not invested domestically and did not lead to an increase in employment. According to a 2011 report by the U.S. Senate Committee on Homeland Security and Governmental Affairs, of the 15 companies that repatriated the most money, 66 percent recorded job losses in the first three years after passing the tax holiday. Many reports have found that the money was largely returned to the owners of the companies through stock repurchases.
Another result of that repatriation tax holiday was the massive stockpiling of overseas cash we currently see in anticipation of a future tax holiday – an expectation the Trump administration and some supporters in Congress seem prepared to meet. But given the failed history of the American Jobs Creation Act, it seems absurd to rely on another one-off corporate tax give away to provide desperately needed funding for our nation’s crumbling infrastructure.
The American Society of Civil Engineers’ most recent report card on the status of our infrastructure gives the nation an overall grade of D+ which includes specific grades of a D+ for our wastewater infrastructure and a D for our drinking water infrastructure. The consequences of these low grades are evident in communities across the country where service rates are increasing to compensate for depleted federal funding, where schools scramble to replace lead service lines and where public health is threatened by flooding, broken sewer lines.
Instead of giving corporations a huge tax break and hoping it will help our crumbling infrastructure, a better proposal exists—slash incentives for companies to hoard cash overseas and make them pay their taxes here every year—just like any American living abroad.
While estimates for how much new revenue would be generated by eliminating the deferral vary, we could expect upwards of $100 billion per year or more. This money could be earmarked to directly fund our nation’s infrastructure. Already, Congressman John Conyers (D-MI) has proposed a bill that would do just that. His Water Affordability, Transparency, Equity and Reliability (WATER) Act (H.R. 1673) would end the overseas corporate revenue tax deferral and earmark just under $35 billion of the revenue to fund repairs and upgrades of our water and wastewater infrastructure. Investments of this scale would create nearly 1 million jobs across the country.
Corporate tax holidays are not going to solve our infrastructure crisis. Congress has a stark choice. It can hand over billions of dollars to multinational corporations through a tax holiday and hope for the best on infrastructure investments. Or, it can end the overseas tax deferral and make real investments in our infrastructure, truly putting hundreds of thousands of Americans to work.