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Pay For US Infrastructure With Repatriated Corporate Profits

It is widely estimated that US multinational corporations have at least $2.5 trillion in profits parked offshore and refuse to repatriate those profits because they don’t want to pay the 35% corporate income tax (the highest rate in the developed world, by the way). Most of these profits have already been taxed in the countries where they were generated.

Lawmakers have had little success in enticing these large corporations to bring that money home. Donald Trump wants to charge a 10% tax on repatriated profits, which would certainly do the trick, and he has proposed slashing the corporate tax rate from 35% to 15%. But at the moment, Hillary Clinton is leading in the polls, and she intends to leave the corporate tax rate where it is, with no discount for repatriated profits.

Corporate tax rates

Yesterday, a brand new idea surfaced from the private sector that might, not only get corporations to bring those huge profits home, but also to use some of that money to fund much-needed infrastructure projects around the country.

The new idea was put forth by S&P Global Corporation (formerly McGraw Hill Financial and parent company of ratings agency Standard & Poor’s). Here’s how it would work, as suggested by S&P Global.

US multinational companies could bring foreign-held profits home and pay no tax, but would be required to commit 15% of the repatriated cash to infrastructure projects. To do so, the companies would buy interest-bearing infrastructure bonds issued by state and local governments.

S&P Global estimates that if only half of the offshore profits were brought home, this plan would generate at least $150 billion in infrastructure bond purchases and would create over 300,000 new jobs in short order. The projects could include roads, bridges, the electrical grid, airports, etc., etc. as the states and localities see fit.

S&P GlobalS&P Global illustrates that infrastructure investment would spur economic growth and create jobs through the “multiplier effect”:

 

  • Every dollar invested in infrastructure would currently add $1.30 to the economy
    in a few years; and
  • $150 billion in spending (spread evenly over eight quarters) would create roughly
    307,000 infrastructure-related jobs in the first two years. The investment would
    eventually add almost $200 billion to GDP.

If this plan were to remain in place permanently, as S&P Global suggests, it would add substantially more than $200 billion to the economy over time.

Both Hillary Clinton and Donald Trump have proposed infrastructure projects of at least $250 billion that would be funded with taxpayer money – and of course, be managed by the federal government.  S&P Global’s plan would not involve Uncle Sam.

And therein may lie the problem. For S&P Global’s plan to take effect, there would have to be congressional action. Congress would have to eliminate the 35% corporate income tax and legitimize the purchase of state and local infrastructure bonds. That could be a tall order, especially if Hillary Clinton is our next president.

Some states also levy a corporate income tax. Those would need to be eliminated as well for the plan to work most effectively. That, too, could be a tall order but at least there is an incentive for the states to cooperate.

Since this new plan was only unveiled yesterday, there has not been time to get much of a reaction. From what I hear, US multinationals are salivating over Trump’s plan to tax overseas profits at only 10%. But I think there could also be sizable interest in S&P Global’s idea.

From the perspective of the large corporations, they get 85% of their foreign profits back home with no tax. Only 15% has to go into infrastructure bond purchases which pay interest and mature at some point in the future. I would see most multinationals jumping at the chance!

Not to mention that this plan would do some real good for the country without adding to the budget deficit as Hillary’s and Trump’s plans would do. It will be very interesting to see how this plays out!

Of course if Hillary is our next president, this plan will never see the light of day. She would veto any plan to eliminate the corporate income tax on offshore profits.

Speaking of the deficit, ZEROHEDGE and CNSNews reported earlier this week that the Treasury Department announced on Monday that the official budget deficit for FY2016 (which ended last Friday) was a whopping $1.42 trillion instead of the apprx. $550-$600 billion that was expected.

If true, that is a shocker!! The problem is, I can’t confirm this. I found nothing on the Treasury website. So be sure to read my E-Letter next Tuesday when I’ll have some answers for you.

If you’re not a subscriber to my Forecasts & Trends E-Letter, subscribe today. It’s free, by the way, and we never share your e-mail address with anyone… period.

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