Delaney Publishes Op-Ed On Infrastructure 2.0 Act, Outlines Best Framework for Tax Reform & Infrastructure Package

WASHINGTON – Congressman John K. Delaney (MD-6) has published an op-ed in The Hill on his bipartisan legislation, The Infrastructure 2.0 Act. The op-ed outlines the approach needed to combine international corporate tax reform and infrastructure investment and lays out the differences between deemed repatriation and a tax holiday. Delaney writes, “Deemed repatriation as part of international tax reform can move the country forward, while a tax holiday will simply mean not enough revenue and not enough infrastructure.”

The Infrastructure 2.0 Act uses international tax reform to fund a six-year highway bill and create a new American Infrastructure Fund. Since 2013, Delaney has met with over 100 Republicans and 100 Democrats in Congress, one-on-one to build support for using repatriation to rebuild America.

The op-ed is available online here and is copied below:

The Right Repatriation and Infrastructure Framework
By Rep. John K. Delaney
The Hill, 7/21/15

Washington is close to a major bipartisan breakthrough, a long-term infrastructure bill using revenues from international tax reform. On the cusp of this massive opportunity, I am concerned that confusion over the policy details – and scoring numbers - could derail a good deal. Not all tax reform proposals are the same and there are major differences between what’s known as “deemed repatriation” – a framework for which I’ve built a broad, bipartisan coalition of support – and a misguided “repatriation tax holiday.” Deemed repatriation as part of international tax reform can move the country forward, while a tax holiday will simply mean not enough revenue and not enough infrastructure.  

When I started building support for this framework two years ago, using corporate profits trapped overseas to rebuild infrastructure at home was seen as strange. In meeting after meeting there was an initial moment of confusion or skepticism, followed by a big realization: we have trillions in corporate profits trapped overseas and a massive need at home and this is the way we can solve two problems at once.

After meeting with well over 100 Republicans and 100 Democrats in Congress one-on-one, I’ve seen firsthand that there is tremendous support for a new deal using international tax reform that includes the repatriation of foreign earnings to rebuild America. Recently, President Obama, former Ways & Means Chairman Dave Camp (R-Mich.) and current leaders in both parties have embraced deemed repatriation linked to international tax reform. Meanwhile, experts have pointed out the problems inherent in a tax holiday, which will discourage long term domestic reinvestment, encourage more profits to flow off shore and fail to produce the revenues we need.  

Driving this momentum are two unassailable facts at the heart of our economy: we need to improve America’s failing infrastructure and create a pro-growth tax code. Step one in rebuilding our infrastructure is to pass a long-term highway bill that gives states and the private sector the certainty they need to properly plan. Our primary federal transportation tool, the Highway Trust Fund (HTF), faces a shortfall Congress hasn’t been able to solve. The old answer – raising the gas tax – is no longer politically viable. But it isn’t just about patching the hole; if we don’t increase infrastructure investment, we’ll fall farther behind. My legislation – Infrastructure 2.0 - not only solves the shortfall, but it increases the annual investment. 

At the same time, our current international tax system is broken and dragging down domestic growth. Right now, corporations that earn money overseas don’t have to pay U.S. taxes on those earnings unless they bring it back home. The tax they pay upon repatriating their profit is 35 percent minus any foreign taxes they’ve already paid. For example, a company that earned profits in the U.K. and paid 20 percent tax there would owe the U.S. an additional 15 percent tax if they bring those profits back. These combined rates are higher those our competitors offer.  

The current system gives companies an incentive to keep their money overseas to avoid paying that additional tax. This practice – deferral – means we don’t get tax revenue and we don’t get new private reinvestment flowing back to our economy. Everyone loses under this system, except our foreign competitors, who all have a lower tax rate than our companies. 

To bring future profits back home, where they can be used to expand businesses and hire more workers, we need what we call a “hybrid territorial system.” Under this model, the United States establishes a minimum tax on profits earned in foreign tax havens, but we significantly reduce the tax burden for legitimate profits earned abroad in normal tax jurisdictions. If done right, this approach will score positively by the Congressional Budget Office (CBO).  This solution gets us halfway home – we’ve ended the incentives that trap profits overseas for the future and we’ve provide important flexibility to U.S. companies, but we also need reforms to bring back the estimated $2 trillion that is already abroad.

This is where the distinction between “deemed repatriation” and a “repatriation tax holiday” becomes crucial. In 2004, we tried a tax holiday, which created a window during which companies could voluntarily bring profits back at a reduced tax rate. Only about a quarter of the money came home and according to the CBO it encouraged companies to keep profits overseas until the next holiday. It is unfortunate that many confuse this option with international tax reform that includes deemed repatriation. A tax holiday would be a mistake, instead of raising money to rebuild roads and bridges, it increases our deficit.

A better solution is the one offered in my bipartisan Infrastructure 2.0 Act.  This involves pairing deemed repatriation with the fix to the go-forward international tax system described above.  Deemed repatriation means the current pile of untaxed overseas money is subject to an automatic tax (as if it was repatriated), but at a lower rate. We have found that lowering the rate to 8.75 percent  is a compromise that can generate bipartisan support, as well as being a rate that Congressional scorekeepers have confirmed raises at least $170 billion. This is in addition to the economic benefit from the money coming home. 

This is precisely the revenue we need to create a world-class infrastructure network again. My legislation dedicates $120 billion towards a six-year highway bill at increased levels and uses another $50 billion to create the American Infrastructure Fund, a new resource that state and local governments can use to finance new projects.  Deemed repatriation at this level, combined with the properly structured hybrid territorial system described above, produces new revenues. Moreover, there is no double counting in these numbers.

With deemed repatriation we have an opportunity to come together in a bipartisan way to fix two major problems, our infrastructure deficit and our broken international tax system. This will deliver a triple bottom line to America: creating good-paying jobs, upgrading our global competitiveness and improving our quality of life. Let’s get the details right and get this done.

Delaney has represented Maryland’s 6th Congressional District since 2013. He sits on the Financial Services Committee.

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