America needs investment in its infrastructure. We need someone to invest hundreds of billions of dollars into for-profit trains, roads, airports, clean electricity generation, high-voltage transmission lines and more. As former Treasury secretary Larry Summers has noted, the nation's commercial and residential housing stock probably does not need to be increased, but it could be improved in quality by replacing windows, insulation and monitoring systems, which save more in energy spending over time than would be spent on the renovations. Ideally, all the infrastructure projects should generate at least a modest profit, to ensure that the investments are productive.
The total plausible investment, even if all projects are for some profit, would easily exceed $1 trillion.
Not surprisingly, neither Congress nor state governments believe they can afford to spend money on infrastructure. The parties are sharply divided on the efficacy of any new public spending, but even Democrats are wary of proposing investments in the face of the nation’s huge deficits and increasing debt. Moreover, since such infrastructure projects typically provide such small returns on capital, they are not suited to most private-sector investors.
Meanwhile, American businesses have more than a trillion dollars sitting in bank accounts in other countries. They do not want to transfer the money back to the United States because the second the cash hits our shores, the Internal Revenue Service will tax the gains — as much as 35 percent of profits.
Just to avoid the IRS, some CEOs are willing to spend their overseas profits on buying overseas companies or making overseas investments at prices that are too high.
But many in Washington remember that in 2004 the business community persuaded Congress to pass a law allowing firms to bring home profits without incurring taxation in return for the promise to invest the money. According to the Congressional Research Service, the repatriated money "did not increase domestic investment or employment," and instead firms used "much" to buy their own stock. Democrats in particular felt hoodwinked by the exchange and now don't want to let firms replenish their American coffers from foreign sources without paying taxes.
In other words, under these circumstances, firms are leaving the trillion overseas and Congress is letting them do so.
But putting these problems together could produce a common solution.
Why doesn’t Congress let firms bring back their overseas profits without taxation — if, and only if, they put the money into an infrastructure bank for a certain period? This bank would then issue low-interest, long-term loans for projects that in flusher times would be funded by municipalities or utilities.
In return for obtaining the cash infusion of overseas profits into the infrastructure bank, the Treasury would forgo taxation on a schedule set by auction. By a bidding mechanism, the Treasury would obtain the best deal offered for funding an amount, say $100 billion, in the infrastructure bank. We believe that firms would agree to invest in the bank for five or even 10 years in return for avoiding taxation. An infrastructure bank capitalized with a hundred billion dollars could be expected to finance projects that, combined with private capital, would exceed a trillion dollars of investment.
The bank would dedicate its capital solely to American infrastructure. That way, U.S. firms' profits overseas would come back to rebuild America. At least one study of the effect of the 2009 American Recovery and Reinvestment Act suggests that a billion dollars of investment in construction-related activity could create about 10,000 job years. A trillion dollars of investment, then, equates to 10 million job years, created between now and 2020. McKinsey and Co. found recently that by the end of this decade the United States needs 21 million new jobs to achieve full employment. In that light, our proposed infrastructure bank is more of a must-have than a nice-to-have new institution.
Private-sector infrastructure initiatives across the range of transportation, communication and energy needs (examples include high-speed rail in the Northeast Corridor, energy-sector generation and building efficiency), some operating under public-private partnerships, could be launched expeditiously to generate jobs and investments critical to our economic recovery and long-term growth.
If we put the offshore profits and infrastructure bank problems together, we might find a solution that works for both sides of the aisle, even in these sharply polarized times.
Reed Hundt, a former chairman of the Federal Communications Commission, is chief executive of the Coalition for Green Capital. Thomas Mann is a senior fellow at the Brookings Institution.
