Creating RIBs to Finance Transportation Infrastructure By Richard Arena HE U.S. CONGRESS JOINT Committee on Taxation estimates that more than $2.5 trillion of untaxed American multi-national profi ts are parked off shore. Could some of that cash be remitted to the U.S. to help fi nance infrastructure in a way that benefi ts all parties? It is no secret; America’s infrastructure — its roads, bridges, airports, transit systems, sea ports, rail, energy distribution, etc. — are below par. Th e American Society of Civil Engineers (ASCE) gives U.S. infrastructure an overall grade of D+. And, its report does not take into consideration that America, unlike its economic competitors, lacks a true high-speed rail (HSR) system. Th ere may be a glimmer of hope. President Trump, a successful developer, is on record stating that his administration wants to prioritize infrastructure. Congressional leaders like Senate Minority Leader Chuck Schumer (D-NY) echoes those sentiments. Large contracting and development corporations are eager for the work. Public private partnerships (P3s), which leverage risk sharing and profi t sharing between the public and private sectors, have been embraced. And there is more than $2.5 trillion parked off shore by private companies because remitting the money back to the United States would result in it being taxed at 35+ percent. Can a deal be structured that brings all the parties and funding to the table to get some badly needed projects off the ground? Antiquated U.S. Tax Code It won’t be easy; there are many moving parts, including the U.S. tax code. Most of the world operates on a consumption-based tax system, called VAT (value-added tax). Products are taxed at all stages of production, unless the product is exported, in which 20 | Mass Transit | MassTransitmag.com | APRIL/MAY 2017 case the tax is removed. Typical VAT taxes are in the 15 to 25 percent range, averaging about 20 percent. “Tax haven” countries have rates under 10 percent. Th e U.S. taxes income at the federal corporate rate of 35 percent, the highest in the industrialized world, plus state taxes. When U.S. fi rms export their goods, there is no relief for income taxes paid. Adding insult to injury, the U.S. goods are slapped with the destination country’s VAT tax upon entry. Th is is the primary reason why the U.S. has an annual trade defi cit of over Corporate profi ts earned offshore has more than doubled to over 35 percent. 35% 30% 25% 20% 15% 10% 5% 0% % of US corporate profits 1930-39 1940-49 1950-59 1960-69 1970-79 1980-89 1990-99 2000-09 2010-13 Source: Author’s computations using National Income and Products Accounts data. Notes: The figure reports decennial averages (that i, 1970-79 is the averages for years 1970, 1971, through 1979). Foreign profits include dividends on foreign portfolio equities and income on US direct investment abroad (distributed and retained). Profits are net of interest payments, gross of US but net of foreign corporates income taxes.
MassTransit_AprilMay_2017
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