SOURCE: Reposted from the Times of Trenton guest opinion column
By Martin Tuchman
Nov. 28, 2012- The president has been re-elected, but the makeup of the U.S. Senate has not changed substantially.
As a result, the Republican minority can still block almost any legislation it wants to prevent. We are therefore stuck in an economic no-man’s land, where any incremental changes can be overwhelmed by a counterattack from the opposition.
To break the logjam, we desperately need a “big idea” that both parties can embrace.
I believe there is a bipartisan idea out there that, if embraced, could kill two humongous birds with one stone: Rebuild the devastation that Hurricane Sandy wrought while jump-starting the economy.
We need to institute a tax repatriation program that would bring back from $500 billion to $1.2 trillion in untaxed overseas profits sitting in the bank accounts of American companies abroad.
At the present time, U.S. companies that own foreign subsidiaries pay taxes abroad — and they often pay taxes again when the companies bring the earnings home (known as repatriation).
This double taxation naturally hurts competitiveness at home and abroad and encourages U.S. companies to leave these earnings abroad, doing absolutely nothing for us. Corporations find it more profitable to leave their money where it is and borrow any cash they might need back home. Simply put, there is no economic incentive for U.S. corporations to repatriate the money.
By assessing a reduced federal tax rate of 5 percent vs. the higher, usual, 35 percent corporate rate, we can bring a substantial amount of money back into the United States.
This occurred in 2004, when Congress passed the first-ever repatriation tax holiday. Some 842 businesses with foreign subsidiaries transferred a total of $392 billion from their foreign subsidiaries to their U.S. parent companies.
The problem in 2004 was that the repatriated funds were not used to create new jobs. Instead, companies in many cases spent the repatriated funds on stock buybacks and dividends.
Under my proposal, the U.S. government would forgo the higher tax rate, but would require the companies to take the same amount of capital as the amount they saved in taxes and invest it in pre-approved projects that would rebuild the U.S. infrastructure damaged by disasters such as Hurricanes Sandy and Katrina, and create good jobs.
Unlike in the past, funds could only go toward capital expenditures, no ifs, ands or buts.
Not one penny of the tax break would be permitted to go toward research and development, shareholder dividends, debt repayment, merger and/or acquisition activities, share repurchases or buybacks, or executive salaries.
There would be a need for stringent oversight, but this could be done at the state level, thus avoiding additional federal regulation.
The mechanism for deploying the repatriated funds must be transparent and effective.
If it were found that a company had used the tax savings for other than pre-approved projects, it would be required to rebate its tax savings.
In order to funnel the capital to the pre-approved projects, all the repatriated funds should go to a “National Disaster Enterprise Bank.”
This bank would purchase bonds from the states — long-dated bonds paying an interest rate equivalent to the 30-year U.S. Treasury bonds, and the interest income would be taxable to the corporation.
Under this proposal, a company could save $25 million in taxes if it agrees to put that $25 million to work rebuilding lives and infrastructure. It is a win-win.
I would envision the bank being overseen by a five-member board of directors, which would be appointed by the president of the United States and subject to approval by the Senate.
Given the “bigness” of this idea, the incredible importance of the projects to be undertaken and the need to transcend partisan politics, I would envision the president asking former Presidents Clinton and George W. Bush to get behind the idea and to serve on the board.
Politically, this would be a neutral event, as both parties would be delivering on their promises.
No higher taxes would be necessary to put people to work rebuilding the country’s damaged infrastructure and homes.
New jobs would be created. These new hires would not only pay taxes, but they would also purchase products made by other Americans.
We can bring our jobs back to America and help our neighbors rebuild their lives by leveraging overseas corporate tax money.
Call Sens. Frank Lautenberg (D-N.J.) and Bob Menendez (D-N.J.) and Reps. Chris Smith (R-Hamilton) and Rush Holt (D-Hopewell) and tell them you want them to co-sponsor a bill to use overseas corporate tax dollars to rebuild the Jersey Shore.
Also, let Gov. Christie know that there could be a means available to finance the reconstruction of our severely damaged Shore. Urge him to embrace this concept and offer your support.
Martin Tuchman is vice chairman of First Choice Bank.
The original op-ed, “Opinion: Tax repatriation program could bring$500B to $1.2T for Hurricane Sandy repairs” is available in the online edition (2012 November 28) of the Times of Trenton guest opinion column. Access the original article here.