As much as the $4 trillion budget President Barack Obama sent to Congress Monday is a highly political document giving his allies things to rally around and his opponents proposals about which to grouse, the spending plan succeeds at putting two issues of irrefutable importance front and center — the nation's failure to address its crumbling infrastructure at home and the growing pile of profits held by U.S. firms abroad.
Finding a solution to both these problems ought to be a higher priority for Washington than holding up funding for the U.S. Department of Homeland Security or even finding ways to finance community college. And as it happens, Mr. Obama has chosen to link them — proposing a substantial increase in spending on roads and bridges that would be financed by a 14-to-19 percent tax on foreign earnings.
This is not necessarily the ideal solution for transportation. In the past, the federal government has relied more heavily on motor fuel taxes as a "user fee" on drivers since the more cars and trucks were driven, the more taxes were paid. But the failure of Congress to raise the tax to match inflation (the tax on gasoline has been stuck at 18.4 cents per gallon for more than two decades) and the rise of fuel efficient vehicles has created a severe funding shortfall in the federal Highway Trust Fund and a substantial backlog of construction and repair projects nationwide.
What's needed is an injection of spending and the sooner the better since congestion and disrepair is only getting more costly to consumers and businesses alike. If Congress is unwilling to raise the politically-unpopular gas tax (even at a time when a massive decline in oil prices would more than insulate motorists from the higher levy), then closing the loophole on overseas profits makes considerable sense.
General Electric, Microsoft, Pfizer, Apple — the list of corporations with tens of billions of dollars in what's technically known as Indefinitely Reinvested Earnings is substantial. Overall, there's more than $2 trillion parked offshore, stuck there in large measure because the corporate tax rate in the U.S. is far higher than it is in much of the rest of the world (although it also offers a considerable number of loopholes, but that's another problem for another day).
What the president is proposing is far below the 35 percent top rate on domestic corporate earnings. And the beauty of the plan is that everyone wins — offshore earnings come home and get taxed at a lower rate, these and other companies then benefit from infrastructure upgrades and the U.S. economy gets a multi-billion-dollar infusion of construction projects that will put hundreds of thousands more Americans to work.
This is an idea that will find supporters among Democrats and Republicans alike. Maryland Rep. John Delaney has offered a variation on this idea of using international tax reform to pay for domestic infrastructure and found co-sponsors for his legislation from both sides of the aisle. And while some companies may protest the idea of paying more in taxes, they ought to recognize that it also puts the U.S. on a path to reducing its overall corporate tax rate.
Indeed, there aren't a lot of options short of raising the gas tax. Republican lawmakers are unlikely to embrace Mr. Obama's ideas about reducing income inequality through higher taxes on the rich or lifting the lid on sequestration. Yet the business community is also crying out for a solution to the nation's growing transportation woes. A recent U.S. Chamber of Commerce survey found nine out of 10 middle market executives (those from mid-size companies, a sector expected to create about two-thirds of U.S. jobs) support higher taxes for better infrastructure.
Meanwhile, the American Society of Civil Engineers gives U.S. roads a grade of "D" in its most recent report card on infrastructure. Dams, water systems, levees, airports, transit and the electrical grid are scored in the same near-failing neighborhood. These crumbling assets, and the nation's inability to keep up their maintenance, are just as scary a deficit as the financial one. Under those circumstances, the U.S. can ill afford to continue to ignore foreign profits. Whether the president's proposed 19 percent tax rate is still too high is worthy of debate, but allowing those profits to avoid U.S. taxes altogether is simply not feasible.