DALLAS -- The U.S. could fund the renewal of its aging public infrastructure with the billions of tax dollars that would be generated through the repatriation of overseas corporate earnings, according to recommendations in a report from S&P Global.
Companies would be able to bring in their foreign earnings at a zero federal tax rate if they buy state and local infrastructure bonds with 15% of the returned cash within a year or so, said the report, released Wednesday. The tax code should be reformed into a territorial system so that all future corporate overseas earnings are taxed by the counties in which they occurred.
S&P's proposal could provide $150 billion of funding for infrastructure projects if companies bring back just half of the estimated $2 trillion of accumulated overseas earnings, according to the report.
"S&P Global sees this as a strong first step toward a long-term, sustainable fix to the U.S. corporate-tax regime that would help reduce the cash hoarding outside the U.S.," said S&P chief economist Beth Ann Bovino.
"This proposal would kick-start more comprehensive tax reform and inject desperately needed funds into the infrastructure of the world's biggest economy," she said.
Foreign earnings of U.S. corporations are currently liable to a 35% federal corporate income tax rate but not until the money is brought into the U.S. As a result, S&P said, more than $2 trillion of earnings are left in foreign banks while international corporations borrow to finance dividends and buy back their stock shares.
The opportunity to reap a return on investment in infrastructure bonds rather than lose money to taxation would be a substantial enticement for U.S. companies to participate, the report said.
"We believe most companies never intended to have such large cash piles parked overseas, and that, if given the choice, many would prefer to repatriate cash, invest in the U.S., and limit their debt," Bovino said.
The $150 billion that could be realized through corporate repatriation could be allocated evenly over two years to generate 307,000 infrastructure-related jobs. The infrastructure that could be built with the infrastructure bond proceeds would soon add almost $200 billion to the nation's gross domestic product, S&P said.
Infrastructure is a bipartisan issue, Bovino said.
"There is bipartisan support, including from the presidential candidates, to address our country's infrastructure problems, but there is little consensus on how to fill the huge gap between what the government can finance and how much money is needed to pay for these projects," she said. "Private capital can be part of the solution."
Republican presidential candidate Donald Trump has proposed funding infrastructure with revenues from a one-time, 10% tax rate on repatriated earnings and an end to the deferral of U.S. taxes on corporate income earned abroad.
Trump said in August that if elected president he would "at least double" the $275 billion of additional federal investment in infrastructure over five years pledged by Democratic presidential candidate Hillary Clinton.
Clinton has proposed an infrastructure jobs plan that would add $250 billion to the $300 billion of highway and transit funding in the five-year Fixing America's Surface Transportation Act through fiscal 2020, create a $25 billion national infrastructure bank, and revive and expand the Build America Bond program.
Clinton said her five-year infrastructure plan would be financed in part through unspecified business tax reforms.
Repatriation was one of the revenue sources considered for federal highway and transit funding when Congress was debated a multiyear transportation bill in 2015.
Lawmakers eventually decided to tap the general fund for $70 billion over five years to supplement the federal gasoline tax revenues dedicated to the Highway Trust Fund.
