Infrastructure Funding

I asked history teacher and former colleague and department chair, Mike Vice, to explain his ideas about taxation and funding infrastructure projects. Mr. Vice explains his strategy below. I have lightly edited his remarks.

I have grown more and more frustrated lately over the inability of our political system to stop arguing and try to do something for the American people.  The extremists on both sides shout that only they have the solutions to our problems and so nothing gets done.  A good example of this is the arguing over President Obama's "American Jobs Act", which Republicans loathe, and corporations and banks off-shoring trillions of dollars of profits to avoid taxes, which Democrats loathe.

So, a Modest Proposal:

Congress will create an American Infrastructure Bank, which money will be used for three distinct purposes, described below.  The funding will come not from taxes, but from repatriated profits.  The government will allow corporations/banks to repatriate their profits at some substantially reduced interest rate, say between 5% and 10% instead of the current incremental rate of 35%.  Courtesy of the largesse of Congress in screwing with tax policy, corporations and banks only pay between 5% and 6% on average today anyway, with several major corporations paying zero taxes on their profits.  We should reject Republicans' claims that the money should be tax-free, since that sends the signal that off-shoring profits is a great way to "beat the system."  Likewise, we should reject Democrats' claims that the rate should be 35%, since that would result in all of the money staying offshore.

The reduced tax rates will only be granted IF AND ONLY IF the money is used to purchase infrastructure bonds sold by an American Infrastructure Bank.  The corporations/banks would benefit from the lower tax rates and the prospect of interest income revenues from the bonds purchased.  The American people would benefit from improved roads, bridges, and more, plus, of course, the jobs that would be created.  The cost to the Treasury of the interest paid on the bonds would be made up by the increased tax revenues created by the new jobs.

The money put into the fund would be allocated to three distinct pools, with the percentages or amounts to be negotiated by the parties in some fashion.

                1.  The first pool, perhaps 70% of the total, would be reserved for traditional infrastructure.  Ours is crumbling, with the American Society of Civil Engineers (ASCE) rating it at a grade of D/D- overall.  To avoid federal government meddling and "picking winners," the entire amount would be block-granted to the states.  This would not be done via some "pork barrel" list, but based on the studies of the ASCE, which has not only identified the infrastructure that needs repair, but also the ranking of the repairs.  States would get Infrastructure Bank funds based on some weighted average of need according to the ASCE's studies.  Once allocated to the states, however, governors could have some discretion in how they use the money, as long as it is spent on infrastructure.  Thus, Jerry Brown in California could spend the money on reducing congestion on our roads or whatever, whereas Rick Perry in Texas might decide to use his allotment for creating the electrical transmission system to support T. Boone Pickens's wind energy proposals.  Right now, "T-Bone's" proposal sits idle because his planned electricity-generating wind towers have no way to get the power to market.

            2.  The second pool, perhaps 20% of the total, would be reserved to the states to fund start-up businesses or new technologies.  Example:  Gov. Jennifer Granholm of Michigan used federal dollars to invest in new battery technology and the result has been a cutting-edge industry that has created some 66,000 new jobs and sets Michigan on the road to being the premier site for perhaps trillions of dollars of worldwide electric car production.  The funds could possibly be allocated to the states based on some kind of bidding process similar to the recent education funding for Race to the Top.  Anything, just so the politicians keep their mitts off it.

                3.  About 10% of the money, up to a maximum of $100 billion (10% of the first trillion dollars that gets repatriated) would be retained by the federal government; this is the only pool that the feds would control.  "When We Were the Cutting Edge" of world technology development the government spent about 2%+ of GDP on R&D; we have now fallen to less than 1% and the Indians and the Chinese are laughing in their tea as they pass us by!  This R&D money would be reserved for research and development projects and allocated to universities, private corporations or individuals or retained by the government for DARPA, the Defense Advanced Research Project Agency.  (Unlike what the name seems to imply, this agency has produced for us such things as the beginnings of the internet, the GPS system, and many other projects that are now in the public domain.)  Details of how the money not retained for DARPA would be allocated would be worked out later, but, to prevent politicizing the fund, it would be overseen by some independent board of scientists and private industry leaders.

            Sounds like a win-win to me!  We get rid of some of our political deadlock and accomplish something for American business and the people while, at the same time, providing impetus for the continuation of America's role as world leader.

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