Editorial Board

Infrastructure Bank Plus Repatriation Holiday Equals Jobs: View

Call us optimists, but it’s possible that the Senate’s decision Tuesday to block President Barack Obama’s jobs bill was a blessing in disguise.

With a U.S. unemployment rate of 9.1 percent, jobs legislation is essential. What the president had proposed, however, was expensive and unwieldy. Fortunately, the stall-out on Capitol Hill has given Washington a second chance as it has led to talk of breaking the legislation’s proposals into smaller parts and passing it piecemeal. Senator Charles Schumer, a Democrat of New York, has advanced an approach along those lines, one that combines worthwhile goals of both parties that otherwise might not pass.

For Democrats, Schumer is championing a national infrastructure bank that could help build roads, fix bridges and create jobs. For Republicans, he is open to letting U.S. corporations bring home vast amounts of overseas income without having to pay the full 35 percent corporate-tax rate.

We’ve been consistent supporters of an infrastructure bank, seeing it as both a short-term jobs boost and a long-term boon to U.S. competitiveness and quality of life. The details will be crucial. Among other requirements, the bank needs substantial initial public and private investment, a chief executive officer and independent oversight board, and safeguards to limit risks to taxpayers. It should finance no more than half a project’s costs and require dedicated funding streams. And the Davis-Bacon Act rules that require paying unduly inflated “prevailing wages” on federal projects shouldn’t apply to it.

A Better Deal

The case for a tax holiday for overseas earnings is weaker, but new proposals by Senators Kay Hagan, a Democrat, and John McCain, a Republican, begin to address one of our longstanding concerns. When the U.S. tried a similar tax break in 2004, Congress wanted the repatriated cash channeled into domestic jobs and investments. No such luck; most money went for dividends and stock repurchases. A repeat performance would be foolish.

If new hiring can’t be mandated, an alternative is to create a two-tiered tax rate on repatriated cash. Hagan and McCain propose a 5.25 percent tax rate for companies creating jobs, and an 8.75 percent rate for those that don’t. We favor a wider gap, with the non-jobs rate at a minimum of 15 percent. (We’ve argued in the past, and still believe, that companies should be allowed to pay a rate of 15 percent if they can show an increased headcount over three years, and should otherwise have to pay the top rate. We’ll take what we can get.)

If those tax proceeds can help fund an infrastructure bank, then the whole country benefits.

The overall U.S. corporate tax code still needs attention. It’s too easy for companies with lots of intangible assets, such as banks and high-tech enterprises, to move profits into overseas tax havens. Simultaneously, the maximum U.S. rate of 35 percent is too high for retailers and other companies that can’t play the tax-haven game. We shouldn’t let this proposal get in the way of a broader tax overhaul.

For now, reviving jobs must be the top priority. If imperfect compromises spare the U.S. from the embarrassment of continued bickering and inaction, we’ll take imperfection.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .

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