BY MARTIN TUCKMAN
CEO of the Tuchman Group and Vice Chair of First Choice Bank
The President has been reelected, but the make-up of the Senate has not changed substantially.
As a result, the Republican minority can still block almost any legislation they want to prevent. We are therefore are stuck in an economic no man’s land, where any incremental changes are can be overwhelmed by a counter attack from the opposition.
To break the logjam, we desperately need a “big idea” that both parties can embrace.
I believe there is bi-partisan idea out there that, if embraced, could address two kill two humongous birds with one stone: Rebuild the devastation that Hurricane Sandy wrought and jump-start the economy.
We need to institute a tax repatriation program that would bring back approximately $500 billion – 1.2
trillion in untaxed overseas profits sitting in the bank accounts of United States 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 earning home (know 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 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 back 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 used the spent the repatriated funds on stock buybacks and dividends.
Under my proposal the U.S. government would forgo the higher tax rate, but would be to 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 national disasters like Sandy and Katrina and create good jobs.
Unlike in the past, funds could only go toward capital expenditures, no ifs and or buts.
Not one penny of the tax break would be permitted to go towards research and development, shareholder dividends, debt repayment, merger and/or acquisition activities, share repurchases or buybacks, or executive salary.
There would be a need for stringent governmental oversight, but this could be done at the state level avoiding additional federal regulation.
The mechanism for deploying the funds being repatriated must be transparent and effective.
If it was found that a company had used the tax savings for other than pre-approved projects they would be required to rebate their tax savings,
In order to funnel the capital to the pre-approved projects all the repatriated funds should go to “National Disaster Enterprise Bank.”
This bank will purchase bonds from the states – long-dated bonds paying an interest rate equivalent to the 30 year U.S. Treasury bond, 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 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 the 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 Presidents Clinton and President George W. Bush to serve on the Board.
Politically, this would be a neutral event, as both parties are delivering on their promise.
No higher taxes would be necessary to put people to work rebuilding this 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 American and help our neighbor’s rebuild their lives by leveraging overseas corporate tax money.
Call Sen. 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.