Rep. Delaney’s Infrastructure Bill and the U.S. Economy
Despite rhetoric to the contrary, the Democrats are increasingly the party of large multinational corporations to the detriment of small domestic businesses and the U.S. economy.
Last year, Democratic Congressman John Delaney (MD-6) introduced H.R.2084, the Partnership to Build America Act and, though it didn’t move in the last Congress, he re-introduced it again this year. Relying on pictures of crumbling bridges, Delaney has been hoping to push the bill through the congress. However necessary infrastructure investment is, his bill would have major implications on the entire tax system. Under Delaney’s bill, an American Infrastructure Fund (AIF) will be created that would be “funded by the sale of $50 billion worth of Infrastructure Bonds which would have a 50 year term, pay a fixed interest rate of 1 percent, and would not be guaranteed by the U.S. government.” According to the Economic Policy Institute, it would require the federal government to grant 70-100 billion of tax breaks to multinational corporations:
“• The bids by multinational corporations to participate in the funding mechanism would likely be much less aggressive than the bill sponsors anticipate.
• The initial funding from multinational corporations could be below the $50 billion goal set in the proposals.
• It would be much cheaper from a federal budgeting perspective to simply finance the bank’s start-up with a direct appropriation of funds. To meet the $50 billion funding goal through the bills’ proposed mechanism would require the federal government to grant about $70 billion to $100 billion in tax breaks to multinational corporations.”
The act would only further encourage multinational corporations to move their businesses from the U.S. to the politically stable countries with the low corporate tax rates and bring their overseas earnings home through Delaney’s “money laundering” vehicle.
Not to be outdone. President Obama said last month that he wants to impose a one –time 14 percent tax on some $2 trillion of untaxed foreign earnings that are accumulated by multinational corporations abroad and use the revenue to fund infrastructure.
These corporations pay local taxes to their host country. If they are going to be taxed an additional 14 percent on their overseas profits, why would the corporation continue to be headquartered in the U.S. if they can move their headquarters to politically stable country with low corporate taxes.
Both Delaney’s and Obama’s infrastructure plans have fundamental flaws. But beyond that, they don’t even begin to address the structural issues at the heart of the problem. Both Delaney’s and Obama’s plans are attempts to raise funds for a specific purpose, rather than addressing the fact that the U.S. government is living beyond is means. Such planes cannot fix the growing debt problem, income inequality, lack of job growth and a struggling economy in the US.
Small businesses, not large corporations are the back bone of the economy. Large corporations are responsible for only a small percentage of jobs in the US and account only for 13% of tax revenue. In contrast, small businesses are the driving force of job creation and they account of 46% of entire US tax revenue. However, this tax base is rapidly disappearing. According to the U.S. Census Bureau, the total number of new business startups and business closures per year — the birth and death rates of American companies are now upside down. There are 400,000 new businesses now being born annually nationwide, while 470,000 are dying annually nationwide. As the death rate of small companies outpaces the birth of the new companies so, goes our tax base.
Other policies contribute to this, as well. The U.S. economy has major structural problems and but it is acting as if the only problem is that of liquidity. Loose monetary policy in the form of Quantitative Easing (QE) has not had the desired effect on the Main Street economy, though it has befitted Wall Street. Since 2009 they were three QE’s (QE1, QE2, QE3 and operation Twist), but consumers don’t want to borrow because of the shrinking economy, economic uncertainty and growing geopolitical problems around the world. And U.S. small businesses also do not benefit from near zero interest rates because banks don’t lend to them easily, preferring instead to lend to other financial institutions and big multinational corporations that prosper outside the U.S.
As small businesses dies, so does American job creation. Chronic unemployment including (higher than official 5.6 % number, including those workers discouraged from looking for work) and chronic underemployment leads to expansion of social systems (Medicare, Medicaid, food stamps, unemployment benefits etc.), increases in foreclosures, decreases the amount of contributions to the social security fund, and ultimately pushes the middle class towards poverty and dependence on government programs. But the U.S. lacks the funds to fund and sustain the growth of social programs due to the $18 trillion national debt, over $120 trillion in unfunded liabilities, and local debts.
To make matter worse, the Democratic Congress passed the Dodd-Frank Act, a Wall Street Reform and Consumer Protection Act that Obama signed into law in July 2010. Under the Dodd -Frank the big financial institutions got even bigger, and their balance sheets got even bigger than before the 2008 crisis. The Federal Reserve (U.S. Central bank) keeps interest rates low that also keeps the Wall Street happy as the stock market make ultra-rich even richer that further widens the income inequality gap.
Is there is way out? Maybe.
Dodd-Frank should be repealed and the Glass-Steagall Act should be restored; the corporate tax rate should be lowered while eliminating loopholes; federal government spending should be reduced; and social programs should be restructured.