Barron’s editorial page editor questions proposed freeway funding source

Thomas Donlan, editorial page editor of Barron’s, uses his latest commentary to take aim at a funding scheme for federal transportation projects.

Almost certainly, Congress will find another way to spend billions on roads, subways, trolley cars, bike paths, railroad stations, intermodal freight terminals, and what-have-you. The bill will pass by May 31 and members will vote for it almost unanimously, because nearly all of them believe federal funding must finance local infrastructure.

One of the most likely new budget gimmicks would provide spending of historic proportions: President Barack Obama wants a $478 billion infrastructure-improvement package. This blind pool of unspecified “investments” would occupy the construction industry for six years worth of not-shovel-ready projects.

The primary funding source, projected to raise a quick $238 billion, would also be historic: a new 14% tax on corporate earnings held in foreign countries.

Alone among developed countries, the U.S. claims the right to tax corporate earnings that are earned and taxed in foreign countries, if the foreign tax is less than the U.S. tax and if the corporation brings the money home. Now Obama wants to reach into foreign bank accounts and force corporations to disgorge 14% of the $2 trillion that they are holding out of the jurisdiction of the U.S. Internal Revenue Service.

The classic objection to this sort of undue process has been crystal clear since Henry VIII: “The King’s writ does not run there.”

Writ or no writ, such a blatant grab for power and money has bipartisan appeal.

After the 14% solution, the Obama plan calls for the government to take a global minimum tax of 19% minus a deduction for foreign taxes paid without waiting for the owners to bring the money to the U.S. This is described as a tax cut from the current 35% maximum, which depends on whether the taxable income is or is not being paid on foreign earnings held abroad.

This is how far politicians of both parties will go these days to avoid an explicit increase in the tax on motor fuels.