With the discussions going on about how to address the deteriorating infrastructure and how to pay for it, here is a creative solution I sent to our local congressmen.
Here is an idea how to spend $1 trillion on infrastructure and do it where the cost of money is zero. In fact the cost of the money would be less than zero. This would be a win-win for everyone with both Democrats and Republicans getting what they want.
It is estimated that domestic company’s foreign profits overseas is $2 to $3 trillion. It stays there because they don’t want to pay a high tax to bring them home.
If they were allowed to bring home their profit with a low tax rate they would do so. If the government had the money to fix the infrastructure it would be done. Here is how to get money for the infrastructure repairs necessary and make corporations and taxpayers happy.
- Allow corporations, as a group, to bring home a total of $1 trillion with no tax due in exchange for a zero coupon government bond with a 5 to 10 year maturity to be used specifically for infrastructure. They would bid for the bonds the same way they bid for treasury securities. The starting bid price would be pre-set at 105 and they would pay no interest. Why would a corporation do this? Because it would be cheaper than paying the tax to bring the money back. At a price of 105 they would essentially be paying somewhere between 5% to 10% tax. The ending price may well go to 110 ($1,100,000 for $1,000,000 face value). If they didn’t want to hold the bonds they can sell them in the market for a discount which would be part of the calculation used to determine the price they would pay for the bonds.
While the government would still have to redeem the bonds at par and incur a $1 trillion increase in spending over 5 to 10 years, they would have to spend the money anyway if they were to address the infrastructure problem. At the least, my idea would not cost the taxpayers any interest money, and the bonds would bring in 5% to 10% above the par value.
I believe this is a creative way to solve several problems and be acceptable politically.
Morley Goldberg
Dumont & Blake Investment Advisors
731 Alexander Road, Suite 301
Princeton, NJ 08540
mgoldberg@dumontandblake.com
609-514-1899