The White House's plan to fund the nation's infrastructure programs for the next four years will come partly from changes in the formula used by many U.S. firms to account for their inventory and from changes in tax breaks for businesses to repatriate earnings generated by foreign operations, a top Department of Transportation (DOT) official said yesterday.
Peter Rogoff, under secretary of transportation policy, told the NASSTRAC annual conference in Orlando that DOT Secretary Anthony Foxx will propose to Congress within the next two weeks the Obama administration's four-year, $302 billion plan to re-authorize U.S. transportation and infrastructure programs. Of that, $152 billion will come from existing tax mechanisms such as excise taxes on diesel fuel and gasoline. The remaining $150 billion will come from what the White House has characterized as tax reform initiatives.
One of those initiatives would include changes in the "last in, first out" (LIFO) method of accounting for inventory, Rogoff said. The technique is used to determine a company's cost of goods sold and thus its income earned. Under the LIFO method, the most recently produced items are recorded as being sold first. By using the last sale price of inventory as a cost basis to determine taxable profit, businesses hope to reduce their tax liability on their sales. The White House has called LIFO an arcane formula used only in the U.S. and has tried for years to repeal it. Most nations use the "first in, first out" accounting method where the oldest inventory items are recorded as sold first.
Rogoff declined comment on the specifics of the language in the Obama Administration proposal, referring questions on the details to the Treasury Department.
As for the repatriation scheme, Rogoff said there is language in the proposal to address the use of repatriated overseas earnings for transportation programs. Rogoff said the White House has a dubious view of legislation introduced last May by Rep. John K. Delaney (D-Md.) that would create an infrastructure fund seeded by the sale of $50 billion in very long-term bonds. U.S. corporations would be encouraged to buy the bonds by repatriating, tax-free, part of their overseas earnings for each dollar they invest.
Rogoff said the Administration is unsure that the treatment of foreign profits would raise enough revenue for highway funding. The Administration has in the past expressed interest in allowing repatriation of foreign-generated earnings at less than the prevailing 35-percent U.S. corporate income tax rate. However, it has not agreed to tax-free repatriation.
FUNDING DEADLINE LOOMS
The current 27-month, $105 billion transport-funding law expires on Sept. 30. However, the Highway Trust Fund used to finance transportation projects is expected to run out of money by August. Unless Congress acts before the August summer recess to reauthorize funding mechanisms, the federal government will be forced to withhold matching funds reimbursement to the states, Rogoff said.
The White House proposal, unveiled in February, is the first time in five years the White House has proposed a plan to pay for infrastructure improvements. The proposal includes a $10 billion for a new multimodal freight grant program to fund rail, highway, and port projects. The program would be conceived and implemented in conjunction with state and local governments, organized labor, and the private sector.
Under the proposal, $199 billion would be spent on highway programs, with an additional $7 billion on highway safety. About $19 billion would be allocated to rail programs. The remaining $81 billion would be allocated to mass transit programs and to provide what the White House called "competitive funding," in the form of federal grants, to spur policy innovation.
The proposal does not contemplate any increases in motor fuel taxes, and Congress seems to have no appetite to raise them either. Taxes on gasoline and diesel have not been raised since 1993. Shipper and carrier groups, as well as the U.S. Chamber of Commerce, support an increase in fuel taxes as long as the revenues are dedicated to infrastructure funding.
Based on Rogoff's remarks, the Administration plan also apparently does not call for so-called carrier productivity improvements such as the nationwide use of double 33-foot trailers or an increase in a large truck's "gross vehicle weight" to 97,000 pounds from 80,000 pounds. The gross vehicle weight is comprised of the combined weight of a tractor, trailer, and cargo. Rogoff said freight interests are already well represented in the Administration's proposal by the $10 billion budget for multimodal programs.
Rogoff noted that the ambitious tax reform "discussion draft" introduced last February by Rep. Dave Camp (R-Mich.), chair of the tax-writing House Ways and Means Committee, budgets $126 billion for infrastructure improvements. While the numbers and their path to reaching them are different, the President and Rep. Camp "are speaking from the same zip code on this," he said. The fact that powerful figures from different parties rolled out infrastructure funding programs at roughly the same time augers well for the bipartisan support needed to quickly pass a long-term funding bill, Rogoff said.
Last week, Sens. Barbara Boxer (D-Calif.), chairman of the Senate Environment and Public Works Committee, and Senator David Vitter (R-La.), the committee's ranking minority member, announced that they would begin working towards a six-year transportation funding bill. Boxer was arguably the key Congressional figure in pushing through the current bill, which became law in July 2012.