The InfraBank Project: a plan to grow the economy without growing the debt
There is an estimated $2.5 trillion backlog in infrastructure investment. Still more is needed to upgrade for the needs of the future economy. Existing mechanisms for financing these investments are not up to the challenge, especially in these debt-challenged times.
The federal government, especially Energy and Defense, invest in R&D in energy and other research. But innovators find it difficult to get funding to scale up promising technologies. Innovators complain that they can’t get venture capital to scale up unless they have venture capital to scale up.
The InfraBank Project is an effort to respond to these challenges in a new way: create a new, independent investment bank to pay for upgrades of existing infrastructure and to fund projects with emerging technology. It would be staffed by professionals, independent of politics and able to organize and implement a transparent, long-term program to prepare the economy not only for today’s challenges, but to put in place the infrastructure which will underpin progress in the future.
How to pay for it in deficit challenged times?
Attract private capital with a modest tax advantage.
- Estimates vary, but according to some economists, there may be as much as $4 trillion in sitting in liquid assets in the U.S. or overseas. Some of this apparently awaits the next tax holiday, when it may be possible to repatriate profits at a lower corporate profit tax rate. The last tax holiday did not result in the corporate expansion and job growth its proponents hoped for, so there is resistance to another holiday. Meanwhile, there is a lot of capital not productively employed.
- Suppose instead of irregular tax holidays, a permanent method of investing profits were created? If a corporation purchased a five-year, non-transferable bond in the national Infrastructure Bank (“InfraBank”), it would pay just 15% corporate profit tax, and redeem the capital together with any gains tax-free after five years. It would offer an attractive tax rate in exchange for routing money through a process to benefit economic growth, after which the funds would be returned to the corporation.
Why not make such an investment available also to individual investors?
- Individuals saving to buy a home, fund retirement or pay for college generally have to choose which of these objectives their savings will be used for long before it is clear exactly how much they will need for which purpose and what the value of their accumulated savings for these admirable goals will be. Laws governing IRAs or 529 college plans generally both force taxable withdrawals and penalize citizens for changing their plans. Make InfraBank bonds available $500 denominations to individuals for five-year investments on the same terms as for corporations. This would align corporate and individual interests in building a stronger future for all.
How would this work?
- The InfraBank would operate as a financial hybrid: a nonprofit investment bank, perhaps with some form of government insurance. The idea is to underwrite the future without debt or more taxes by attracting private capital for a fixed term fueling progress, economic growth and future tax revenue.