Treasury Secretary Jack Lew and Transportation Secretary Anthony Foxx spoke with Bloomberg Television’s Peter Cook today about investing in infrastructure, ending tax inversions and Russian sanctions.
Secretary Lew said a “broken” tax system is what prompts tax inversions: “The right solution, if we cannot enact tax reform quickly enough, it’s for Congress to enact legislation that would close the door to these inversions. What I’ve said is that if Congress doesn’t act, we have to take the steps we can which will reduce the economic value of inversions. And I’m looking at options, as I said yesterday, we’re going to make decisions in the very near future. And it will not take away the need for legislation. But it will take a lot of the value out of these inversions, which I hope will change the decisions companies make.”
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On the Russians threatening to shut down Russian airspace to sanctioning countries, Secretary Lew said: “Russia is feeling the impact of sanctions in its economy and they’re not even denying the impact of it…The president’s been abundantly clear that if Russia withdraws its military support, it stops being engaged, recognizes Ukrainian sovereignty, we will be delighted to roll back sanctions. So Russia really controls the direction that this goes. They should make the decision to work this out diplomatically and resolve the situation. But they need to know that if they fail to do that, they’re going to face additional costs.”
Jack Lew Urges Infrastructure Spending, Tax Code Changes
COOK: Let me start with you first, Secretary Lew, and talk big picture here about infrastructure investment.
How big a hole does America have right now when it comes to infrastructure and what’s it going to take to get out of it?
JACK LEW: Peter, you know, we have a big hole. It’s been the better part of a decade that we haven’t seen the investment that we need, notwithstanding the major investments we made early in this administration to repave roads and build bridges and tunnels.
The backlog is deep. We know from the history of our country that building infrastructure is a way to take care of two things at the same time. First, it creates good, solid middle class jobs; secondly, it builds an economic foundation for the future.
We don’t get to take any decades off and the needs are great, wherever we look, whether it’s the highways, the ports, the airports, our electric grid, the water utilities. And we’ve got a group of people assembled here today who have the right background to be able to the problem and we’re very excited by the enthusiasm for working together to tackle this.
COOK: Secretary Foxx, there’s been some discussion about the U.S. maybe the U.S. isn’t keeping up when it comes to its peers around the world. Is China eating our lunch when it comes to infrastructure?
ANTHONY FOXX: Well, as Jack can tell you, the share of GDP that’s being used for infrastructure in the U.S. versus countries like China is much smaller by, in some cases, about half.
And so we’ve got a lot of distance to make up in this country. But downstairs, we’ve got about $50 billion dollars worth of investors that are really looking to figure out how to connect into U.S. infrastructure and at a time like this when we have a country that’s growing by 100 million people over the next 35 years, we’re going to have to basically double the freight capacity in this country over the next 35 years. We don’t have a second to lose because it’s cheaper to invest today than it will be tomorrow.
COOK: Tell me what it is you all are prepared to offer those private investors, the real money you talked about in the room here, to try and get them to park their money in U.S. infrastructure because certainly there’s been some investment, but not the numbers you all would like to see.
What can you offer them differently going forward? I know you are working on some recommendations. Can you give us one idea, for example?
FOXX: Well, the president has asked us to take a look at infrastructure writ large through the Build America investment initiative. We owe him some recommendations by the middle part of November.
But what we’re doing at the U.S. Department of Transportation is we’re already standing up a Build America investment center. This is going to be a place — kind of a repository, if you will, of model legislation, technical assistance to state and local governments as well as private sector investors who are looking to do infrastructure projects.
It’s going to be a place where we can really try to make some headway. And we’re also working to accelerate project delivery so that projects can get done faster and remove a bit of uncertainty that sometimes causes private sector investors to go away.
COOK: Is this an acknowledgment Mr. Secretary, this summit — You’re getting private sector folks here — that the federal government, given the gridlock here in Washington, can’t get this job done? Are you going to have to hand the keys effectively over to the private sector to do this in the future?
Jack Lew: Peter, the thing about partnership is we all have to do our part. There is an enormous role for the federal government. And as you know, the president is pushing very hard for a four-year extension of our transportation program so that we can get the certainty out there, that the federal government will be there as a partner.
But it’s also no secret that these are years of budgetary constraints, at — all levels of government — and if we look around the world, the countries that are doing well on infrastructure have figured out how to use all the tools available, public and private investment.
I certainly hope we can get a multi-year highway bill enacted. I think we can. And if we can, we still need to do what we’re doing here today. We certainly need to do it in the event that we don’t SEE quick action.
COOK: Those private investors down there, Mr. Secretary, they’re looking for a return on investment. They want less red tape. It’s hard to get these projects done anywhere in this country still in this environment.
Again, what are you going to offer them? Are we welcome to looking at perhaps more privately managed roads in this country?
FOXX: Well, let’s start with the fact that the American people want more investment and less red tape. They are the ones who are stuck in traffic; they’re the ones who are trying to get to work to get to soccer practice. Those are the ones that have businesses that need to move goods from one place to another.
And so this is a problem that is not invisible to Americans. It’s one that’s very up close and personal for them. And again, I think Jack said it exactly right, which is that what we’ve got to do is we’ve got to use all of the tools in the toolbox and one of those that has been underutilized in this country is public-private partnerships.
COOK: Let’s talk about what the president’s pitch was all along through this, because I’ve talked to both of you about it, and that is this notion of combining the corporate tax reform effort with infrastructure spending, using some of those offshore profits parked overseas, Mr. Secretary. Bringing them back home, temporarily investing that money into infrastructure.
Sounds like a good idea. Republicans have talked about it as well. Yet it went nowhere in Congress. Is this really a viable option? Are you talking to Republicans right now about it still?
Jack Lew: You know, Peter, I had conversations with senior Republicans this week about it. So, yes —
COOK: You want to name some names?
Jack Lew: — I’m talking to — I’m talking to committee chairman. I’m talking to ranking members. I’m talking to people who write tax policy. And I’m — I think that, you know, I can’t sit here today and say that in the next two weeks or the next two months that we’ll get done. But I think that when an idea is right and when it strikes a nerve that is a shared concern, it will eventually become something that becomes more of an organizing principle.
You know, I think if you look at the need for business tax reform, you know, the experience we’re having now with country — companies reorganizing to change their addresses and keep their business activities here, but have their mailing address in another country to avoid U.S. taxes, those companies want to take advantage of everything we have to offer in the United States, including our roads and our bridges and our tunnels and our national defense, our rule of law.
I don’t think those companies are doing it because they’re — they want to do it. They’re doing it because our tax system is broken. We’ve got to fix our tax system. At the same time, we can’t sit by and in — while we’re waiting to fix our tax system, watch more and more companies migrate overseas in that way.
So you know, we’ve urged Congress to act on legislation; we’re taking steps to put together administrative measures. The real answer is tax reform and tax reform that can give the secondary and very important benefits of providing resources to invest in our infrastructure.
I think it’s win-win. It’s something that would help build our economy for the future, and I think if you look at Chairman Camp’s tax reform proposal that he put forward, he took the idea forward in his tax proposal. So we’ve seen some take-up.
Obviously, it’s hard to predict when Congress will act. But we’re going to keep working on it.
COOK: Well, I got to follow up on the inversion question because that is in the news right now, Mr. Secretary. Short of a deal on corporate tax reform, you’ve said you’re prepared to take action in the very near future.
How confident are you, first of all, that you do have the tools here at the Treasury to truly deter companies from engaging in inversions going forward?
Whatever it is you decide, is it going to be tough enough?
Jack Lew: You know, Peter, I’ve made clear that the real answer is tax reform because as long as we have a system where the United States has the highest statutory tax rate in the developed world, even though a lot of companies pay no taxes, it creates a very bad incentive.
The right solution, if we cannot enact tax reform quickly enough, it’s for Congress to enact legislation that would close the door to these inversions.
What I’ve said is that if Congress doesn’t act, we have to take the steps we can which will reduce the economic value of inversions. And I’m looking at options, as I said yesterday, we’re going to make decisions in the very near future. And it will not take away the need for legislation. But it will take a lot of the value out of these inversions, which I hope will change the decisions companies make.
COOK: Very near future: I got to press you on that. Does that mean before the midterm election?
Jack Lew: Our teams are working on it and as soon as we are in a position to take action, we will let you know.
COOK: And one final question on this, Mr. Secretary, and that is Chuck Schumer offered his own proposal, or will offer his own proposal this week that will look back at these issues all the way back to 1994. Is he going too far with his proposal? Or is that something you could support?
Jack Lew: I made clear on a number of occasions that we need to enact legislation that’s retroactive to May. And the reason is companies, if they rush to get these deals through before the law changes, shouldn’t have a benefit from that kind of rush to the finish line. I think that is an important principle and I would work with the Congress on how to enact it, as they did in 2004, when they enacted legislation in this area in the past.
COOK: Mr. Secretary, I want to get your take on the larger picture about the solution, matching the global tax reform, comprehensive tax reform, corporate tax reform with the infrastructure issue. There’s been some criticism out there that — from the business community that supports this — and maybe this hasn’t been a big enough priority from the — from the president. If he really felt strongly about it, this would have gotten done.
You wouldn’t have had that punt back in July on highway spending. What’s your take on that?
FOXX: The president’s been working very hard on this. I’ve been with the president; you’ve seen him on the road. He’s been working very hard on this long-term bill issue. But really the problem is very clear to the American people, is that particularly on the House side, there isn’t a willingness to look at the long term. We’ve got to look at the long term and this country doesn’t have Democratic or Republican roads or bridges or trains or transit systems. They’re systems that all of us use. But we’ve got to be willing to make the investment and to look long-term and to be pretty bold about it because the country right now has massive, massive, massive maintenance backlogs that we’ve got to take care of. And we’ve got new capacity needs that are being felt in places like the South and West that are seeing population explosions and very little infrastructure to manage it.
COOK: I’m going to ask you one final question on a different topic, but it affects both of your agencies and that is the situation with Ukraine and with Russia. We had a threat this week, Mr. Secretary, from the Russians that in response to sanctions, including sanctions from Western countries, U.S. included, potentially that they could close Russian airspace to Western airlines.
Have you given any thought to what that might mean for the U.S. airline industry and what the implications might be?
FOXX: Look, you know, things continue to be very fluid. But let me say this, that the FAA’s first and foremost focus is on the safety of the American traveling public and we have to manage international situations all the time if that happens. We will deal with it. But rest assured that our focus is always going to be on making sure that the American people are safe.
COOK: Mr. Secretary, your take on that? We saw the Europeans at least for the moment delayed any push for new sanctions after they heard that threat; whether or not it was a direct result, we’ll leave that to the Europeans. But what’s your take?
Jack Lew: You know, Peter, we have been working closely with the Europeans since the beginning of this situation and I think it has been very effective in putting pressure on Russia.
Russia is feeling the impact of sanctions in its economy and they’re not even denying the impact of it.
The purpose of the sanctions is to get Russia to change its policy, to respect international law and to stop supporting the military actions of separatists and being participants in military actions in Ukraine.
We are prepared, as are the Europeans, to take additional action, you know, we’ve also made clear, the president’s been abundantly clear that if Russia withdraws its military support, it stops being engaged, recognizes Ukrainian sovereignty, we will be delighted to roll back sanctions.
So Russia really controls the direction that this goes. They should make the decision to work this out diplomatically and resolve the situation. But they need to know that if they fail to do that, they’re going to face additional costs.
COOK: Final question before we go… just heard from up on Capitol Hill a short time ago, House Appropriations Committee chairman Hal Rogers says there will not be a shutdown, the House will vote on a spending bill this week.
Do you buy it?
Are you as confident as Hal Rogers and what are the implications if there is?
Jack Lew: You know, Peter, I have to say that the American economy is doing well. The American people are resilient and fighting back. They do not need another self-inflicted wound from a government shutdown. I certainly hope he’s right.
COOK: Is that a pot hole you’d like to avoid at the Department of Transportation?
FOXX: There’s no question, we’ve had a tough year. Sequestration, shutdown and the highway trust fund almost going over the cliff over the summer. In transportation, state and local governments are still looking for signs that the federal government’s going to provide long-term support and the last thing we need is a short-term crisis.
COOK: All right. Mr. Secretary, Mr. Secretary, thanks to both of you for joining us here on Bloomberg. Appreciate it very much.
FOXX: Thank you.
Jack Lew: Pleasure to be with you, Peter.