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Outdated tax rules are depriving the U.S. of billions of dollars in foreign investment. The must pass transportation bill is a rare bi-partisan opportunity for Congress to implement pro-growth tax reform and put Americans to work on our nation’s crumbling roads and bridges. With political gridlock increasingly the norm, our national leaders must seize opportunities to advance commonly held objectives.
Lawmakers in both political parties should capitalize on this opportunity to fix our broken transportation system and put Americans back to work.
The federal Highway Trust Fund, which finances road construction, bridges, and mass transit systems, is nearly insolvent. Historically, Republicans and Democrats have come together to make the transportation investments that are vital to American productivity and economic growth. However, the Trust Fund’s traditional revenue source, the federal gas tax, is providing far less revenue today than is needed and the discussion over potential new sources of revenue has stymied Congressional action.
Clearly, a new approach is needed and policies that harness the power of outside private capital must be part of the answer.
Meanwhile, the U.S. is among the world’s favorite places to invest. Yet today’s tax laws actively discourage investment from overseas in one of the places where it could have a tremendous economic impact – the commercial real estate industry, which today represents 13 percent of U.S. GDP by revenue and generates or supports over 9 million American jobs.
One punitive tax regime in particular, known as the Foreign Investment in Real Property Tax Act of 1980 was enacted during the American farm crisis more than thirty years ago. Foreign investors regularly cite FIRPTA as a major impediment to investing in the United States. In a survey of foreign investors released in January, 76 percent reported that relief from FIRPTA would have a positive or major effect on their investment activity.
There are many reasons that Congress should reform FIRPTA. For example, more than $2.4 trillion worth of commercial real estate loans mature by 2018. Borrowers will need to secure new equity funding options or risk foreclosure, leaving communities with even more vacant storefronts, lost jobs, lower tax revenues and a deeper economic hole. Moreover, it subjects foreign investment in U.S. real estate to a much higher tax burden than applies to a foreign investor purchasing a U.S. stock or bond, or an investment in any other asset class.
Christopher Lee, founder of Highstar Capital, one of the largest firms in the United States dedicated to investing in private infrastructure projects, notes that some of the capital unlocked by FIRPTA reform “could replace state and local spending on infrastructure, much of which is tax exempt and a drain on federal resources.”
Fortunately, Senators Robert Menendez, D-N.J., and Michael B. Enzi, R-Wyo., and Representatives Kevin Brady, R-Tex., and Joseph Crowley, D-N.Y., have introduced bipartisan legislation to reform FIRPTA. The legislation is sponsored by 41 Senators (25 Democrats and 16 Republicans) and 60 Representatives (29 Democrats and 31 Republicans), with more joining almost every day.