Bernie Sanders’s claims about his trillion infrastructure plan

Source: WP Facts

(David Becker/Reuters)

Sanders has big plans for investments if he is elected president, with an agenda that includes $3.5 trillion over 10 years in proposed new spending programs — and an agenda could end up costing perhaps as much as $18.5 trillion more over the next 10 years. So his $1 trillion infrastructure proposal — spent over five years — is just a relatively small piece of that.

To justify his statement that some large corporations are “not paying a nickel in federal taxes,” the Sanders campaign pointed to a study by Citizens for Tax Justice, specifically noting 12 companies that the left-leaning group said had paid effective tax rates of less than zero over a five year period while maintaining subsidiaries in tax havens.

We are not going to dispute CTJ’s estimates, but it’s worth noting that nine of these companies did pay federal taxes in at least one year. Sanders’s justifies his “not one nickel” comment by adding up the tax bill over five years. So General Electric, for instance, paid federal taxes in 2011, 2012 and 2013—but Sanders claims negative taxes because the tax losses in 2010 and 2009 (in the aftermath of the financial crisis) exceeded the taxes paid in later years.

Imagine if you got tax refunds in 2009 and 2010 that exceeded the taxes you paid in 2011, 2012 and 2013. Would you say you paid “not one nickel” in federal taxes? Didn’t think so. (Note: this example is not directly comparable because the tax losses allow companies to get refunds of taxes they owed and paid in the past.)

At least Sanders specified “federal taxes.” As we have noted before, these companies pay all sorts of other taxes, such as sales taxes, property taxes, employment taxes and so forth.

(Note: After we had quizzed Sanders’s staff about this language and written this fact check, but before we published it, Sanders framed it this way in the second Democratic debate on Nov. 14: “I do believe that we must end corporate loopholes, such that major corporations year after year pay virtually zero in federal income tax, because they’re stashing the money in the Cayman Islands.” That’s a more accurate way of putting it.)

Moreover, Sanders is highlighting an important issue that has spawned bipartisan concern — the growing practice of U.S. multinational corporations avoiding or reducing U.S. taxes by keeping profits overseas in low-tax havens. One recent study, by Reed College economics professor Kimberly Clausing, estimates that the growing practice has led to revenue losses of between $77 billion and $111 billion by 2012. So we are not talking about an insubstantial amount of money.

A recent letter signed by 24 international tax experts, led by Edward Kleinbard, the former chief of staff of the Joint Committee on Taxation, noted that corporate “profits as a share of GDP [gross domestic product] — at 9.8 percent — are nearly at all-time highs. Their U.S. taxes as a share of GDP are just 2 percent, which are near all-time lows.”

Would tapping these overseas profits be enough to fund a $1 trillion infrastructure plan? The Sanders campaign cited a Joint Committee on Taxation estimate for Sanders’s Corporate Tax Dodging Prevention Act, which would raise more than $113 billion over the next decade, as well as an $900 billion estimate in the tax lawyer’s letter for the cost of the “tax expenditure” that allows U.S. corporations to defer paying U.S. tax on their foreign earnings until that income is repatriated.

“Sen. Sanders would use all of this revenue to pay for his $1 trillion Rebuild America Act,” policy director Warren Gunnels said.  “It is common to pay for these types of investments over a 10-year period.”

As we have written before, policymakers cannot assume that estimates for tax expenditures will result in the same level of revenue if such tax loopholes are eliminated. So a $900 billion tax expenditure does not automatically translate into $900 billion in revenue. But Kleinbard thinks that the number is not out of line, given that between $200 billion and $600 billion could be raised imposing a one-time mandatory clean-up tax on all low-taxed foreign earnings existing at the time of the conversion to a new tax system.

A lot depends on how the law is crafted but “you might well conclude that it would be perfectly plausible to imagine picking up $500 to $600 billion in actual revenue in the first 5 years alone, so easily over $1 trillion over 10 — not counting the backward looking tax on existing earnings,” Kleinbard said.  But he warned that no one knows how other countries (especially in the European Union) might react, which could allow them to get more of the untapped revenue. “A lot more revenue might be collected in general, but now the question shifts to, how much goes to Freedonia, and how much to the U.S.?”

Still, we’re getting rather theoretical here. What matters most is that Sanders’s claim of raising $1 trillion is at least credible — assuming the money is not also earmarked for other spending projects.

Finally, he says this spending will create as many as 13 million jobs. This is derived from a White House Council of Economic Advisers estimate that every $1 billion in federal highway and transit investment would support 13,000 jobs for one year. We have examined this estimate before, and it’s worth remembering that one-third of these jobs are directly created (such as construction workers), one-third are indirectly created (such as people hired by suppliers to construction firms) and one-third are induced (jobs created as the spending by employed construction workers filters through the economy).

Some readers might object to counting indirect and induced jobs as part of the calculation, but this “multiplier effect” is fairly standard in terms of assessing economic impact. And, actually, 13,000 jobs per $1 billion is on the low side for these kind of estimates. Other estimates on the economic impact of government spending suggest 25,000 jobs per $1 billion, 29,000 jobs per $1 billion, 36,000 jobs per $1 billion and even 44,000 jobs per $1 billion — which certainly shows how uncertain the craft of economics can be.

We should note that “jobs” is being used here as a euphemism for “job-years.” A construction worker engaged in a construction project for two years, for instance, would count as two “job-years,” or two jobs.

The Pinocchio Test

We of course take no position on whether this is good public policy. But within the confines of campaign rhetoric, Sanders can make a credible case that he can fund his $1 trillion infrastructure program over a 10 year period by taxing the profits of U.S. corporations now held in low-tax tax havens — and that such a spending plan could result in 13 million jobs.

For the reasons explained, he exaggerates a bit when he says many of these corporations have paid “not a nickel” in federal taxes because of offshore tax havens. Most have paid at least some taxes in some years, though the tax losses in other years may have helped make up some of the difference. Initially, we were inclined to say this was worth of One Pinocchio, but given how Sanders rephrased his talking point after we began asking questions about it — “virtually zero in federal income tax” — we will leave this with no rating.

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