A proposal from Sens. Rand PaulRand PaulSanders, Dems defend ObamaCare at Michigan rally Paul: Medicaid expansion 'the big question' Rand Paul: ObamaCare replacement goal is to insure most people at lowest cost MORE (R-Ky.) and Barbara BoxerBarbara Boxer Becerra formally nominated for Calif. attorney general 10 freshmen to watch in the new Congress Top 15 Democratic presidential candidates in 2020 MORE (D-Calif.) to pay for infrastructure projects with a corporate tax holiday is being met with fierce opposition in Washington.
The plan calls for giving business a reprieve from penalties for avoiding prior taxes if they agree to move money back to the U.S. and pay a 6.5 percent rate on it.
The money that is generated by the proposal, which is known repatriation, would then be used to pay for the reauthorization of a transportation funding bill that is scheduled to expire in May.
“Tax holiday proposals designed to pay for the transportation bill sound great until you look at the details," Hatch said in a statement after Boxer and Paul’s plan was released on Thursday.
"After all, the Joint Committee on Taxation (JCT) has clearly detailed how a stand-alone temporary tax holiday would end up costing the government in the end," Hatch continued. "Saying you're going to use something that loses money to pay for anything is just wrong. Therefore, saying you're going to use it to pay for infrastructure is just bad policy, plain and simple. Such proposals to end the lock-out effects of earnings should only be considered in the context of tax reform.”
The nonpartisan JCT has said that a tax holiday, as repatriation plans have been referred to, would generate about $20 billion in revenue initially. The analysis said the plan would ultimately cost the federal government about $96 billion, as companies would have more incentive to keep their profits abroad and wait for another tax holiday.
Paul and Boxer said their plan to use revenue from taxing oversees corporate profits was a more politically viable alternative to boost federal infrastructure funding than increasing the nation's 18.4 cents-per-gallon gas tax, which has been discussed in recent weeks as prices at the pump have fallen sharply.
"The interstate highway system is of vital importance to our economy," Paul, who is a likely 2016 GOP presidential candidate, said in a statement.
"All across the country, bridges and roads are deficient and in need of replacement," he continued. "We can help fund new construction and repair by lowering the repatriation rate and bringing money held by U.S. companies back home. This would mean no new taxes, but more revenue, and it is a solution that should win support from both political parties.”
Transportation advocates have argued that raising the gas tax, which predates the highway system by about 20 years, would be the easiest way to close the nation's transportation funding shortfall.
The gas tax has not been increased since 1993, and it has struggled to keep pace with infrastructure expenses in recent years as cars have become more fuel efficient.
The tax at the pump brings in about $34 billion per year. The federal government typically spends about $50 billion per year on road and transit projects, and transportation advocates have maintained that the larger figure is only enough to maintain the current state of U.S. infrastructure.
Tax and budget groups in Washington seem to share Hatch’s skepticism about the idea of using repatriation to close the gap.
“A repatriation tax holiday would boost revenues in the first couple of years, as companies rushed to take advantage of the temporary low rate. But it would bleed revenues for years and decades after that,” the Center on Budget and Policy Priorities said in a blog post.
“As JCT explained, the biggest reason is that a second holiday would encourage companies to shift more profits and investments overseas in anticipation of more tax holidays, thus avoiding taxes in the meantime,” the post continued.
The Washington, D.C.-based Citizens for Tax Justice group agreed Congress should find another way to pay for transportation projects than repatriation.
“A repatriation tax holiday was a bad idea when Congress last enacted one in 2004 and it's a bad idea now,” Citizens for Tax Justice Director Robert McIntyre said in a statement. “The only difference between then and now is that it’s a bad idea with a track record. The plan would reward companies that have hidden their U.S. profits in offshore tax havens by letting them pay a 6.5 percent tax rate on those profits, less than a quarter of the 35 percent tax rate that should apply.”
McIntyre said he doubted Paul and Boxer’s proposal could raise as much money for infrastructure construction as the bipartisan duo have argued it would.
“Sens. Boxer and Paul say their tax holiday will help pay for transportation infrastructure. But it’s ludicrous to argue that a tax holiday can be used to pay for anything since repatriation holidays don’t raise revenue — they lose it,” he said. “The Joint Committee on Taxation has consistently found that repatriation holidays raise some revenue in the very short term, but lose revenue over the long term.”
The current transportation funding bill, which spends about $11 billion and authorizes the collection of the gas tax at its current rate, is scheduled to expire on May 31.
Boxer, who is retiring after 2016, said the repatriation proposal was meant to “jumpstart negotiations on addressing the shortfall in the Highway Trust Fund,” though she also said it would be a “win-win for our economy and our country” if the plan was ultimately adopted.
“First, it will bring back hundreds of billions of dollars in foreign earnings that are sitting offshore, which can be invested here in America to create jobs,” she said. “Second, the taxes paid on those earnings will be used to extend the Highway Trust Fund, which supports millions of jobs nationwide.”