Liberals wary of Schumer tax plan

Liberals wary of Schumer tax plan
© Victoria Sarno Jordan

Sen. Charles SchumerCharles (Chuck) Ellis SchumerCongress: Americans in Puerto Rico still need our help Airbnb is doing the Democrats' dirty work Protecting our judiciary must be a priority in the 116th Congress MORE’s (D-N.Y.) ideas for overhauling the tax system are encountering skepticism on the left, potentially making it harder to negotiate a deal with congressional Republicans.

Schumer, who is expected to become the leader of Senate Democrats next year, wants to change the way that American companies are taxed overseas and then use the revenue to pay for infrastructure projects.

ADVERTISEMENT

But progressive lawmakers and liberal groups are wary of the tax rates that Schumer may pursue, viewing them as too favorable to corporations at a time when populist sentiment is running high.

“I don’t think it would make sense for the first move out of the gate to be a giveaway for corporations right after an election like this,” said Harry Stein, director of fiscal policy at the Center for American Progress.

Schumer is interested in changing how the foreign earnings of U.S. corporations are taxed. Currently, the earnings are taxed at a rate of 35 percent, minus any tax credits for taxes paid to foreign governments. But companies can keep the profits overseas indefinitely, avoiding the taxes that are paid when the money is brought back to the U.S., or repatriated.

American companies have an estimated $2.6 trillion stored overseas, according to the Joint Committee on Taxation.

Schumer has floated the idea of “deemed repatriation” for corporate earnings outside the U.S. and a minimum tax on future foreign earnings regardless of whether they are repatriated. While Schumer has not specified the rates he would like to see for those taxes, he has suggested they should be lower than 35 percent.

“If you can get overseas money to come back here, even if it’s at a lower rate than the 35 it now comes back at, and you can use that money for a major constructive purpose such as infrastructure — if you did an infrastructure bank, for instance, you could get $100 billion in equity in the bank and get a trillion dollars of infrastructure,” Schumer told CNBC in an interview last month.

Lawmakers on both sides of the aisle have in the past expressed support for such a framework.

Last year, a Senate Finance Committee working group led by Schumer and Sen. Rob PortmanRobert (Rob) Jones PortmanUSDA to recall more than 9,000 furloughed workers to provide farm aid Senate Dem introduces 'Stop Stupidity' act to end government shutdowns Senators look for possible way to end shutdown MORE (R-Ohio) released a report that endorsed deemed repatriation of untaxed foreign earnings at a discounted rate. This framework has also been included in budgets from President Obama and a 2014 tax reform bill from then-House Ways and Means Committee Chairman Dave Camp (R-Mich.).

“Members on both sides share the view that a major investment in this country’s roads and highways is long overdue, and you fund that investment with one-time revenue generated by bringing back the $2.6 trillion of cash parked overseas and reforming our broken international tax code,” said Sen. Ron WydenRonald (Ron) Lee WydenSenate Dems introduce bill to keep DACA info private Congress should elevate those trapped in the gap – support ELEVATE Act IRS shutdown plan fails to quell worries MORE (Ore.), the top Democrat on the Senate Finance Committee and a supporter of international tax reform that takes Schumer’s proposed approach.

A Democratic aide made the case for this approach to international tax reform by saying it would raise the effective tax rates on foreign earnings that are not currently being taxed at all.

Across the board, Democrats are keen to spend more on infrastructure.

But liberal lawmakers such as Sens. Elizabeth WarrenElizabeth Ann WarrenPoll shows 36 percent support Trump's reelection, 43 percent prefer generic Democrat Trump's approval rating holds steady at 45 percent amid government shutdown: poll Senate Dems introduce bill to keep DACA info private MORE (D-Mass.) and Bernie SandersBernard (Bernie) SandersPoll shows 36 percent support Trump's reelection, 43 percent prefer generic Democrat Trump's approval rating holds steady at 45 percent amid government shutdown: poll Senate Dems introduce bill to keep DACA info private MORE (I-Vt.) strongly oppose taxing corporations’ foreign earnings at a lower rate than their domestic earnings.

In a speech last year, Warren called deemed repatriation at a significantly lower rate than 35 percent “a giant wet kiss for the tax dodgers.”

Sanders has introduced legislation that would pay for infrastructure investment by ending deferral on overseas earnings, but it would not change the tax rates for them. A budget proposal from the Congressional Progressive Caucus — which has more than 70 members, including Sanders — also calls for ending deferral without proposing corporate rate cuts.

Aides to progressive lawmakers and officials with liberal groups said that if corporations were given a lower tax rate on their foreign earnings, they would likely continue to shift profits overseas.

“I don’t see how that can work,” an aide to a progressive senator said.

“There’s nothing more outrageous” than giving corporations a tax break on their profits, said Frank Clemente, executive director for Americans for Tax Fairness.

Stein, from the Center for American Progress, rejected the argument that the tax rate on foreign earnings is effectively zero because some money is repatriated every year.

Ultimately, whether a deal can be reached on international tax reform “really depends on what the rates are,” Stein said.

But opposition from the left is unlikely to deter Schumer, who has shown a willingness to take on the liberal base in the past.

Last year, for example, he infuriated liberals by coming out against President Obama’s Iran nuclear deal.

For his part, Schumer has said he is optimistic that progressive lawmakers, including Warren, will be onboard with the Democratic agenda in the next Congress.

“[Warren is] going to surprise everybody,” Schumer told CNBC. “She is going to be both a progressive and a constructive force.”

Even if he overcomes potential opposition from progressives, Schumer’s plan may face resistance from congressional Republicans.

While Schumer and Speaker Paul RyanPaul Davis RyanAs new Congress begins, federal-state connections are as important as ever Trump once asked Paul Ryan why he couldn’t be ‘loyal': book AEI names Robert Doar as new president MORE (R-Wis.) tried to reach an agreement on an international tax reform and infrastructure package last year, those talks were taking place at a time when Congress needed to find additional revenue for the Highway Trust Fund.

Because Congress passed a long-term highway bill last year, congressional Republicans are unlikely to be in a rush to pass another, according to a senior leadership aide.

Proponents of more federal infrastructure investment say that last year’s bill was not sufficient to solve all of the country’s needs.