Business groups tried to slow congressional action on taxes Wednesday as lawmakers moved a step closer toward taxing U.S. multinationals’ overseas cash to finance spending on highways and bridges.
The pushback came as a House Ways and Means subcommittee held a hearing Wednesday afternoon on the idea of taxing some of the estimated $2.1 trillion currently held untaxed overseas by U.S. companies to replenish the Highway Trust Fund.
“Using revenue from this tax to support stand-alone, unrelated new spending would imperil the ability to achieve meaningful tax reform supported by Congress and the administration,” warned Mark Weinberger, chairman of the Business Roundtable’s tax group. Weinberger is also global chairman and CEO of the tax advisory and consulting firm EY.
Business groups such as the Business Roundtable previously were among the strongest proponents of a broad corporate tax reform that would lower rates and change the way U.S. companies are taxed on overseas earnings.
But as that legislative effort fell apart in recent weeks because of unbridgeable differences between Republicans and the Obama administration, and lawmakers have turned to narrower legislation to beat a July 31 deadline for preventing the highway trust fund from running out of money.
Businesses would rather see those revenues applied to lowering tax rates.
Claire Buchan Parker, spokeswoman for the LIFT America Coalition of businesses seeking international corporate tax reform, said that taxing companies’ overseas profits would neither solve the highway funding shortfall nor address the problem of the U.S. tax code failing corporations. “As a stand-alone measure, a ‘deemed repatriation’ tax on American enterprises will not accomplish any of those critical objectives,” Parker said.
Rep. Dave Reichert, R-Wash., chairman of the subcommittee on Select Revenue Measures, sought to thread the needle.
“Repatriation cannot be done as a standalone,” Reichert said. “It must be part of a transition to a more competitive system.”
The possibility he was referring to is taxing overseas funds as part of legislation that would move the U.S. to a tax system in which the foreign earnings of U.S. companies are not taxed or are taxed at a much lower rate.
Most of America’s peer countries also have “territorial” tax systems in which foreign earnings are not taxed. The U.S. has the highest corporate tax rate, 35 percent, of advanced countries, and taxes companies on all overseas earnings at that rate, allowing credits for taxes paid to foreign governments. Companies can avoid the tax temporarily by keeping the money out of the the U.S., a feature of the tax code that has led to the trillions of cash held overseas.
A deemed repatriation might raise money to be used for highway spending. But under congressional scoring rules, it would only do so if it were part of a transition to a new tax system, not as a one-time event.
Roughly $100 billion would be needed to meet the shortfall in highway funding for six years, according to the Congressional Budget Office. To fund highway spending for two years, placing the next deadline after the presidential election, would take about $25 billion, Rep. Pat Tiberi, R-Ohio, suggested at Wednesday’s hearing.
“We have really two options as I see it: We can cobble together a couple of things, or we can explore this option,” Tiberi said of the deemed repatriation measure.
The highway trust fund, normally filled by gas tax revenue, has needed transfers from the general budget in recent years. Inflation has diminished the value of the tax, and more fuel-efficient cars also have lowered revenues.
Republican leaders, however, have ruled out the possibility of raising the tax.
