A corporate tax holiday, one of the proposals currently being floated to help fund new highway projects, would actually cost the government around $118 billion, according to a new official projection.
The proposal from Sens. Rand Paul (R-Ky.) and Barbara Boxer (D-Calif.) would allow companies to bring back profits currently stashed offshore at a reduced tax rate.
{mosads}But the Joint Committee on Taxation said that, while the proposal would produce a burst of revenue early on, it would end up being a long-term loser. The official scorekeeper has reached similar conclusions in the past.
Even before the new score, the leading tax writers in both chambers, Senate Finance Committee Chairman Orrin Hatch (R-Utah) and House Ways and Means Committee Chairman Paul Ryan (R-Wis.), had opposed the holiday.
Hatch said Thursday that “JCT’s latest estimate sends a clear message: proposals for a temporary repatriation tax holiday meant to pay for highways are not financially viable over the long term.”
“Right now the Finance Committee’s bipartisan tax working groups are examining whether Congress can establish a sound financial structure for the Highway Trust Fund as a part of tax reform,” the Utah Republican added. “However, as the deadline for highway funding nears, we must examine all workable options, including eliminating low-priority spending, to ensure uninterrupted service to the nation’s highway programs.”
Ryan said earlier Thursday at a breakfast sponsored by the Christian Science Monitor that any proposal to reduce tax rates when corporations repatriate their profits would have to be part of a broader overhaul of the tax code.
The Obama administration has floated using revenue from business tax reform to help shore up the Highway Trust Fund, which is projected to run dry this summer. Ryan said Thursday that he was working on a short-term patch for the fund as lawmakers work on a potential revamp of the tax code. Democrats and Republicans remain divided over key parts of tax reform, likely making it difficult for an overhaul to occur while President Obama is in office.
The bill from Paul, who is seeking the GOP presidential nomination, and Boxer would allow multinationals to bring their foreign earnings back to the U.S. at a 6.5 percent tax rate. Under current tax law, companies owe the full 35 percent corporate rate on their offshore profits, though they get credits for taxes paid to foreign governments.
The JCT said such a plan would raise around $30 billion over its first couple years. But the measure then quickly becomes a big loser for the Treasury, losing close to $150 billion over the next eight years.
The tax committee says there’s a couple of reasons the plan would be a loser, including that companies would rush to bring profits back to the U.S. under the plan and will then stock up on offshore earnings in the future as they wait for another tax holiday.