It’s the $2 trillion question.
That’s roughly how much U.S. multinational corporations have stashed offshore — money that both Republicans and Democrats would like to tap for revenue and cash that even some companies wouldn’t mind paying a reduced tax rate on.
Democrats and some Republicans are interested in using the money that would come from revamping the international tax system to shore up the nation’s roads.
{mosads}But other GOP lawmakers aren’t sold on devoting the money to infrastructure, fearing it would cut into revenue that could be used to lower corporate tax rates, one of the major goals of tax reform.
“You can’t spend those dollars twice,” said Rep. Kevin Brady (Texas), a senior Republican on the tax-writing Ways and Means Committee, who is hesitant to use the offshore revenue for infrastructure.
Lawmakers have frequently discussed tax reform in recent years but face obstacles to reaching a deal. But there are signs that the idea of pairing a slimmer tax reform package with infrastructure spending is gaining traction, less than six weeks before the next deadline for the Highway Trust Fund.
President Obama has been talking up offshore cash for roads, and Democrats on Capitol Hill now say it’s no guarantee that they’ll back another short-term extension for highways.
And while House Ways and Means Committee Chairman Paul Ryan (R-Wis.) has flatly said that Congress won’t hike the gas tax, which is now the primary funding source for highways, he has mentioned the bipartisan discussions about tapping offshore corporate profits for
highway money.
Senate Finance Chairman Orrin Hatch (R-Utah) hasn’t ruled out such a plan, nor has his committee’s top Democrat, Sen. Ron Wyden (Ore.), who predicted that GOP senators would be open to divvying up the offshore revenue between roads and tax cuts.
Finance Committee working groups are expected to give Hatch and Wyden their recommendations for tax reform this week.
“A fair number of my Finance Committee colleagues are interested in this sort of architecture, of business tax reform and money for infrastructure,” Wyden said. “But there are a lot of ifs before you get there.”
Sens. Rob Portman (R-Ohio) and Charles Schumer (D-N.Y.) have been working on an international tax reform plan that could include money for highways and bring the U.S.’s international tax code for businesses closer to global norms.
The latter change could be a big selling point for Republicans, who have long wanted to shield most offshore corporate profits from U.S. taxation.
GOP lawmakers like Rep. Pat Tiberi (Ohio), another senior tax writer, say a deal that is limited to international tax changes is probably the most realistic option.
“We’re going to try to work around that issue,” Tiberi said about the Democrats’ unwillingness to lower individual tax rates. “So we’re not going to be dealing with rates.”
But as usual with tax reform, there are still plenty of obstacles. Companies without offshore holdings would be left behind in an international-only tax reform, while high-tech and pharmaceutical interests could see big benefits.
There’s also some concern that if Washington only revamps the international tax structure — leaving the rest for after the 2016 presidential race, as Ryan has said he’d like to do — corporate giants will lose interest in the reform effort.
“If these multinationals get their repatriation problem solved in a highway bill, the energy behind tax reform will be dampened down considerably,” said Clint Stretch, a former top official at the Joint Committee on Taxation. “These companies rightfully recognize that even with their support, reform is at least three or four years away, so they are looking for alternative, quicker relief.”
Lawmakers would also have to move fast for that kind of deal to materialize by the end of July. Ryan and Hatch had previously sought to extend the trust fund until the end of the year to give Congress time to work through a more narrow tax overhaul, and could do so again.
The previous efforts broke down after Democrats and Republicans disagreed about whether to use spending cuts to help fill the trust fund, but the two sides had found billions of dollars in stricter tax compliance initiatives that could be looked at again.
But even that extra time might not allow top tax writers to bridge the remaining gaps on what to do with the offshore cash.
Democratic aides and lawmakers have been skeptical of using the revenue from repatriation for lowering corporate tax rates, saying the one-time influx of money would cover cuts now but lead to a long-term increase in deficits.
Both the White House and Republicans at least want to cut the top corporate tax rate, now at 35 percent, into the 20s. But Democrats argue that even taxing the trapped offshore profits at a higher rate than Republicans and business interests suggest, netting maybe $250 billion or more, wouldn’t be much help there.
“The amount of money that you’re going to get on a permanent basis on international tax reform would hardly make a dent in the rates,” said Sen. Ben Cardin (D-Md.).
On the Republican side, some senior tax writers such as Brady are concerned that using the revenue for anything other than tax reform will make their job more difficult. Conservatives also fear that companies would be forced to pay taxes even if they left their money offshore.
GOP lawmakers have also started to question what tax breaks might have to get chopped in an international tax reform deal, especially with lawmakers looking to give a new low rate to income stemming from intellectual property. Democrats such as Schumer have long sought to roll back maneuvers, like earnings stripping, that are key to the offshore tax deals known as inversions.
“You’re into very big numbers on pay-fors,” Brady said about an international deal that included an innovation box. “Major numbers on pay-fors. And that creates its own resistance.”