Legislative efforts to tie taxes on repatriated overseas income to fund improvements to the nation's infrastructure took a major step forward Friday when Rep. Paul D. Ryan (R-Wis.), chairman of the House Ways and Means Committee, joined with Treasury Secretary Jacob J. Lew to pledge support for turning the idea into reality.
According to published reports, Ryan said he favors using revenue from taxed offshore profits to fund infrastructure improvements as long as the plan is part of a broader initiative to revamp the tax code. Ryan told reporters at an event in New York that Congress "should do a long-term highway bill and we think tax reform is the best way," according to the reports.
Lew, who joined Ryan in New York, said the Obama administration, which has proposed a one-time tax on foreign profits to pay for infrastructure projects, is ready to work with lawmakers to move the initiative forward, according to the reports.
In the meantime, lawmakers will likely approve another short-term extension to federal transport spending programs that will run until the end of the year, Ryan said. The current extension expires July 31. Ryan told reporters there is no way Congress can approve a long-term bill in the next two weeks. Lawmakers engaged in the process have favored a six-year time frame. The current law, which ran for 30 months, expired last September and is now on its second extension.
Ryan's support is considered significant because of his influence as the head of the House tax-writing committee. Up until now there had been no groundswell of high-level support in the House for such a scheme. Two Senate bills, one from Sens. Barbara Boxer (D-Calif.) and Rand Paul (R-Ky.), and another from Sens. Charles Schumer (D-N.Y.) and Rob Portman (R-Ohio), have also called for a one-time tax on repatriated overseas income to pay for infrastructure needs, but their proposal doesn't contain much detail.
The administration's proposal, contained in its fiscal year 2016 budget request, called for a mandatory, minimum 14-percent one-time tax on repatriated foreign income. The Boxer-Paul bill, by contrast, would levy a voluntary 6.5-percent tax and give U.S. companies up to five years to complete the transfer of proceeds into the Highway Trust Fund, the mechanism to disburse money for highway programs. U.S. firms have kept about $2 trillion in foreign earnings away from the U.S. because they are reluctant to pay the current 35-percent corporate income-tax rate for repatriating the profits.
Ironically, the idea of linking repatriation and infrastructure came from Rep. John K. Delaney (D-Md.), who was a freshman Congressman in May 2013 when he introduced legislation creating an infrastructure fund seeded by the sale of $50 billion in bonds with 50-year maturities. Under his bill, U.S. corporations would be encouraged to buy the bonds by repatriating, tax free, part of their foreign earnings, in return for ownership of the bonds. The fund would then leverage the $50 billion investment to provide many more billions of dollars in infrastructure loans or guarantees.
Delaney's bill sat in limbo for two years in part because it didn't call for direct and upfront tax payments into the Treasury. Delaney reintroduced his bill earlier this year.
Funding for infrastructure projects comes almost exclusively from federal excise taxes on gasoline and diesel-fuel consumption. However, neither taxes has been raised since 1993, and there is virtually no chance of a long-term transport spending bill including a tax hike.
The motor-fuels tax brings in about $34 billion in annual revenue, well below the $50 billion the federal government spends on transport programs. Though the fuel tax mechanism is considered the easiest and most efficient way to capture revenue, its effectiveness as a revenue source has been diminished because Americans are driving less, and because more fuel-efficient vehicles require fewer fill-ups during and between trips.