Two top tax writers on the Senate Finance Committee on Wednesday released a bipartisan tax proposal that includes an option to use revenue generated by overhauling parts of the corporate tax code to help pay for transportation projects despite warnings from Finance Committee Chairman Orrin Hatch that he does not want to raise taxes to pay for a highway bill.
The international tax reform framework released by Sens. Charles E. Schumer (D-N.Y.), and Rob Portman (R-Ohio), does not specify how much money it would raise or how much could be applied to the Highway Trust Fund, which needs to be reauthorized by the end of the month. Instead Schumer and Portman write that their outline builds on two earlier proposals from President Obama and former House Ways and Means Chairman Dave Camp (R-Mich.), both of whom proposed using revenue from international reform to pay for long-term highway funding.
“These proposals would right the ship, provide a potential funding source for transportation reauthorization, and allow the United States to compete on a level playing field,” Schumer said in a statement.
Hatch and many other Republicans oppose using new tax revenue to pay for government spending but Portman and Schumer have the backing of House Ways and Means Chairman Paul Ryan (R-Wisc.).
“These ideas could serve as the basis for a bipartisan package to stem the tide of inversions and takeovers, advance important permanent tax extenders, and potentially unlock a solution to our highway trust fund shortfall,” Ryan said in a statement.
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The proposal is now likely to become part of the debate over how Congress should pay for a six-year reauthorization of the federal highway program, an issue that will be at the top of the congressional agenda this month. While Republican leaders have earlier objected to the idea of funding highway projects by using one-time funds raised when companies bring money back into the country as part of an overhaul of corporate tax rules, Portman said the bipartisan nature of the proposal could give the idea some life.
“This report is just the beginning of a process, not the end,” Portman said in a statement.
Prospects for their proposal may improve if Congress is forced to pass a short-term extension of the program while other funding options are debated.
“We’re getting closer and closer to the July 31 deadline and every other alternative is falling by the wayside so this one is looking more and more attractive,” Schumer said. “If there was a consensus [of support for tax reform] by the end of the July it would make more palatable to do a short-term extension and then work on international tax reform.”
Senate Minority Leader Harry Reid (D-Nev.) has often dismissed plans for a short-term extension but he told reporters on Wednesday that he backs Schumer and Portman’s efforts.
“If we can get something and there is work being done by senior Democrats here in the Senate and Congressman Ryan, and they can come up with something on tax to help us deal with the highway bill, more power to them,” he said.
Camp and Obama both released proposals that would rewrite tax rules for international corporations, shift to a territorial system of taxation, cut tax rates for all businesses and use one-time revenue raised in the transition to pay for transportation investment. The broader business tax reform outline included in Obama’s fiscal 2016 budget was projected to raise about $238 billion for the transportation program.
Schumer and Portman stop short of specifying what tax rate companies would pay under their plan or how they would implement the new system, but it could provide a starting point for the kind of limited business tax reform that House Ways and Means Committee Chairman Paul Ryan (R-Wisc.) has discussed in recent months.
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Congress has just four weeks before funding for the Highway Trust Fund expires on July 31 and so far lawmakers have yet to reveal how they plan to pay for an extension. There is widespread support for a long-term reauthorazation of the program that pays for road and bridge projects, which currently cost about $50 billion a year, but how it should be funded has been a sticking point in recent years.
The short time frame makes it increasingly likely that lawmakers will have to settle for a short-term patch while they work out the details of long-term funding. Some Republicans, including Hatch (R-Utah), have said they are open to a six-month patch. But in a recent interview, Hatch rejected Schumer’s previous suggestions of using international tax reform to pay for highway funding.
“I’ve talked about international in the past myself but [Democrats] are talking about it as way of raising taxes,” Hatch said. “They’re looking at it as a way to get extra money to spend. Frankly, that should not be used for that purpose.”
In addition to the prospect of new revenue, the framework released Wednesday includes aspects that could be appealing to both Democrats and Republicans like lower rates for intellectual property and the potential to charge a lower rate on investments in off-shore property.
The plan’s lack of specifics may make it easier for the pair to convince skeptics that there is room to negotiate on the proposal, but it also ensures that it will be dismissed by critics as incomplete.