Wyden Warns on Tapping ‘Imaginary Savings’ of Tax BreakRichard Rubin
A tax break that would encourage companies to repatriate offshore earnings likely wouldn’t yield enough money to fill the shortfall in the U.S. Highway Trust Fund, said the chairman of the Senate Finance Committee.
Senator Ron Wyden, an Oregon Democrat, is trying to find a way to shore up the federal fund used to finance highway construction projects before it runs short of money as early as July. He said in a telephone interview today that he hasn’t settled on a plan.
“You do not pay for roads and bridges and transit with imaginary savings,” he said. “There isn’t any magic money sitting around on the street corner.”
A one-time tax holiday on offshore earnings would cost the government $96 billion in forgone revenue over a decade, according to the Joint Committee on Taxation. Wyden said he’s encouraging lawmakers to look at the “hard information” that shows that a 2004 version of the tax holiday wasn’t the “repatriation rainbow” that supporters promised.
A version being considered by Republican Senator Rand Paul of Kentucky and Senate Majority Leader Harry Reid raises $3 billion over 10 years, only enough to pay for a few months of highway spending, Wyden said.
That proposal also would limit interest deductions for some companies, including those borrowing domestically to avoid tapping foreign earnings.
The idea of using offshore earnings to help shore up highway funding has a “good deal of support” among Senate Republicans, Minority Leader Mitch McConnell of Kentucky said yesterday.
“Figuring a way to get those profits home and dedicating that money to a good purpose is something we’ve had a number of discussions about,” McConnell said.
Reid, a Nevada Democrat, said yesterday that he was deferring to Wyden, calling him the “ultimate decider.”
Under U.S. tax law, companies owe taxes on their worldwide income. They can get tax credits for payments to foreign governments and don’t have to pay the residual U.S. tax until they repatriate the money.
As of earlier this year, 307 large U.S.-based companies held $1.95 trillion in accumulated profits outside the U.S., up 11.8 percent from a year earlier. Among the companies with the largest stockpiles are Apple Inc., Microsoft Corp. and Pfizer Inc.
Wyden and other members of the tax-writing committees in Congress have been trying to reserve changes to the international tax system for a broader revamp of the tax code.
The only version of repatriation that raises a substantial amount of money, Wyden said, is one that includes a minimum tax on overseas earnings.
“That could probably raise you a boatload of dough, but business is pretty strongly opposed,” he said.
Wyden also has opposed a plan from House Republicans that would use savings from changes to the U.S. Postal Service to plug the gap in the highway fund.
He said he would prefer a longer-term fix. Senators, he said, want a funding plan for a short-term bill to include a “segue” for a more permanent answer.