Repatriation Holiday Won’t Fix Highway Funding Shortfall, Critics Say

Peter Fricke | Contributor

Critics of a proposal to fund a long-term transportation bill through a tax holiday on repatriation of foreign earnings say it would lead to higher overall spending and less local control.

In recent years, Congress has repeatedly passed short-term highway bills that authorize more funding than the Highway Trust Fund collects in gas tax revenues, forcing lawmakers to find supplementary funding sources. Last year, for instance, Congress used controversial “pension gimmicks” to secure about $3 billion in transportation funding. (RELATED: Senate Highway Bill Contains ‘Smoothing’ Pension Gimmick)

Some lawmakers, such as Republican Rep. Bill Shuster, who chairs the House Transportation and Infrastructure Committee, are pushing for a multi-year extension once the current fund runs out in May, but there is considerable disagreement over how to find the revenue to pay for it.

“I know the popular thing that a lot of people are talking about is [raising] the gas tax,” Shuster said at a roundtable discussion last week. “But I just don’t believe the votes are there in the Congress at this point to do that.” (RELATED: Highway Trust Fund Almost Broke, Senators Propose Gas Tax)

According to The Bond Buyer, Republican Sen. Rand Paul and Democratic Sen. Barbara Boxer are close to an agreement on a proposal for a multi-year highway funding bill that would be financed either by corporate tax reform or an increase in the federal gas tax.

Although “Paul’s staff declined to provide specifics of the new legislation being developed,” Bond Buyer noted that Paul has previously supported a “repatriation tax holiday,” whereby U.S. companies would be given an opportunity to bring foreign earnings into the country at a dramatically reduced tax rate.

Paul’s support for a repatriation holiday puts him at odds with many Republicans, who prefer more comprehensive tax reforms that permanently lower the corporate tax rate.

Even so, Shuster likewise indicated that a repatriation holiday is being considered, saying, “The number one source being talked about is this repatriation of funds.” (RELATED: Mike Lee Would Send Highway Funds to the States)

Paul estimates that reducing the tax rate on repatriated earnings to 10 percent, from the current 35 percent, would generate about $16 billion in additional tax revenues annually.

However, a Heritage Foundation report claims that a previous repatriation holiday in 2004 “did not produce the hoped-for subsequent surge in domestic investment … [and] if another repatriation tax holiday were enacted, one should expect a similar result as last time.”

Rather than using repatriated earnings to boost investment, the report explains, some companies use them to buy back stock or offer a special dividend to investors, neither of which create jobs or significantly increase tax revenue.

“For lawmakers that campaigned on reining in spending, this should be a non-starter,” Heritage for America communications director Dan Holler told the Daily Caller News Foundation, explaining that, “In the unlikely event projected revenues fill in the funding gap created by congressional largess, it will only stimulate the political desire for more spending.”

Moreover, he added, “linking new tax revenue to highway funding moves us even further away from the user pays, user benefits model … [and] when local decisions are made by Washington politicians and bureaucrats, it is a recipe for waste and cronyism.”

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