Good and Bad Proposals to Address the Highway Trust Fund Shortfall

As a result of Congress’s reluctance to raise the gas tax for the past 20 years, the Highway Trust Fund will run out of money in August. That could bring transportation construction and repairs all across the country to a stop and cost 600,000 jobs, according to one estimate. Experts project a nearly $170 billion shortfall over the next decade. Several proposals have been offered to address this, some of them better than others.

Nonsensical “Repatriation Holiday” Proposal

Last week we described a nonsensical proposal from Democratic Senate Majority Leader Harry Reid and Republican Sen. Rand Paul that supposedly would pay for transportation with a “repatriation holiday,” even though this measure would raise almost no revenue even according to their own description of it. The term “repatriation holiday” is essentially a euphemism for temporarily calling off most of the U.S. tax that is normally due on corporations’ offshore profits when they are officially brought to the United States. One of many problems with such proposals is they encourage corporations to shift even more profits offshore.

Increase the Gas Tax… But Give All the Revenue Away with New Tax Cuts?

This week, Democratic Sen. Chris Murphy and Republican Sen. Bob Corker proposed to finally fix the 18.4 cent gas tax and 24.4 cent diesel tax, which are not indexed for inflation and have not been increased since 1993, but unfortunately they also propose to give an equal amount of revenue away with new tax cuts.

Their proposal would raise both taxes by 12 cents over two years and index them to inflation thereafter. ITEP has long called for this type of reform. Of course, attaching tax cuts of equal value to this proposal turns it entirely into a budget gimmick because no revenue would actually be raised overall. The two proponents suggested that the tax-cutting could take the form of making permanent six of the “tax extenders,” the tax cuts that mostly benefit corporations and that Congress extends every couple of years with little debate, without offsetting the costs. 

Close Offshore Corporate Tax Loopholes

If lawmakers cannot bring themselves to fix the gas tax without giving the revenue away with new tax cuts, perhaps they should consider closing corporate tax loopholes. Given that American corporations would be unable to profit without the infrastructure that makes commerce possible, it seems entirely reasonable that they pay their share in taxes to support it, and that Congress close the loopholes corporations use to avoid paying.

Sen. John Walsh of Montana introduced a bill this week to do exactly that with two provisions that close offshore tax loopholes used by American corporations.

The first provision is President Obama’s proposal, which was incorporated into Sen. Carl Levin’s Stop Tax Haven Abuse Act, to bar corporations from taking deductions for their U.S. taxes for interest expenses related to offshore investments until the profits from those offshore investments are subject to U.S. taxes.

American corporations are allowed to defer paying U.S. corporate income tax on their offshore profits until those profits are officially brought to the U.S. (which may never happen). But the current rules allow them to borrow to invest in that offshore business and deduct the interest expenses right away from their U.S. income when they calculate their U.S. taxes. That means that the tax code is essentially subsidizing companies for investing offshore (at least on paper) rather than in the United States. Sen. Walsh (and Obama and Levin) sensibly propose that if the U.S. tax on offshore profits is deferred, then the interest deduction associated with those offshore profits should also be deferred.

The second revenue provision in Sen. Walsh’s bill is the anti-inversion proposal that Sen. Levin and Rep. Sander Levin, the ranking Democrat on the Ways and Means Committee, introduced in May. A corporate inversion happens when a company takes steps to declare itself  “foreign” for tax purposes, even though little or nothing has changed about where its business is really conducted or managed. Given that several corporations have announced plans (or attempts) to do this in recent months, this is a reform Congress should want to enact even in the absence of any immediate revenue need.