Highway dilemma ignites new tax fight
Senate Majority Leader Mitch McConnell threw cold water Wednesday on a bipartisan plan to use revenue from tax reform to repair the nation’s crumbling roads and bridges, even as Republicans grope for a way to keep highway projects running this summer.
McConnell (R-Ky.) signaled plans to take up consideration of a highway funding bill as early as next week, less than three weeks before a July 31 deadline. But while McConnell gave few details on what Republicans would offer, he expressed deep skepticism that a new tax reform framework put forth by Sens. Rob Portman (R-Ohio) and Charles Schumer (D-N.Y.) holds the solution.
“It may be a good idea, but I don’t think it applies to the current situation,” McConnell told reporters about the proposal to revamp international tax rules and provide highway funding.
McConnell was especially unconvinced that the details of a tax reform plan could come together before the highway fund deadline. “The best way to deal with the tax code, in my view, is comprehensive,” the Kentucky Republican said. “You obviously can’t do that in two weeks.”
Some of McConnell’s fellow Republicans have expressed an interest in finding enough highway mon to get the trust fund at least through the 2016 elections, while McConnell said he didn’t see a way to pay for a full six-year bill.
But Schumer and other Democrats said the GOP hasn’t approached them with any potential ways to pay for an extension of highway funding, and the two parties couldn’t even manage to cobble together a seven-month patch in May.
With that in mind, Schumer suggested that he could get behind an extension until the end of the year that would allow lawmakers to fill in the gaps in the tax framework he crafted with Portman. The two senators have proposed taxing corporate profits currently stashed offshore to replenish the Highway Trust Fund, an idea previously embraced by President Obama and former House Ways and Means Committee Chairman Dave Camp (R-Mich.).
“It’s the only thing we’ve seen out there that has some bipartisan support,” Schumer said. “We haven’t seen a single thing from the Republicans on anything.”
“You’re beginning to see some consensus,” the New York Democrat added, pointing to positive responses from the Obama administration and current House Ways and Means Committee Chairman Paul Ryan (R-Wis.) to his plan. “But it has to grow before anything could take root.”
The spat comes just over three weeks before the Highway Trust Fund runs dry and as lawmakers prepare what is likely to be their 34th short-term extension of road funding in recent years.
It also came just hours after Schumer, the Senate Democratic leader-in-waiting, and Portman rolled out a long-awaited plan to revamp international tax rules that date back to the days of John F. Kennedy.
Schumer and Portman led a Senate Finance Committee working group on international tax issues, one of five groups to give Chairman Orrin Hatch (R-Utah) and the committee’s top Democrat, Sen. Ron Wyden (Ore.), their recommendations this week.
The two senators’ framework, while light on details, appears to have at least something in it for all sides. It looks to shield most offshore corporate income from U.S. taxation, the sort of “territorial” system long favored by Republicans.
It also calls for tougher rules, sought by Democrats, to prevent multinational corporations from gaming the system by shifting profits to tax havens. And the plan would put into place a new tax incentive for domestic innovation, known as a patent or innovation box.
Both Schumer and Portman said updating the international rules would help both the businesses that are getting an increasing amount of their profits offshore, and workers that could see more job opportunities because of growing opportunities for multinational corporations.
“The U.S. has fallen behind with tax policies that haven’t been updated in a half-century,” Portman said. “And, as the report points out, it is American workers who suffer the most — in the form of fewer jobs and lower wages.”
But while Schumer plugged the framework as the only bipartisan plan to fund highways, he also acknowledged he and Portman had a ways to go to flesh out all the details of a framework that faces roadblocks this year.
In their framework, the two senators punted on what rate to tax the corporate offshore profits that would fund highway projects, and whether to provide and even lower rate for income that corporations had used to make brick-and-mortar investments abroad.
Portman and Schumer also glossed over the potentially expensive details of an innovation box, including whether copyrights and trade secrets would get the lower tax rate, in addition to patents.
The framework from the two senators also put into full display splits within the parties, both on how to fund highways and overhaul the tax code.
Hatch joined McConnell in panning the idea of tapping offshore profits for highways. “I told Sen. Schumer I’d look at their ideas. However, I’m not very enthusiastic about using repatriation funds for highways,” he told reporters. “That’s bad policy.”
But Ryan and other House Republicans have sounded more interested in that plan and the possible short-term highway funding extension that would be needed to flesh it out.
And while McConnell said he doesn’t want to do piecemeal tax reform, Ryan has repeatedly talked up the idea of revamping international tax rules this year as a way to tide Washington over on tax reform until 2017.
“Fixing our international tax system is an urgent task,” he said Wednesday while praising Schumer and Portman. Ryan added that he thinks Washington can “work to find common ground as a first step toward tax reform.”
Democrats, meanwhile, have found themselves lashing out at Republicans for moving toward a short-term highway extension, even as party leaders like Schumer are now floating the idea of a shorter deal than Senate Republicans are seeking.
“That would be awful for the country,” Senate Minority Leader Harry Reid (D-Nev.) said Wednesday about Republicans bringing forward another short-term plan.
