Senators Rand Paul (R-Ky.) and Barbara Boxer (D-Calif.) have proposed a corporate tax holiday to fund U.S. infrastructure projects.
The proposal would give businesses a reprieve from penalties for avoiding prior taxes if they agree to move money back to the U.S. and pay a 6.5 percent rate on it. The money collected would then be added to the Highway Trust Fund.
“The interstate highway system is of vital importance to our economy,” Paul said in a statement.
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“All across the country, bridges and roads are deficient and in need of replacement,” he continued. “We can help fund new construction and repair by lowering the repatriation rate and bringing money held by U.S. companies back home. This would mean no new taxes, but more revenue, and it is a solution that should win support from both political parties.”
While announcing her plans to retire in 2016, Boxer made it clear that one of her goals is to leave with a long-term Highway Trust Fund plan in place. Instead of raising the federal gas tax for the first time in over 20 years, she believes a corporate tax holiday is a viable option.
“The bipartisan repatriation proposal is a win-win for our economy and our country,” Boxer said. “First, it will bring back hundreds of billions of dollars in foreign earnings that are sitting offshore, which can be invested here in America to create jobs. Second, the taxes paid on those earnings will be used to extend the Highway Trust Fund, which supports millions of jobs nationwide. I hope this proposal will jumpstart negotiations on addressing the shortfall in the Highway Trust Fund, which is already creating uncertainty that is bad for businesses, bad for workers and bad for the economy.”
Not everyone is a fan of the plan though. Chairman of the Senate Finance Committee, Sen. Orrin Hatch (R-Utah), believes the plan would cost the federal government more money in the long run than it would contribute to transportation projects.
“Tax holiday proposals designed to pay for the transportation bill sound great until you look at the details,” Hatch said in a statement.
“After all, the Joint Committee on Taxation (JCT) has clearly detailed how a stand-alone temporary tax holiday would end up costing the government in the end,” he continued. “Saying you’re going to use something that loses money to pay for anything is just wrong. Therefore, saying you’re going to use it to pay for infrastructure is just bad policy, plain and simple. Such proposals to end the lock-out effects of earnings should only be considered in the context of tax reform.”
The nonpartisan JCT claims the plan would generate around $20 billion of revenue initially, but would ultimately cost the federal government about $96 billion because companies would have more incentive to keep profits abroad and wait for another tax holiday.