Lawmakers explore repatriation and other offsets to pay for highways

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Congress passed a two-month reauthorization of highway spending last week that will give tax writers until the end of July to find $11 billion to cover a projected funding shortfall through the end of December.

Senate Finance Committee Chair Orrin Hatch, R-Utah, said some of the shortfall could be addressed through spending cuts, but that significant revenue offsets would be needed. Tax writers are expected to focus on smaller, noncontroversial provisions. Some of the items they could consider include:

  • An extension of customs user fees
  • Extending preparer due diligence to the child credit and the American Opportunity Credit
  • Curbing the refundability of the child credit for taxpayers using the foreign income exclusion
  • Making an overstatement of basis a substantial understatement of gross income for the six-year statute of limitations
  • Expanding mortgage reporting
  • Increasing levy authority against Medicare payments
  • Requiring distributions from inherited IRAs
  • Revoking passports for taxpayers with tax delinquencies

A short-term extension of funding through December would give lawmakers more time to work on a fix to the bigger, long-term funding shortfall. Many lawmakers continue to discuss linking highway spending to repatriation proposals for tax offshore earnings. House Ways and Means Committee Chair Paul Ryan, R-Wis., has also said he is considering shifting focus to international reform after pass-through business groups sapped much of the momentum for his effort to advance business reform that lowered only corporate rates.

There are many reasons that international tax changes are a poor fit to pay for highway funding and are unlikely be enacted outside of the context of broader business reform. A voluntary repatriation holiday, with a reduced rate for repatriating foreign earnings, like the one enacted in 2004, has consistently been scored as losing revenue. A mandatory repatriation provision that would subject all offshore earnings to tax at a reduced rate, whether brought back or not, may raise revenue, but would be opposed by multinational businesses unless paired with a transition to a more territorial tax system.

Even pairing repatriation with a transition to a territorial tax system, in which U.S. companies would permanently receive a deduction or pay reduced rates on foreign income, raises serious questions about revenue. It is unclear whether significant money would actually be raised without a corresponding cut in overall U.S. tax rates as part of broader reform. It also remains unclear if Republicans would approve legislation that redirects revenue from international tax changes into spending instead of back into paying for tax reform.

Dustin Stamper

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