U.S. Push to Change International Corporate Tax Rules Hits Hurdles
February 10 2016 - 4:00PM
Dow Jones News
A bipartisan push to change the tax rules governing U.S.
corporate profits overseas that seemed promising just months ago is
now in danger of crumbling.
Lawmakers in Congress are divided in particular over whether to
use a one-time tax on companies' stockpiled offshore profits to pay
for a burst of spending on highways and other construction
projects.
Democrats, including Sen. Charles Schumer (D., N.Y.) want a
significant amount of the one-time money be used for
infrastructure. Republicans such as Sen. Rob Portman (R., Ohio) are
growing wary of that approach, though Mr. Portman said Wednesday he
was probably the only remaining Finance Committee member who thinks
a deal can be reached in 2016.
Lawmakers and the Obama administration were close to attaching
an international tax agreement to a long-term highway funding bill.
It didn't happen. Instead, Congress cobbled together other money
for a transportation bill, and now there is a divide emerging over
whether to continue pressing ahead with the same approach on
international taxes and infrastructure.
"I just hope people on the other side won't pull away from that
[infrastructure spending], because that will make it much harder to
pass it," Mr. Schumer said Wednesday at a hearing of the Senate
Finance Committee.
The basic idea remains the same. Under current law, U.S.
companies owe taxes on the income they earn around the world. They
get tax credits for payments to foreign governments and have to pay
the residual U.S. tax only when they bring the money home.
That system encourages companies to book profits overseas in
low-tax countries and leave them there, which they have done now to
the tune of more than $2 trillion. Companies such as Apple Inc. and
Oracle Corp. have been agitating for change.
A senior Treasury official said this week that the department's
estimates of offshore profit-shifting have increased. An
administration proposal for a 19% minimum tax on future foreign
profits would raise $350 billion over 10 years, 70% more than last
year's estimate of the same proposal.
Last year's bipartisan position—shared by many House
Republicans, some Democrats and President Barack Obama—was for a
one-time tax on those profits, regardless of whether they are
brought home. Then, a new system would be written that wouldn't
link U.S. taxation with the act of repatriation.
In addition to disagreements over what the one-time tax rate
should be and the details of new international tax rules, lawmakers
now split over what to do with the money. Congress's abbreviated
election-year calendar imposes an extra challenge.
Democrats still want to pour any money into infrastructure
projects. "There's a huge, huge backlog of important
infrastructure," said Sen. Ron Wyden of Oregon, the top Democrat on
the Finance Committee. "In my state, we would be able to put
together a list of important projects very, very quickly."
Mr. Obama's final budget, released Tuesday, is calling for the
one-time tax to be used for "a temporary near-term surge in
investment," while long-term funding would come from a
dead-on-arrival $10.25-a-barrel tax on oil. The administration,
which estimates its one-time 14% tax would yield $299 billion over
a decade, doesn't want to use that pot for sustained spending or to
finance tax cuts, because that would expand budget deficits in the
future.
But Republicans are having second thoughts. When Republicans on
the House Ways and Means Committee unveiled their 2016 agenda, they
put international tax policy near the top of the list. But they
haven't said exactly what they would do with the one-time money,
and they don't sound inclined to plow it into capital projects.
"The goal of these reforms is not to generate more spending.
It's to bring back real dollars to be reinvested in the United
States," said Rep. Kevin Brady (R., Texas), chairman of the House
Ways and Means Committee. "We're going to work on the most
pro-growth policy to bring those dollars back to the United States.
How that's structured is still to be determined."
Mr. Portman, one of the top Senate GOP advocates for
international tax changes, said in a brief interview last week that
the one-time revenue would be needed to pay for the new tax system,
which will lose money in the short term. In the long run, Mr.
Portman said, a so-called territorial tax system would spur
economic growth.
Treasury Secretary Jack Lew said Wednesday that he hoped
lawmakers could make progress on the issue this year.
But Mr. Wyden is skeptical of the whole idea of focusing on
international taxes only, in part because of the political
challenges of advancing a bill that would help multinational
corporations without clear benefits for smaller businesses.
"The tax code's an ecosystem," he said. "You fluff it up over
here and it fluffs up over there. It's not something where you can
just bite off a piece and say that's that."
Write to Richard Rubin at richard.rubin@wsj.com
(END) Dow Jones Newswires
February 10, 2016 15:45 ET (20:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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