With federal highway funds running on empty, U.S. Sen. John Walsh, D-Mont., is calling on senators to pay the bill by ending tax breaks for businesses sending jobs offshore.
In a bill introduced Wednesday, Walsh suggests ending the practice allowing corporations moving offshore to deduct, as a business expense, the cost of closing their U.S. factories. The bill would also curb the corporate practice of reincorporating outside the U.S. as a tax dodge.
Ending the expense deduction would raise about $60 billion dollars annually, according to the Senate Joint Committee on Taxation. The new limits on reincorporation outside U.S. boundaries would raise about $19 billion. Walsh proposes using some of recovered revenue to keep the federal Highway Trust Fund solvent through 2018. The remaining money would go to the national debt.
A main source for federal highway funding, the trust fund is expected to draw down to $1 billion in late August, at which point the federal government will stop forwarding road construction money to states. In states like Montana, the federal Highway Trust Fund pays for all but 13 percent of state highway construction.
Montana’s dependency on a federal highway trust fund about to go broke with no clear way to a solution has turned the funding issue into a roadside fiscal cliff.
Delays in federal highway funding over the next year in Montana could effect 235 highway projects valued at $1 billion.
“Now is the time to invest and upgrade our aging infrastructure to make America’s roads and bridges safer, as well as put thousands of Americans back to work,” Walsh said in a prepared statement. “This bill makes these critical investments, as well as closing corporate tax loopholes and reducing the deficit.”
There have been warning signs about federal Highway Trust Fund’s looming insolvency for years. The fund depends on federal fuel taxes, which haven’t increased since 1993, despite significant increases in the price of road construction. In 2008, the fund hit a turning point as the number of fuel- efficient cars on American roads increased and gasoline purchases declined.
There are now a few proposals for saving the Highway Trust Fund. Earlier in June, House Republicans suggested cutting Saturday delivery by the U.S. Postal Service and using the savings to refuel the highway trust. Cutting Saturday delivery could save $10.7 billion over the next decade, according to a leaked memo from Republican leaders to the rank and file.
U.S. Sens. Bob Corker, R-Tenn., and Chris Murphy, D-Conn, have proposed raising the federal gas tax over the next two years by 12 cents a gallon. The current federal tax is 18.4 cents a gallon.
Another plan, proposed by Senate Majority Leader Harry Reid, D-Nev., and Rand Paul, R-Ky., proposes a one-time tax break for corporations that return to the United States, on money socked away oversees. Bringing the money home would mean new tax revenue for highways, albeit at a discounted tax rate.
The Walsh plan relies on tax solutions previously proposed as ways to address other funding crisis.
Last year, Sen. Carl Levin, D-Mich., suggested ending tax breaks available to companies that move jobs off-shore, a change he said at the time would help recover $150 billion in a broad array of lost tax revenue. In one case, the call to close tax loopholes to companies that ship jobs out of the country was raised to address the effects of mandatory across-the-board federal budget cuts known as sequestration.
President Barack Obama in 2009 also called for, as a means of raising revenue, closing tax loopholes for companies that move jobs out of the U.S.
In addition to the ending the tax breaks, the Walsh proposal also addresses the corporate practice known as “tax inversion.” Tax inversion is the practice of avoiding U.S. taxes by partnering with a smaller foreign company from a country with a lower corporate tax rate. The smaller company’s low-tax homeland becomes the U.S. corporation’s new headquarters, even though most operations may still be managed from the U.S. The smaller foreign company may have a 30 percent share in its new corporate partnership.
The latest company to make the move is Medtronic, which partnered with the smaller Irish medical device maker Covidien and declared Ireland as its headquarters.
The Walsh proposal has its merits, said Steve Wamhoff, legislative director for Citizens for Tax Justice. Currently, a business could borrow money from a U.S. bank to fund its off-shore move and deduct the interest from the loan.
But as with efforts to close any corporate tax loophole, attempts to close ones related to off-shore moves have been difficult, Wamhoff said. Corporations have powerful influence over the conversation. And frequently the loopholes are folded into plans for a broad tax reform, something that’s difficult to accomplish.