Details of the proposal by Sens. Rand Paul (R-Texas) and Barbara Boxer to raise money to pay for surface transportation projects though a corporate tax break scheme are now out – and they are as bad as many progressive tax reform advocates feared.
This unlikely marriage of a former Campaign for America’s Future “Progressive Champion” with a libertarian Republican has yielded a Frankenstein of a plan that pardons corporations for their past tax avoidance while making promises that don’t appear to be worth the pixels used to convey them.
The details were posted today on Sen. Boxer’s website. Essentially, the “Invest in Transportation Act of 2015” would allow multinational corporations that have parked profits overseas to bring those profits back into the United States over a five-year period at a tax rate of 6.5 percent, instead of a statutory tax rate of up to 35 percent. The proceeds would be used to replenish the Highway Trust Fund, the source of federal funding for road and public transit projects. The fund’s primary funding source is an 18.4-cent-per-gallon tax on gasoline, but in recent years general fund revenues have been added to cover funding shortfalls.
It’s a “repatriation tax holiday” modeled after a similar action taken by President Bush and Congress in 2004, in which corporations hoarding cash overseas were invited to bring the cash back into the country at a 5.25 percent tax rate. Then the promise was that corporations would use the cash for job-creating expansions of their companies, but studies afterwards found that nearly all of the cash was used for price-increasing stock buybacks and for increased CEO compensation.
“The proposal from Senators Boxer and Paul appears to be the same failed tax giveaway that occurred a decade ago. It should be called the ‘Retread Act of 2015,’” wrote Frank Clemente, director of Citizens for Tax Fairness. “Their plan would put a new tread on a failed tax loophole bill from the past. But it’s nothing but a flat tire for American families and small businesses.”
In fact, Clemente said, “it is not clear how this plan raises revenue to rebuild our infrastructure. A repatriation tax holiday at a 5.25 percent tax rate will raise $20 billion in the first two years but lose nearly $100 billion over 10 years, according to the Joint Committee on Taxation.”
The Boxer-Paul proposal purports to address the shortcomings of the 2004 tax holiday by requiring that a portion of the repatriated funds be used for such activities as increased hiring, wage increases and business investments, and that none of the funds be used on executive compensation or stock buybacks for three years after the tax holiday ends.
“The caveats certainly do not pass the smell test,” said Richard Phillips, policy analyst at Citizens for Tax Justice. “In fact, the 2004 holiday had some provisions restricting the use of the funds, but the problem is that money is so fungible that we think it’s really difficult to make them stick all that effectively.”
Sen. Bernie Sanders (I-Vt.), who introduced a $1 trillion, five-year infrastructure investment plan earlier this week, said that he would not rule out some form of repatriation reform, but he has been outspoken in opposing plans that would reward multinational corporations for parking profits overseas to avoid taxation.
A coalition of progressive organizations is planning a public campaign against this proposal; details on how you can get involved will be announced soon.