While US President Barack Obama has emphasized the need for the country to invest in its infrastructure, he does not support offering US companies the opportunity to repatriate foreign earnings tax free since it would cost the government billions in lost revenues and create a precedent with companies expecting a similar tax holiday in the future, White House spokesperson Jay Carney said during a recent press briefing.
Asked whether the President would support a tax holiday in order to replenish the fast-dwindling Highway Trust Fund specifically, Carney replied: “The President does not support and has never supported a voluntary repatriation holiday because it would give large tax breaks to a very small number of companies that have most aggressively shifted profits and, in many cases, jobs overseas.”
The Joint Commission on Taxation has estimated that a tax holiday would cost close to $100 billion over a 10-year period.
“The President […] [has] put forward a plan for paying for the kind of infrastructure investments that we need, and he believes that that’s the right plan,” Carney said.
In March, President Obama included a $302 billion plan to invest in transportation infrastructure over a four-year period as part of his proposed 2015 budget.
At the time, he said that part of that funding would come from simplifying the tax code, closing wasteful tax loopholes and lowering tax rates for companies that create jobs in the US but did not provide further detail.
In 2004, 15 firms took advantage of a tax holiday offered at the time and repatriated more than $150 billion, according to the Center on Budget and Policy Priorities, a Washington, DC-based non-profit, non-partisan think tank.
“Firms largely used the profits that they repatriated during the 2004 holiday not to invest or create US jobs but for the very purposes that Congress sought to prohibit, such as repurchasing their own stock and paying bigger dividends to shareholders,” the Center said in a recent article, expressing the opinion that another tax holiday would also not produce the desired economic benefits.
According to Bloomberg, Republican Senator Rand Paul of Kentucky had consulted with Senate Majority Leader Harry Reid, a Democrat from Nevada, about the possibility of using his repatriation bill S 911 to keep the Highway Trust Fund solvent.
Established in 1956 to fund the country’s interstate highway system, the Highway Trust Fund is expected to run out of funds as early as August.
Currently, there is a bill under review in US Congress that calls for US companies to be given an incentive to repatriate a portion of their foreign earnings tax free. However, the Partnership to Build America Act, first introduced in the House of Representatives by Congressman John Delaney, would ensure that a portion of those repatriated funds were used for investing in infrastructure.
The amount of money companies would be able to repatriate tax free would be determined by the number of bonds they would be willing to buy in order to finance upfront a $50 billion infrastructure fund.