Arguments for funding infrastructure projects through tax reform have been increasingly voiced, most notably by Democrat Congressman John Delaney, who has introduced at least three related bills in the past two years, and President Barack Obama himself, who in previous statements has tied infrastructure funding to a change in the tax code.
However, a similar argument recently came from Paul Ryan, a Republican Congressman from Wisconsin who is also chairman of the House Ways and Means Committee.
“We see tax reform, full and comprehensive tax reform as a 2017 project,” Ryan said at an event hosted by the Christian Science Monitor, a news organisation owned by the Church of Christ, Scientist. “But a down payment on that project in 2015 is very possible and it’s also a part of fixing our international rules, financing the Highway Trust Fund (HTF), so that project is still under way.”
Asked how the Highway Trust Fund and other infrastructure projects would be linked to tax reform, Ryan responded: “The only way repatriation works is if it is part of permanent reform going from a worldwide system to a more internationally competitive exemption system. Repatriation does not work – and we will not do – a temporary holiday.”
Repatriation, a provision which requires US companies to pay taxes on their foreign earnings, features prominently in Delaney’s Infrastructure 2.0 Act, a bill the Maryland Democrat introduced in late January. President Obama also included a similar proposal in his draft budget for 2016.
Both Infrastructure 2.0 and Obama’s proposal would require US companies to pay taxes on their foreign earnings now, as opposed to deferring payment indefinitely. Under current law, corporations do not have to pay taxes on revenues generated abroad until and unless they repatriate those funds.
Obama has also indicated in the past that he was opposed to giving companies a tax holiday that would result in lost revenues for the government and set a dangerous precedent.
Inversions are one of the main reasons “a sense of urgency to fix our international rules” exists, according to Ryan.
“So the repatriation works only if it is in reforming our international rules,” he reiterated, adding that “we have to exhaust the possibility that we can do that with the [Obama] administration. If we can’t, then we’ll go to Plan B, which is to put together a pay-for package for a multi-year highway bill.”
He acknowledged, however, that for the time being a short-term extension would be passed for the Highway Trust Fund “so that we can buy ourselves the time we need to try and put this together.”
HTF, the federal government’s primary funding mechanism for surface transportation projects was set to go bankrupt this past August. A short-term extension made it solvent through May 2015, at which point it is set to go bankrupt again.
Delaney welcomed Ryan’s comments, stating that his thinking on the topic was “smart and well-reasoned.”
“We will continue to make the bipartisan case for the Infrastructure 2.0 Act, which follows Mr. Ryan’s macro framing by permanently fixing our international tax system, creates a path for trillions of dollars of overseas cash to return to the US, funds a six-year highway bill and launches a massive US infrastructure investment programme,” he said in a statement.