Our Editorial: Off-shore tax deal may smooth roads
Congress getting closer to agreement on a bipartisan and sensible tax plan that would coax home foreign earnings and provide funds for highways
They’re a long way from a deal, so exuberance would be premature, but there are positive signs Republicans and Democrats in Congress are moving toward an agreement that would encourage American corporations to bring home their overseas earnings and fix the nation’s roads to boot.
The GOP has long pushed a framework for taxing offshore corporate earnings at a much lower rate. Currently, the United States taxes the income companies make at the standard 35 percent corporate tax rate, but only when they bring the money home.
That encourages the offshoring of $2 trillion in corporate earnings — money that could be invested in the U.S. to create jobs and economic growth. It’s also pushed many U.S. corporations to move their headquarters to countries with friendlier tax climates.
Last week, Sen. Charles Schumer, D-New York, released a plan with Sen. Rob Portman, R-Ohio, to adopt a one-time tax on existing earnings and then move the nation to a territorial system that would leave overseas earnings largely untaxed, or taxed at a minimal rate. Rather then wait for the money to be repatriated, the earnings would be taxed at the lower rate as they occur. That would take away any incentive to hoard cash overseas.
Again, the details have not been worked out, so a deal is not guaranteed. But President Barack Obama in his February budget called for a 19 percent minimum tax, which is still too high to be competitive but is a move in the right direction. He also asked for a one-time 14 percent tax on existing overseas earnings that are awaiting repatriation. Before his retirement at the start of the year, Rep. Dave Camp, R-Midland and chair of the Ways and Means Committee, pushed a similar plan.
Most other industrialized countries, including the United Kingdom and Japan, have far lower tax rates on overseas earnings.
Schumer and Portman are hoping an agreement on a one-time tax on off-shore earnings would bolster the Highway Trust Fund, which is nearly broke, and establish a framework for a long-term taxation policy.
Lawmakers face a July 31 deadline for forging a highway solution. Pouring the tax revenue from existing overseas earnings into a six-year highway bill, as the two senators propose, is an interesting option.
Given the short time-frame, it is a long-shot that a deal will get done on overseas income that impacts road funding. More likely is a temporary patch that allows discussions to continue.
But it is good that the bargaining has started and that there is growing bipartisan support.
This is an opportune moment for finally reaching agreement on an off-shore earnings tax policy. With Europe’s economy shaken by the financial crisis in Greece, and unrest in other key regions of the world, corporations are looking for stable resting places for their cash.
The U.S., if it addresses its tax climate in the right way, could enjoy an investment windfall that provides an immediate jolt to the economy and increases tax revenue for the long-term.