The idea of allowing companies a short-term opportunity to repatriate overseas earnings at a reduced rate has gained momentum as a possible revenue offset for highway spending.
Senate Majority Leader Harry Reid, D-Nev., and Sen. Rand Paul, R-Ky., have been discussing a potential compromise on repatriation and have promoted the idea as a means to pay for transportation funding. The transportation trust fund is scheduled to run out of funding this summer, and tax writers need to raise about $90 billion to fund a reauthorization for six years.
Congress last enacted a temporary repatriation holiday in 2004 when it created Section 965 to allow companies a one-time opportunity to bring back offshore profits at an effective rate of 5.25%. Since then, the idea of repeating a similar holiday has been proposed by members of both parties, but top tax writers have strongly opposed addressing the issue outside of tax reform.
Senate Finance Committee Ranking Minority Member Orrin Hatch, R-Utah, recently released a report from the Joint Committee on Taxation (JCT) estimating that a repeat of the 2004 holiday would cost about $95 billion, primarily because taxpayers would modify their behavior to retain more earnings offshore in anticipation of future holidays. House Ways and Means Chair Dave Camp, R-Mich., has argued that taxes on offshore earnings should be addressed only as part of broader tax reform. His discussion draft would tax all unrepatriated earnings at a reduced rate (whether brought home or not) as part of — and to offset some of the cost of — a transition to a more territorial tax system.
Nonetheless, the push by Reid and Paul has gained ground. Both Camp and Senate Finance Committee Chair Ron Wyden, D-Ore., have softened their tone on a potential repatriation holiday. Camp told reporters he would listen to proposals, and Wyden said he has "not said yea or nay to any of the options."
Reid has proposed a new plan that he claims would raise $3 billion over 10 years. He has not made full details available, but he is generally proposing a short-term holiday with a 9.5% rate that would be paired with a provision to treat certain domestic borrowing used to fund activities abroad as a taxable repatriation. Paul has long called for a permanent rate of just 5% on repatriated earnings but has said he sees room for compromise in Reid's plan. Sen. Tom Carper, D-Del., has alternatively proposed holding a reverse auction to have companies bid on the right to repatriate earnings at reduced rates.
A repatriation holiday still faces an uphill battle. Lawmakers have not yet agreed on a unified plan, and top tax writers remain wary of addressing this issue outside of tax reform. The business community has expressed strong reservations about Reid's proposal to treat certain borrowings as triggers of repatriation. However, it may be difficult to get a positive revenue score from the JCT without inserting provisions that could be vehemently opposed by the business community. The strained political situation could prompt lawmakers to simply agree to a short-term extension of highway funding without significant revenue offsets.
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