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22–333 2017

REPATRIATION OF FOREIGN EARNINGS 

AS A SOURCE OF FUNDING FOR 

THE HIGHWAY TRUST FUND 

HEARING 

BEFORE THE

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

JUNE 24, 2015 

Serial No. 114–TP02 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

PAUL RYAN, Wisconsin, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

JIM RENACCI, Ohio 

PAT MEEHAN, Pennsylvania 

KRISTI NOEM, South Dakota 

GEORGE HOLDING, North Carolina 

JASON SMITH, Missouri 

ROBERT J. DOLD, Illinois 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JOYCE MYER, Staff Director 

JANICE MAYS, Minority Chief Counsel and Staff Director 

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

DAVID G. REICHERT, Washington, Chairman 

PATRICK J. TIBERI, Ohio 

ERIK PAULSEN, Minnesota 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

JIM RENACCI, Ohio 

RICHARD E. NEAL, Massachusetts 

JOHN B. LARSON, Connecticut 

LINDA SA ́ NCHEZ, California 

MIKE THOMPSON, California 

iii 

C O N T E N T S 

Page 

Advisory of June 24, 2015 announcing the hearing .............................................. 2 

WITNESSES 

Thomas A. Barthold, Chief of Staff, Joint Committee on Taxation ..................... 4 

Curtis S. Dubay, Research Fellow in Tax and Economic Policy, The Heritage 

Foundation ............................................................................................................ 20 

Jane G. Gravelle, Senior Specialist in Economic Policy, Congressional Research Service ....................................................................................................... 36 

Dirk Suringa, Partner, Covington & Burling LLP ................................................ 27 

SUBMISSIONS FOR THE RECORD 

American Chemistry Council (ACC) ...................................................................... 73 

American Road & Transportation Builders Association (ARTBA) ...................... 76 

American Sustainable Business Council (ASBC) .................................................. 80 

American Traffic Safety Services Association (ATSSA) ....................................... 82 

National Retail Federation (NRF) .......................................................................... 85 

PeopleForBikes ........................................................................................................ 88 

Public Citizen ........................................................................................................... 90 

RATE Coalition ........................................................................................................ 93 

U.S. Chamber of Commerce .................................................................................... 95 

(1) 

REPATRIATION OF FOREIGN EARNINGS 

AS A SOURCE OF FUNDING FOR 

THE HIGHWAY TRUST FUND 

WEDNESDAY, JUNE 24, 2015 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON SELECT REVENUE MEASURES, Washington, DC. 

The Subcommittee met, pursuant to call, at 2:26 p.m., in 

Room 1100, Longworth House Office Building, Hon. Dave Reichert 

[Chairman of the Subcommittee] presiding. 

[The advisory announcing the hearing follows:] 

2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3625 

Thursday, June 17, 2015 

No. TP–02 

Chairman Reichert Announces Hearing on 

Repatriation of Foreign Earnings as a Source 

of Funding for the Highway Trust Fund 

Congressman David Reichert (R–WA), Chairman of the Subcommittee on Select 

Revenue Measures, today announced that the Subcommittee will hold a hearing on 

the taxation of the repatriation of foreign earnings as a funding mechanism for a 

multi-year highway bill. The hearing will take place on Wednesday, June 24, 

2015, in Room 1100 of the Longworth House Office Building, beginning at 

2:00 p.m. 

Oral testimony at this hearing will be from the invited witnesses only. However, 

any individual or organization may submit a written statement for consideration by 

the Subcommittee and for inclusion in the printed record of the hearing. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit written comments for the hearing record must follow the appropriate link on the hearing page 

of the Committee website and complete the informational forms. From the Committee homepage, http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you would like to make a submission, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a 

Word document, in compliance with the formatting requirements listed below, by 

the close of business on Wednesday, July 8, 2015. For questions, or if you encounter technical problems, please call (202) 225–3625 or (202) 225–2610. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any materials submitted for the printed 

record, and any written comments in response to a request for written comments 

must conform to the guidelines listed below. Any submission not in compliance with 

these guidelines will not be printed, but will be maintained in the Committee files 

for review and use by the Committee. 

1. All submissions and supplementary materials must be submitted in a single 

document via email, provided in Word format and must not exceed a total of 10 

pages. Witnesses and submitters are advised that the Committee relies on electronic 

submissions for printing the official hearing record. 

2. All submissions must include a list of all clients, persons and/or organizations 

on whose behalf the witness appears. The name, company, address, telephone, and 

fax numbers of each witness must be included in the body of the email. Please exclude any personal identifiable information in the attached submission. 

3 

3. Failure to follow the formatting requirements may result in the exclusion of 

a submission. All submissions for the record are final. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TDD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available online at 

http://www.waysandmeans.house.gov

f 

/. 

Chairman REICHERT. Good afternoon. The Subcommittee will 

come to order. Thank you all for being here, especially the witnesses. 

Today we have the opportunity to follow up on last week’s hearing where we discussed long-term funding solutions to the Highway 

Trust Fund. Like many of my colleagues, I too believe we should 

secure a long-term funding source, but we need time to develop a 

solution. 

As we continue these conversations on both sides of the Capitol, 

it is hard to ignore a topic often tied to these discussions: The repatriation of overseas earnings as a source of funding for a multi-year 

highway bill. 

However, as you will hear today, current repatriation proposals 

are not that simple, nor are they without serious policy implications. That is why we are here today having this hearing—to drill 

down on what people mean when they say repatriation and how 

different forms of repatriation work. A key but often overlooked 

part of this discussion is that repatriation includes taxing earnings 

that have been reinvested abroad. 

What we know to be true is that repatriation cannot be done as 

stand-alone policy. It must be a part of a transition to a more competitive system. I expect to hear today that, taken outside of the 

context of a transition, mandatory repatriation would be a tax increase, a tax increase that American companies would be forced to 

pay, unlike their foreign competitors. 

Therefore, this hearing also provides a chance to talk about our 

current international tax system and how it should be modernized 

to boost the competitiveness of American companies. This is timely, 

timely because outside of our discussions the OECD BEPS project 

is moving forward and impacting the decisions of American companies operating globally today. 

Thank you again to our witnesses, and I look forward to hearing 

from you about the key differences between current repatriation 

proposals. 

Mr. Neal, you are recognized for your opening statement. 

Mr. NEAL. Thank you, Mr. Chairman. And let me thank you for 

calling today’s hearing. 

The Highway Trust Fund’s longstanding tradition has been 

based on a user-pays principle. We have long matched the cost, a 

gas tax, with the benefits of improved infrastructure. It is my hope 

that we will continue this long-held position and once again not let 

the lure of repatriated earnings distract us. 

4 

This is not the first time that Congress has debated using repatriation as a cure to fix our economy. Back in 2004, there are some 

of us on the Committee that still remember that debate as it 

played out. We were promised that with the cut in taxes for corporations’ foreign earnings, those dollars would be brought back for 

the purpose of creating thousands of new jobs. However, rather than invest the collective $362 billion that these 

companies brought back, they reduced their American workforces 

and devoted less money for R&D and business investment. Instead, 

these companies increased executive pay, purchased shares, and 

paid dividends. 

It’s interesting that we are here again just 11 years later discussing how this new and improved version of repatriation will fix 

our ailing infrastructure. I hope we are going to learn from the history of how this was handled, and also point out that if we are not 

careful with the discussion of repatriation and we present another 

tax holiday, we will never get tax reform. 

My last comment is not part of my official opening statement, 

but as you cited OECD, I had a chance to review some statistical 

data over the weekend and once again I’m presented with the interesting argument that as our NATO allies rushed to the bottom 

with corporate taxes, they simultaneously are reneging on their 

commitment to spend more on national defense, because in large 

measure they have had the best argument for national defense. It 

is called the American taxpayer. 

Recall that even during the height of the Reagan years 6 percent 

of GDP was used for defense in America while our European allies 

were struggling to get to 1 or 2 percent. And if we are now reviewing the idea that it is still the American taxpayer and the American soldier that is going to pay for the national defense of our European friends, then they do have the opportunity to cut taxes. 

So thanks for calling the hearing. And I hope that this will offer 

us an opportunity to discuss many of these measures. 

Chairman REICHERT. Thank you, Mr. Neal. 

Before I introduce today’s witnesses, I ask unanimous consent 

that all Members’ written statements be included in the record. 

Without objection, so ordered. 

We will now turn to our panel of distinguished witnesses. I 

would like to welcome first, Mr. Thomas Barthold, Chief of Staff, 

Joint Committee on Taxation; second, Mr. Curtis Dubay, Research 

Fellow in Tax and Economic Policy, The Heritage Foundation; 

third, Mr. Dirk Suringa, Partner, Covington & Burling LLP; and 

fourth, Ms. Jane Gravelle, Senior Specialist in Economic Policy, 

Congressional Research Service. 

Thank you all for joining us today. You will each have 5 minutes 

to present your oral testimony. Your full written testimony has 

been submitted for the record. 

And, Mr. Barthold, you are recognized first. 

STATEMENT OF THOMAS A. BARTHOLD, 

CHIEF OF STAFF, JOINT COMMITTEE ON TAXATION 

Mr. BARTHOLD. Well, thank you, Mr. Chairman and Mr. Neal. 

As you said, my name is Thomas Barthold, and I am the Chief of 

Staff of the Joint Committee on Taxation. 

5 

The Chairman asked me to provide an overview of three recent 

proposals to tax one time at reduced rates untaxed foreign earnings 

of foreign subsidiaries of U.S. parent companies. Just by way of 

background, the United States under present law taxes both the 

U.S. and foreign earnings of U.S. businesses. A U.S. multinational 

firm generally may delay or defer U.S. taxation of business earnings of its foreign subsidiaries by reinvesting those earnings rather 

than distributing those earnings. 

The earnings, however, are subject to tax when a dividend is 

paid back or repatriated to the parent with a foreign tax credit allowed for any foreign taxes incurred on the foreign source income. 

Under special rules, as the Committee Members know, subpart F 

of the Code defines certain situations in which the earnings of a 

CFC are taxed on a current basis and for which foreign tax credits 

are already allowed. 

So let me turn to three recent proposals to impose a one-time tax 

at reduced rates on untaxed foreign income of controlled foreign 

corporations. Two of these proposals were included as part of larger 

international tax reform initiatives, and the third is really a standalone targeted at directing funds to the Highway Trust Fund. 

I will start first with H.R. 1 as introduced in the last Congress. 

That was the initiative of former Chairman Camp, his Tax Reform 

Act of 2014. Chairman Camp’s international tax reform, which applies to earnings derived after the reform takes effect, has two 

broad features. 

On one hand, it largely eliminates U.S. residual taxation of repatriations of untaxed CFC earnings by allowing a 95 percent deduction for dividends received by the U.S. parent company from their 

CFC. No foreign tax credit would be allowed. Consequently, the reform replaces the current U.S. credit system for eliminating double 

taxation. 

On the other hand, former Chairman Camp’s reform provided 

broad new rules intended to address shifting of profits out of the 

United States, in part by creating a new category of subpart F income, foreign-based company intangible income. H.R. 1 also proposed other changes in the international rules. 

As a consequence, U.S. multinational corporations would be subject to a substantially different U.S. scheme for taxing cross-border 

income than under current law. And it was in this context that 

transition provisions were proposed to address the question of what 

should be the treatment of untaxed earnings that were derived before the tax reform was to take effect. 

The proposal for the transition tax generally requires that for the 

last taxable year prior to when the participation exemption system 

comes into effect, that a U.S. shareholder of a foreign corporation 

must include a pro rata share of nonpreviously taxed, post-1986 

foreign earnings of the corporation. 

That inclusion was to occur in such a way that the shareholder 

was allowed a 90 percent deduction for noncash earnings and a 75 

percent deduction for those earnings that were deemed to be held 

in cash or liquid form. The effect of that is that the effective maximum residual tax rate on the noncash earnings would be 3.5 percent, on the cash earnings, 8.75 percent. 

6 

The transition tax had special rules for inclusion of losses of 

CFCs, provided for a 10-year installment payment of the liabilities 

that were deemed to be incurred under the transition tax with a 

special rule for S corporation shareholding. Funds from the deemed 

repatriation tax were to be directed to the Highway Trust Fund. 

Another proposal has recently been put forward by the Administration. The Administration has a broad set of international tax 

reform proposals as part of their 2016 budget. These include a 

mandatory 14 percent tax on foreign earnings. 

Again, the Administration’s reform starts by imposing a 19 percent minimum tax on CFC earnings and removes residual taxation 

of repatriations that are subject to that minimum tax. This minimum tax therefore also provides a partial exemption system for relief of double taxation. On the other hand, somewhat as in Chairman Camp’s proposal, the Administration would strengthen certain 

anti-profit-shifting rules applicable to multinational corporations. 

So as with former Chairman Camp’s proposed reform, the 14 percent tax on untaxed foreign earnings answers the question of how 

historic earnings of the CFC should be treated in a transition to 

the new set of rules. In short, the proposal uses a different base 

of prior earnings than does Chairman Camp, all earnings prior to 

the date of enactment, as opposed to just 1986 earnings. 

There are certain open questions not described by the Administration. But of some interest, the Administration, somewhat like 

Chairman Camp, would provide a 5-year installment period. The 

Administration said the intent was to direct those funds to Highway Trust Fund or other infrastructure purposes. 

I realize I have run over. If you would grant me an additional 

45 seconds, I wanted to briefly make note of the third proposal that 

the Chairman asked me about, and that is the Invest in Transportation Act introduced by Senator Paul and cosponsored by Senator 

Boxer. 

Unlike the prior two proposals, this proposal would have a voluntary repatriation. The Invest in Transportation Act’s voluntary 

repatriation is somewhat like that which the Congress enacted in 

2004 as part of section 965. It differed in terms of measuring the 

base upon which the beneficial tax rate, which I should note is an 

effective residual tax rate of 6.5 percent, would apply; it also had 

some different provisions in terms of plan requirements for reinvestment of the earnings and would not permit the deduction for 

any company that was deemed to be an inverted corporation. 

I provided, as you have before you, additional detail related to 

both of these proposals and the estimated revenue effects that my 

colleagues have estimated for those proposals, and I would be 

happy to answer any questions that the Members might have. 

[The prepared statement of Mr. Barthold follows:] 

7 


22333A.001

JOINT COMMITI'EE ON TAXATION 

June 24.2015 

JCX-98-15 

TESTIMONY OF THE STAFF OF THE JOINT COMMITTEE ON TAXATION 

BEFORE THE SELECT REVENUE MEASURES SUBCOMMITTEE 

OF THE HOUSE COMMITTEE ON WAYS AND MEANS 

HEARING ON THE TAXATION OF THE REPATRIATION OF FOREIGN EARNINGS 

AS A FUNDING MECHANISM FOR A MULTI-YEAR ffiGHW AY BILL' 

JUNE 24, 2015 

My name is Thomas A. Barthold. I am Chief of Staff of the Joint Couuninee on 

Taxation? It is my pleasure to present the testimony of the staff of the Joint Couunittee on 

Taxation today concerning present Jaw and recent proposals related to the taxation of repatriated 

or deemed repatriated foreign business earnings of U.S. companies. 

I will describe the manner in which the United States taxes foreign business earnings of 

U.S.-parented firms when those earnings are repatriated to the U.S. parent company. I will also 

give an overview of three recent proposals to tax. one time at reduced rates, untaxed foreign 

earnings of foreign subsidiaries of U.S. parent companies: fom1er Ways aud Means Committee 

Chainuan Dave Camp's mandatory transition tax included in the international tax refonu 

provisions of the Tax Refonu Act of2014; the Departnlent of Treasury's mandatory transition 

tax included as part of the Administration's fiscal year 2016 international tax refonn proposals; 

and legislation introduced by Senator Raud Paul and co-sponsored by Senator Barbara Boxer to 

tax vohmtary repatriations during a five-year period at a reduced rate.1 I will sunuuarize fonner 

1 This document may be cited as foUows: Joint Conunittee on Taxalion. fesrimony of the Staff of the Joint 

Committee on Taxation Bf1/ore the Select Rm·e,we Measures Subcommittee of rite House Committee on Ways and 

Means on the Repatriation of Foreign Eamings as a Funding Mechanism for a M1Jti- Year Highway Bill 

(JCX-98-1 S), June 24, 20 IS. TI>is publication can also be found at http://www.jcl.g,ov. 

2 The staff of !he Joint Committee on Taxation is nonpartisan and serves the entire Congress. The staff of 

the Joint Comminee on Taxation ioeludes ex.perieoeed economists~ attorneys, and accountants who assist Members 

of the majority and minority parties in both houses of Congress 011 lax legislation. 

3 H.R. I, 113do Congress, 2d Session (2014). sec. 4003: Department of the Treasury. General Explanations 

of the Administration's Fiscal Year 2016 Ron·enue Propasals. Febmary 2015, p. 23: S. 981, 114<11 Congress, t• 

Sessioo (20 I 5). sees. 2 and 3. 
8 


22333A.002

Chairman Camp's and the Administration's international tax reform proposals of which 

transition taxes were a part. 

We have included in an appendix to our written testimony revenue tables prepared by the 

Joint Committee staff for fonner Chainuan Camp's and the Administration's international tax 

reform proposals and for Senator Paul and Senator Boxer's temporarily reduced rate on dividend 

repatriations. We have also included a table comparing key features of the three one-time tax 

proposals that I will describe. 

U.S. taxation of n•pan·iated foreign earnings 

The Uruted States taxes botlt the U.S. and foreign earnings of U.S. businesses. A U.S. 

multinational fum generally may delay, or defer, U.S. taxation of the business earnings of its 

foreign subsidiaries by reinvesting rather than distributing those eamings. U.S. finns may delay 

taxation of foreign subsidiary eamings for two straightforward reasons. One, the Internal 

Revenue Code (the "Code") respects each corporation as a distinct taxable entity, and the 

income, expenses, and losses of one corporation in a group of companies generally are not 

attributed to another corporation in tlte group. And two, the Internal Revenue Code largely taxes 

only the U.S.-source earnings. and not the foreign-source earnings, of a foreign corporation. 

Accordingly, when a foreign subsidiary of a U.S. parent company derives income from business 

operations abroad. that income typically is not atu1buted to the U.S. parent corporation, and the 

Code does not tax the foreign subsidiary because for U.S. tax purposes a foreign corporation has 

derived foreign-source income. When, however. the foreign subsidiary distributes previously 

untaxed foreign earnings to its U.S. parent company. the United States taxes the eamings for a 

similarly simple reason: The earnings distribution from the foreign subsidiary to its U.S. parent 

company shareholder is treated as a taxable dividend under the general rules for the taxation of 

eamings distributions by corporations. 

The Code treats a disu1bution of foreign earnings to a U.S. parent company differently 

from how it treats a purely domestic distribution of eamings in one principal respect. If another 

country has imposed tax on t11e foreign eamings out of which a disuibution is paid. t11e United 

States allows the U.S. tax on the distribution to be offset by a credit for the foreign tax. Tius 

foreign tax credit is allowed for a corporation that owns at least 10 percent of the voting stock of 

a foreign corporation thai has paid foreign tax and that distributes eamings on which the foreign 

tax has been paid. As a simple illustration, asswne a foreign subsidiary pays a I 0-percent tax on 

its foreign eantings and distributes those eanungs to its U.S. parent company. The U.S. parent 

company will pay a 25-percent U.S. tax on tl1e distributed eantings, which is the 35-percent U.S. 

statutory cotporale tax rate less a credit for the I 0-percent foreign tax. 

I should note that the Code departs from tlte general scheme of deferral of U.S. taxation 

of foreign business earnings for certain kinds of income. The rules of subpatt F of the Code tax a 

10-percent U.S. shareholder of a controlled foreign corporation (a "CFC"), which is a foreign 

corporation that is majority owned by five or fewer 10-percent U.S. shareholders, on its 

proportionate share of certain kinds of income of the CFC in tlte year in wlucb the income is 

derived, irrespective of whether the CFC pays a dividend to tlte U.S. shareholder. In patticular, 

subprut F applies, with certain notable exceptions, to a CFC's investment income in the form of 

2 
9 


22333A.003

dividends, interest, rents, royalties, and capital gains and to a CFC's income from some sales and 

services in transactions with related parties. 

For non-subpart·F foreign earnings, a U.S. multinational finn may choose to delay U.S. 

taxation by reinvesting rather tllan repatriating those eamings because. by doing so, the finn can, 

iftl1e foreign tax rate is less than the U.S. tax rate, reinvest a larger (pre-U.S.·tax) amount of 

eamings t11an it would be able to invest if it repatriated the eamings, paid residual U.S. tax on the 

repatriation, and reinvested the after-tax amount. The U.S. fmancial accounting rules also may 

encourage U.S. companies to delay repatriating foreign eamings because companies tl1at assert 

that foreign eamings have been indefinitely reinvested are- in a departure from the general 

financial accounting mle of current recognition of income and taxes- not required to record a 

financial statement tax expense in relation to tltose reinvested earnings. According to one recent 

estimate, U.S. companies in the Russell 1000 index designated in their fmancial statements in 

2014 a total of$2.3 trillion offoreign eamings as beiJtg indefinitely reinvested' 

The Joint Comminee staff has described in more detail in previous documents the U.S. 

system of worldwide taxation with deferral, the U.S. foreign tax credit rules, and Ute rules of 

subpart F.' We have also written extensively about policy considerations related to worldwide 

taxation with defe1Tal.6 I would be happy to answer any questions that you may have about any 

legal or policy matter related to the U.S. scheme for taxing cross-border income of multinational 

companies. 

OnP-time tax p1·oposals 

Tlu·ee recent proposals impose one-time taxation at reduced rates on rmtaxed foreign 

income ofCFCs. Two of these proposals were included in larger international tax refonn 

initiatives. 

Fo1mer Chainnan Camp's Tax Ref01m Act of2014 

In connection with transition to a pa11icipation exemption system for fumre foreign 

subsidiary eamings, Conner Chairman Camp's proposal includes a oae-ti.me mandatory tax on 

untaxed foreign eamings. 

Fo1mer Chairman Camp's intemational tax refonn, which applies to eamings derived 

after the refonn takes effect, has two broad features. On the one hand, it largely eliminates U.S. 

residual taxation of repatriations of untaxed CFC earnings by allowing a 95-percent deduction 

for dividends received by U.S. parent companies from their CFCs. No foreign tax credit is 

• Audil Analytics, "Untaxed Foreign Eamings Top $2.3 Trillion in 2014,» available at 

http://www .aud•tanalvtics.comlblog/untaxed-fore•sn-eamings-top-2-3-trillion-in-20 14/ (last accessed JtUie 23, 2015). 

s See, for example, Joint Committee on Taxation, Present Law and Selected Policy Issues in the U.S. 

Taxation of Cross-Border Income (JCX-51-15), Mareh 16, 2015. 

'Ibid. 

3 
10 


22333A.004

allowed for dividends for which the 95-percent deduction is allowed. Consequently, the reform 

replaces tl1e current U.S. credit system for eliminating double taxation of repatriated foreign 

eamings with an exemption metl1od of avoiding double taxation. 

On the otl1er hand, fom1er Chairman Camp's refonn provides broad new rules intended to 

address shifting of profits out of t1Je United States. These mles include a new category of 

subpru1 F income, foreign base company intangible income, on which cuiTent U.S. taxation is 

imposed. Foreign base company intangible income generally is income of a CFC in excess of 10 

percent oftl1e CFC's total basis in its tangible, depreciable prope1ty. To the extent foreign base 

company intangible income is attributable to sales or services to foreign customers, the income is 

taxed (after a phase-in period) at a rate of 15 percent (less foreign tax credits). To the extent the 

foreign base company intangible income relates to sales or services to U.S. customers, t11e 

income is taxed at the bill's full statutory corporate tax rate of25 percent (less foreign tax 

credits). Intangible income of the U.S. parem company, defined in a mrumer similar to tl1e 

definition of foreign base company intangible income of a CFC, benefits from the same 15 

percent rate to tl1e extent the intangible income is from sales or services to foreign customers. 

The international tax provisions of the Tax Reform Act of2014 also modify tl1e present 

law foreign tax credit mles: nru1·ow the foreign base company sales income category of subpart F 

income; provide group-wide and external leverage tests to restrict the deduction for interest 

expense of U.S. members of a worldwide affiliated group that includes at least one CFC; and 

make a number of other changes to the cun·ent U.S. international tax rules. As a consequence, 

U.S. multinational companies would be subject to a substantially different U.S. scheme for 

taxing cross-border income than the current structure. In tltis context, the transition tax 

provisions desc1ibed next address the question of the treaunent of untaxed earnings that are 

derived before the reform takes effect. 

Transition tax generally 

The proposal generally requires that, for the last taxable year beguming before the 

participation exemption takes effect, any 10-percent (by vote) U.S. shareholder of a foreign 

corporation must include in u1come, under the rules of subpart F, its pro rata share of the nonpreviously-taxed post-1986 foreign em1ings of the corporation.

7 Elll1lings subj ect to the 

transition tax are not reduced by distributions made during the year of the tax, and those 

disnibutions are subject to the normal tax rules for distributions of previously taxed eamings. 

A 10-percent U.S. shat·eholder of a foreign corporation is allowed a deduction u1 an 

amount detemlined by reference to the portion of deferred earnings and profits that are held in 

cash or liquid assets. A shareholder is allowed a 90-percent deduction for the noncash portion of 

eamings (with the result that the maximum residual U.S. tax rate on this p011ion is 3.5 percent). 

A shareholder is allowed a 75-percent deduction for the portion of earnings represented by cash 

' The 1ransi1iou tax awlies to auy foreign corporation th.1t bas at least one IO·percent (by vote) U.S. 

shareholder, not just to CFCs. Accordingly, the proposal broadens subpan F, which nomtally awlies only to CFCs 

aud their I 0-percent U.S. shareholders, for purposes oftaxing previously untaxed foreiSil earnings. 

4 
11 


22333A.005

and other liquid assets (with the result that the maximum residual U.S. tax rate on this portion is 

8. 75 percent). 

The credit for foreign tax imposed on eamings subject to the transition tax is allowed 

only for the nondeductible (taxable) portion of those eamings, and tlte section 78 inclusion of 

foreign taxes does not apply to the deductible pottion of the eamings. 

Reduction for loss corporations 

The transition tax allows a 10-percent U.S. shareholder's income inclusion in respect of 

the eamings of one or more foreign corporations to be reduced by that shareholder's share of the 

eamings and profits deficit of any other foreign corporation in which the shareholder owns I 0 

percent of the stock. This Joss offset provision departs from the stmcture of present law subpart 

F because subpart F outside the transition tax does not permit U.S. shareholders to offset 

inclusions in respect of one CFC with losses attributable to their ownership of tlte stock of otlter 

CFCs. 

Installment payments 

A 10-percent U.S. shareholder may elect to pay the net tax liability resulting from the 

mandatory inclusion of pre-effective-date undistributed eamings in eight installments. The net 

tax liability t11at may be paid in installments is the excess of the tO-percent U.S. shareholder's 

net income tax for the taxable year in which the pre-effective-date undistributed eamings are 

included in income over the taxpayer's net income tax for that year detennined without regard to 

the inclusion. The timely payment of an installment does not incur interest. 

A special rule pemuts an S corporation shareholder to defer its net tax liability until the 

occurrence of a ttiggering event such as a tt·ansfer of shares in the S corporation or a liquidation. 

Highway Tmst Fund 

The proposal provides that income tax payments relating to the net tax liability for t11e 

deemed repatriation of pre-effective date foreign earnings are transferred to the Highway Tntst 

Fund. The Highway Tmst Ftmd, established in 1956, is divided into two accotmts, a Highway 

Account and a Mass Transit Account, each of which is the funding source for specific programs. 

The Highway Trust Fund is currently funded by taxes on motor fuels (gasoline, kerosene, diesel 

fuel, and certain altemative tltels), a tax on heavy vehicle tires, a retail sales tax on certain tmcks, 

trailers and tractors, and an annual use tax for heavy highway vehicles. Of the receipts received 

in the Treasury as a result of tlte deemed repatriation provision (and not otherwise appropriated), 

an amount equivalent to 20 percent is transferred to the Mass Transit Accotmt, with the 

remaining balance transferred to the Highway Account. 

Adnlinistt·ation 's fiscal year 2016 revenue proposals 

As part of a broad set of intemational tax refonn proposals included in the 

Administration's fiscal year 2016 revenue proposals. the Department of the Treasury has 

proposed a one-time, mandatory, 14-percent tax on untaxed foreign eamings. 

5 
12 


22333A.006

The Administration's proposed refonn, which generally applies to earnings derived after 

the refonn takes effect. has two strucmral features similar to the principal feamres offonner 

Chairman Camp's intemational tax reform provisions. The Administration's refonn imposes a 

19-percent minimum tax on CFC eamings and removes residual U.S. taxation of repatriations of 

eamings subject to this minimum tax. The minimum tax thereby provides a pattial exemption 

system for avoiding double taxation of foreign eamings in place of the cutTen! credit system. 

On the other hand, the Administration's reform includes broad anti-profit-shifting rules 

applicable to U.S. multinational companies. The minimum tax itself is oue such rule addressed 

at profit shifting. The Administration also has proposed, among other things, introducing a new 

category of subpart F income for transactions involving digital goods or services; expanding 

foreign base company sales income to include income from manufacmring services 

arrangements; disallowing deductions for interest and royalties in transactions involving hybrid 

instmments, hybrid entities, or hybrid transfers; disallowing the CFC look-through and samecountty exceptions under subpatt F for certain transactions with reverse hybrid entities; making 

the mles for corporate inversions stricter, including by treating some inverted companies as 

domestic if the affiliated groups of which they are a part are managed and controlled in the 

United States; and antending certain teclmicaJ features of the subpart F rules nnder which 

taxpayers now are able to avoid subpart F income. 

As they would with fonner Chainnan Camp's international tax refonn, U.S. 

multinationals would operate under a substantially new set of international tax rules if the 

Administration's revenue proposals were enacted. The 14-percent tax on untaxed CFC earnings 

addresses the question of how historic earnings of CFCs should be treated in a transitiou to this 

new set of rules. 

One-time tax on historic CFC eaminas 

The proposal imposes a one-time tax of 14 percent on untaxed earnings and profits of 

CFCs accumulated for taxable years begiuning before January I, 2016. 

The proposal does not specify whether it applies to all U.S. 10-percent shareholders of 

CFCs or only to domestic corporate I 0-percent shareholders of CFCs. If, as in fom1er Chainnan 

Camp's proposal, the transition tax were imposed by means of an increase in the subpart F 

income of a CFC by tl1e amount of the CFC's untaxed earnings, and no modifications were made 

to subpart F's inclusion rules, all 10-percent U.S. shareholders, notjnst domestic corporate 

shat·eholders, would be taxed. In contrast, tl1e 19-percent: minimum tax proposal applies only to 

domestic corporations with respect to tl1eir CFCs. 

The proposal does not explicitly address certain otl1er teclmical questions including. for 

example, tl1e treatment of actual dividend distributions in the taxable year of transition. 

Foreism tax credit 

The proposal allows a proportionate credit for tl1e foreign taxes associated with earnings 

subject to tl1e transition tax. Because the tax is at a 14 percent rate rather than the maximum 

statutory corporate tax rate of35 percent, the credit rate is 14/35, or ""0 percent of the otherwise 

available credit. 

6 
13 


22333A.007

Installment payments 

The one-time tax is payable ratably over five years. The proposal does not specify 

whether interest is imposed on the installment payments. 

Highway Trust Fund 

The Admi.njstration has stated that revenues from the one-time transition tax are to be 

used to fund its surface transportation reauthorization proposal and any shortfalls between 

surface transportation revenue and spending under present law for the proposal petiod. 

Invest In Transportation Act 

The Invest In Transportation Act, introduced by Senator Paul and co-sponsored by 

Senator Boxer, allows a domestic cotporation to make a one-time election of an 81.4-percent 

dividends-received deduction ("DRD") for cet1ain dividends received from CFCs during the five 

years following the election. At a 35-percent statutory cotporate tax rate, the 81.4-percent 

deduction yields a maximum residua l U.S. tax rate of 6.5-percent on dividends qualifying for the 

deduction. 

The Invest In Transportation Act's voluntary repattiation provision is a modified version 

of the temporarily reduced taxation of CFC dividend repattiations enacted in 2004 in section 

965. Section 965 allowed domestic cotporations to elect an 85-percent DRD (for a maximum 

residual U.S. tax rate of 5.25 percent) for some dividends received from CFCs during a single 

taxable year, subject to a number of conditions and limitations. Included in these limitations 

were requirements that eligible dividends be: (1) in excess of a specified level of historical 

average repatriations; (2) no more than the greater of $500 million or the amount of overseas 

eamings identified for fmancial accotmting putposes as permanently reinvested abroad: and (3) 

reinvested in the United States under a dividend reinvestment plan approved by the management 

and board of directors of the electing cotporation and meeting certain other criteria. 

Senator Paul and Senator Boxer's bill differs from the 2004 temporary tax holiday in a 

number of ways in addition to the deduction percentage and the duration of the holiday. The bill 

limits the antount of dividends eligible for the deduction to the U.S. shareholder's proportionate 

share of the untaxed eamings of its CFCs as of the end of the last taxable year ending on or 

before December 31, 2014. Additionally, if in any year the amount taken into accotmt under the 

elective DRD is less than 20 percent of the amount designated in the taxpayer's election, the 

amount of dividends allowed to be taken into account in fuiure years is reduced by the shortfall. 

The bill also provides different domestic reinvesttnent plan requirements than the 2004 holiday. 

For example, the bill requires that a U.S. cotporation's plan must provide that at least 25 percent 

of the dividends taken into account under the proposal will be used for at least one of a ntllllber 

of specified pUtposes including to increase employment, wages and benefits, or pension 

contributions; to provide for energy efficiency, environmental, or capital improvements: to invest 

in public infrastructure; for research and development: or for the acquisition of other businesses. 

The domestic reinvestment plan also must provide that none of the dividends taken into account 

under the bill will be used during the plan petiod to compensate cet1ain highly paid employees. 

7 
14 


22333A.008

The bill denies the deduction for companies that invert at any time in the I 0-taxable-year 

period begim1ing with the first taxable year after 2013 to which the bill applies, and it imposes a 

tax of 20 percent of any amount elected by a corporation that inverts during litis period. This 20-

percent tax would apply in the year of tl1e inversion. 

The Invest in Transportation Act includes transfers to lite Highway Tntst Fund. The bill 

requires llle Treasury Secretary to estimate lite amotmt of revenues to be received before October 

I, 2019 from income taxes imposed on dividends taken into account under llle bill. Out of 

Treasury funds not othern•ise appropriated, the bill appropriates to the Highway Account in the 

Highway Tmst Fund 80 percent of the amotmt of revenues estimated to be received. The bill 

appropriates tlte remaining 20 percent to t.he Mass Transit Accowlt in the Highway Trust Fund. 

The bill requires the Trea.sury Secretary to detennine by October I, 2023 the an1ount of revenues 

actually received from income ta.xes imposed on dividends taken into account under the bill, and 

to tlte extent the amowtt of actual revenues exceeds the earlier projected revenue amo1mt, tlte bill 

directs that the excess be appropriated to lite Highway Account and the Mass Transit Accmmt in 

certain specified percentages. 

Conclusion 

Some of lite matters lilat I have desc.ribed in litis testimony are addressed in more detail in 

the Joint Committee staff pamphlet prepared in connection witl1 this hearing. I am happy to 

answer any questions that lite committee may have at this time or in the future. 

8 

22333A.009

'0 

APPENDIX 1: COMPARISON OF PROPOSALS TO TAX IDSTORIC FOREIGN EARNINGS 

Badcground 

Effective Tax Rate 

(Before Foreign Tax 

Credit) 

Mandatory? 

Applicable Earnings 

Conditions or 

Special Payment 

Rules 

JCT Estimate of 

Revenue Effect 

Included as part of transition to a 

partkipation exemption system that 

permits lO·percentcorporate 

shareholders offoreign corporations 

to deduct 95 percent of dividends. 

3.5 percent on foreign cash or cash 

equivalents 

8.75 percent on all other foreign assets. 

Yes, irrespective of whether earnings are 

repatriated; no restrictions on use of 

funds if actually repatriated. 

Included as part of transition to a 

reformed international tax system 

that taxes foreign earnings of CFCs 

and foreign branches In the year 

earned or not at all. 

14 percent 

Yes, irrespective of whether earnings are 

repatriated; no restrictions on use of 

funds if actually repatriated. 

Accumulated deferred post·1986 foreign Accumulated deferred foreign earnings 

earnings 

At election of shareholders, transition Transition tax Is payable ratably overfive 

tax may be paid in eight annual years. 

installments, at specified percentages, 

with certain additional relief for S 

corporations. 

$170.4 billion revenue gain 2014·2023 $217.2 billion revenue gain 2015·2025 

Allowscompanies a one-time election t

repatriate untaxed foreign earnings at 

reduced tax rate over a limited period. 

6.5 percent 

No 

Accumulated deferred foreign earning

extent the elected amount exceeds ave

repatriation in recent years. 

Actual repatriation is to be completed o

years, with repatriated funds to be use

United States for hiring, compensation, 

research, energy efficiency and environimprovements, public-private partnersh

capital improvements, or acquisitions. 

for taxable year of actual repatriation. 

$117.9 billion revenue loss 2015·2025 
16 


22333A.010

APPENDIX 2: REVENUE TABLES 

Below are Joint Committee staff estimates of the revenue effe·cts of the proposals 

described above.' 

8 The estimate of title rv of the Tax Refonn Act o£2014 is adapted from the estimate included in Joint 

Committee on Taxation, Estimated Revenue Effects of the "Tax Refom• Act of2014" (JCX-20-14), February 26, 

2014, pp. 11-12. The estimate of the international revenue provisions of the Administrntion's fiscal year 2016 

budget proposals is adapted from the estimate included in Joint Committee on Taxation, Estimated Budget Effects of 

the Revenue Provisions Contained in the President's Fiscal Year 2016 Budget Prqposal (JCX-50-15), March 6, 

2015, pp. 1-2. The estimate of the proposal by Senators Paul and Boxer first appeared publicly as accompaniment to 

Stephanie Beasley, "Tax Repatriation for Highway Funding Not Viable Without Tax Overhaul, Says Rep. Ryan," 

Bloomberg BNA Daily Tax Report, May I , 2015. 

10 

22333A.011

TabW 1 

ESTIMATED REVL'(IJE E!Tl:CTS OF CO:-,.Ail\"ED IN 

THE "TAX REFORM -'CT OF 2014" (I( 

Fistal 'i'ta.rs 201• 2013 

of D<>llan] 

Provbioa Etft<'li.,.t 2014 lOIS 2016 2017 2018 1019 1020 2021 lOll lOU 2014-18 

Partidp.alioo Enmplioo Systtm for tht Taniioa. 

ofForfi&a locomt 

A. Treatnlmt ofDeferred Foreign lncomr Upon Transihon 

to Participation Exemption System ofTa.utioo and 

Modifiations to OFL Rul.., [2) ......................................... [3) -1.2 12.3 23.3 20.S 11.6 11.8 16.6 24.8 31.4 19.0 66.5 

B. .Esublishm<nt of Syst<m. ................................ [4) -7.3 -IS.S -21.1 -24.9 -2S.2 -2S.O -2S.O -2S.9 -26.7 -28.2 -94.2 

C. Modifications Rt:bted lo Foreign Tu Cudit S)'Utm. ..... [4) - 0.2 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.9 0 . Rul.ts Rebted IO Pus.i\'C and Mobile Income. ...... ,,,,,,.,_., (4) -3.0 8.7 IS.S 12.9 12.8 14.3 IS.9 IS.l 14.7 14.0 46.9 

l>"'ETTOTAL ...•..............................•.. .....•.................................•............•. -11.5 5.4 18.0 8.7 -0.6 1.3 7.7 IU 19.6 5.0 10.1 

Jomt COillmJ;ttee on Tantton 

NOTE: Dccalls rnay not add to totals due 10 rounding. 

(I) Exnmateasrtp«ttd 1111CX·20.14oo f<l>nwy26. 2014. (2) Fuadsclesognatedundersecrioo96Honbelligbw•yTrus<Fuudu>d\lcled :wl W.l. W.1 W2, lm m.L :lQll 

Ill i1tlll!V.A..... .......................................... ..... ...........•............. .... - S.l 10.1 10.1 10.1 10.1 14.5 22.1 28.S IS.S 35.4 

(3) Effeeri,., fe<the bstt:wble ym offoc<i11>1 c0tp0f3lions b<ginoing beforelanuo<y I. lOIS. :o:d to taxable )"WS of the U.S. slwd>olders in wluch 0< with \\1uch such =ble )"<>tS offoc<ign 

corpontiooscnd. 

(4) GcocniJy effective for wcable yeaR of f<lwgn <01))0<311<lnS bcginrung all« Dec<rub« 31. 20:4 • .00 oo =ble )'<OtS of United Swes slunboldcn m wluch or wilh wrucb S\1Ch taxable>""" off<><

torpor.uions mel. 

22333A.012

.. Tablt2 .. 

ESmiA TI.D REVL''U£ EfFECIS Of INTER.'IATIO:<AL PROVISIONS CO:O.'TAIND> IN 

THE PRESIDf..''T'S FISCAL YEAR 2016 BUDCET PROPOSAL Ill 

Pro,isioa 

Rtform U.S. [alf.I'D.Ition.al Tu S)'$Ctm 

A Impost a 

Ulll>=lf0W$1lblcctn< .............................................. .. 

B. Impos.c a 19·Ptfteo.t Mmimum Tax oo f'cuip Income 

C. Olbef Rules Rdaled co Forrip Income. ...................... .. 

..., 

£Jrtcd\-. 

)2) 

1)1»12131115 

various 

NET TOTAL ......................................................... ............................... . 

Jot.ot Cocruwtt« oo Tuaboo 

NOTE: Dream may not a&1 to toeili dut to rtM.'ldiDg. 

l.qeod (or "EEI'eoU\<" <oluroo: I)W • W<>bk )'tOB bq>"'""' aft<r 

)I)Eotimale u ,_l<d io1CX·S0-1 5 ooM>tth6, 2015. 

2015 

7.5 

·3.6 

-l-0 

Fkul Yr.1.rs 201S · 2025 

{Billions of Dollars} 

1016 

53.9 

15.3 

.lj 

66.7 

2017 

48.1 

30.0 

2.0 

80.1 

1013 

49.0 28.3 

2.9 

80.3 

)2) Ef!«:tiv• OCt th< dal< of_,..,, >0<1 would apply 10 <>rnings accwwbt<d forto.ubl< >= b<gotlru>g b<f«t J""oary I. 2016. 

2019 

SO.! 

28.2 

3.5 

81.9 

2020 

43.1 

28.9 

4.4 

16.4 

lOU 

·8.1 

1.9.7 

5.9 

21.6 

lOll 

-6.5 

28.2 

7.3 

29.1 

lOll 

-6.7 

26.1 

S.l 

27.7 

2024 

-6.9 

24.8 

9.6 

27.5 

lOlS lOIS.l

-6.6 25!.

22.7 130

11.2 6

27.3 389
f 


22333A.013

· Tablt3 · 

ESIDIATD> REVENUE I.FFECTS OF A PROPOSAL BY SENATOR RAI'(]) PAUL A:'\'D SENATOR BARBARA BOXER 

FORA TEMPORARY REDUCED RATE OX CERTAIN DI\'IDL'\'D REPATRIATIO:-oS FROM FORDCN SUBSIDIAIUES OF U.S. CORPORATIONS {II 

Allow U.S. Corporations to M.ake .a One· Ttme El«bOCl 

of :m 81 .4-Pcrc<nt Oi\'idtncls·Retti\''td Deduction for 

C<IUIDI>ividends They fiom Tbcir Coottoll<d 

Forcigo Corpcnnoos Ounoglll< Fi'" Y<m Follouing 

1bt Ek<tiOII,. '"'""''''"''"'''"'''"'' "" """"'""' "'""'" '"" "' ;:;; 

Joint Committ« oo 

NOTE: tXtaUs tm)' oot tocals roundl.o&. 

Ltgtod for "Efl'etti\'t• columo: 

Ill Esoima« as ttpOrl<d by BJoamll<tg BNA on AprillO, lOIS. 

£JI'tcd''f lOIS 

1)1>a00E 4.3 

Fikal \ 'tal'$ 2015 . 2015 

{Biilkw of Dol/an) 

2016 2017 lOIS 2019 2020 lOU 201:2 202J 2024 

2U 10 ·5.8 · 12.5 · 12.4 ·15.9 ·2).0 ·27.1 ·26.6 

2025 2015-2

·'24.4 .0
20 

Chairman REICHERT. Thank you. 

Mr. Dubay, you are recognized for 5 minutes. 

STATEMENT OF CURTIS S. DUBAY, RESEARCH FELLOW IN TAX 

AND ECONOMIC POLICY, THE HERITAGE FOUNDATION 

Mr. DUBAY. Good afternoon, Chairman Reichert, Ranking Member Neal, distinguished Members of the Committee. Thank you for 

inviting me here today. My name is Curtis Dubay. I am Research 

Fellow in Tax and Economic Policy at The Heritage Foundation. 

The views I express in this testimony are my own and should not 

be construed as representing any official position of The Heritage 

Foundation. 

Changes to repatriation policy have been spoken about often as 

a way to fill the hole in the Highway Trust Fund, but details have 

been scant. There may be confusion caused by this because there 

are usually two distinct policy options discussed when it comes to 

using changes to repatriation as a way to fill up the gap in the 

Highway Trust Fund. It is important to differentiate between those 

two options, because they would have distinctly different ramifications. 

The first option would be Congress either granting a repatriation 

holiday on the untaxed overseas earnings of U.S. businesses at a 

lower rate than under current law or deeming those earnings repatriated and taxing them at a lower rate. In this option, repatriation 

would be a stand-alone policy to fund the Highway Trust Fund. 

The second option would be to establish a territorial system in 

place of our current worldwide one and deem the foreign earnings 

repatriated to help facilitate the transition to that better system. 

The stand-alone option would not be sound policy. A territorial 

system would strongly boost economic growth. It is badly needed 

because the current worldwide system is one of the biggest inhibitors of growth for the U.S. economy today. 

Moving to a territorial system, no matter in the context of fundamental tax reform, business-owing tax reform, or as an independent policy improvement, would be a boon for job creation and 

wage growth for American families. 

Under the current worldwide system, with deferral, businesses 

understandably delay paying U.S. tax on their earnings because 

paying it would make them highly uncompetitive compared to their 

foreign competition. 

Regardless of how Congress proceeds on tax reform, changes to 

the repatriation policy should always be handled in conjunction 

with international reform that switches from the worldwide system 

to a territorial one. After all, the worldwide system has caused 

businesses to compile those earnings abroad. It only makes sense 

that changes to how they are taxed be used to repair the harm that 

it caused. 

Deeming those earnings repatriated and taxing them at a lower 

rate than under current law would make moving to a territorial 

system easier. The revenue can be used to offset the tax cut that 

JCT is likely to score a territorial system as. And the revenue can 

also be used to compensate those businesses that stand to lose because of the devaluation of deferred tax assets. This is not a tax 

hike because it would be part of a broader reform. 

21 

Making changes to repatriation policy within tax reform that establishes a territorial system stands in stark contrast to using repatriation changes to fund the Highway Trust Fund without moving to a territorial system. Taxing the overseas earnings of U.S. 

businesses to fund the Highway Trust Fund would break the sensible user-pay principle that has long underpinned the Highway 

Trust Fund. 

There is no connection between U.S. multinational businesses 

and domestic highway use. A repatriation holiday, one of the policies offered by some under the stand-alone option, is unlikely to 

raise revenue in the traditional 10-year budget window. To counteract this some have floated a stand-alone deemed repatriation because it would unambiguously raise revenue. 

As a stand-alone measure, deemed repatriation is a tax hike, 

even though the rate applied to the overseas income would likely 

be less than under current law. This makes a stand-alone deemed 

repatriation yet another tax-and-spend scheme. In addition to that, 

it is also more troubling than a holiday because it is compulsory 

rather than voluntary. 

Either a repatriation holiday or a stand-alone deemed repatriation would be a temporary fix. Congress should instead focus on 

other reforms to the highway program that would be sustainable, 

would not break the user-pays principle, and would not raise taxes. 

Thank you, again, and I look forward to your questions. 

[The prepared statement of Mr. Dubay follows:] 

22 


22333A.014

214 Massac/wset/s Avenue, NE • Waslliuglou DC 20002 • (202) 546-4400 •lleritage.org 

CONGRESSIONAL TESTIMONY 

Congress Should Only Make Changes 

to Repatriation Policy When 

Establishing a Territorial System 

Testimony before the 

Subcommittee on Select Revenue Measures of the 

Committee on Ways and Means 

United States House of Representatives 

June 24, 2015 

Curtis S. Dubay 

Research Fellow in Tax and Economic Policy 

The Heritage Foundation 
23 


22333A.015

My name is CurtisS. Dubay. I am Research Fellow in Tax and Economic Policy at The Heritage 

Fmmdation. The views I express in this testimony are my own, and should not be construed as 

representing any official position of The Heritage Foundation. 

Confusion Over Repatriation and Highway Trust Fund Needs Clearing 

Changes to repatriation policy have been spoken about often as a way to fill the hole in the 

Highway Trust Fund (HTF). Although the conversations have been frequent, details about what 

such a policy would entail have been scant. By holding this hearing, the Committee is taking an 

important step to clear up any confusion that may exist. 

There are usually two options discussed when it comes to using changes to repatriation policy as 

a way to fill the gap in the HTF. 

The first would be Congress either granting a repatriation tax holiday on the untaxed overseas 

earnings of U.S. businesses at a lower rate than current law, or deeming those e.arnings 

repatriated and taxing them at a rate lower than under current law. In this option, repatriation 

would be a stand-alone policy to fund the HTF. 

The second option would be to establish a territorial system (or dividend-exemption system) in 

place of our current worldwide one, and deem the foreign earnings repatriated to help pay for the 

transition to that better system. 

The first option would not be sotmd policy; the second one would strongly boost economic 

growth. 

Changes to Repatriation Should Be Done Exclusively in Tax Reform 

The country needs tax refonn because the current tax code is holding the economy back from 

growing as strongly as it should. The biggest factor holding back growth is the antiquated way 

the tax code treats businesses. In addition to having the highest corporate tax rate in the 

developed world, as defined by the Organization for Economic Co-operation and Development 

(OECD), the worldwide system that taxes U.S. businesses on their foreign earnings is the biggest 

reason the business tax system is so outdated. 

It would be best if Congress passed fundamental iax reform, where it would refonn both 

individual and business taxes. However, since the need for business refonu is so pressing, it 

makes sense to focus on business-only ftrst if that is wbat is achievable.' 

Business tax reform contains many pieces, such as lowering tax rates, moving to expensing of 

capital purchases, and establishing a territorial system. It would be betler to pass those policies 

'CurtisS. Dubay and David R. Burton, "How Congress Should Rcfonn Business Taxes," Heritage Foundation 

Backgrounder No. 3022. June 4, 2015, hnp /lw\\~v hcrit gc g/re earch/rcpons/20 15/06/how-<:ongress-shouldref nn~bu iness·taxe . 

2 
24 


22333A.016

together since they are all necessary to fully alleviate the burden business taxes put on the 

economy, but passing them separately would still move the tax code in a pro-growth direction. 

Under the current worldwide system, businesses retain earnings abroad because they do not pay 

U.S. tax until they bring the money back to the U.S., a policy known as deferral. Businesses 

delay paying U.S. tax on those earnings because paying the extra U.S. tax on them would make 

them lllghly uncompetitive against their foreign competition. 

Regardless of how Congress proceeds on tax reform, changes to repatriation policy should 

always be handled in conjunction with international refonn that switches from the worldwide 

system to a territorial, or dividend-exemption, system.

1 The worldwide system has caused 

businesses to compile those earnings abroad. It only makes sense that changes to how they are 

taxed be used to repair the ham1 it causes. 

The Joint Committee on Taxation (JCT) is likely to score switching to territorial as a tax cut, at 

least initially. A dynamic score, which it is now required to provide, should reduce the tax cut 

compared to a static score. 

Some have estimated that U.S. corporations have earned an estimated $2.1 trillion overseas that 

has not been repatriated and subject to U.S. tax.

3 As part of moving toward a territorial tax 

system, this income should be deemed to be repatriated and taxed at a reasonable rate. The 

businesses that earned this foreign source income expected to pay tax on this money eventually 

and to exempt it from tax entirely would constitute an unwarranted windfall gain. However, 

because currem law allows for deferral and because of the time value of money, taxing this 

income under a deemed repatriation at the full corporate rate would be equally unfair. The new 

revenue from tills deemed repatriation can make a substantial contribmion to funding other 

positive aspects of business tax reform. 

One of those ways would be to help offset the resulting tax cut from switching to a territorial 

system. For instance, in his tax reform proposal, then-Chairman of the House Ways and Means 

Committee Dave Camp (R- MI) incorporated deemed repatriation as a transition method to a 

territorial system in Ills 2014 revenue-neutral tax refonn proposal.4 lt is acceptable to do tills 

because it is part of broader tax refonn- it is not a tax hike and it makes way for a badly needed, 

and long overdue, territorial system. 

An additional use for the revenue raised from repatriation within international refonn would be 

to compensate those businesses that are harmed by tax reform. Tax reform creates wi1111ers that 

2

Curtis S. Dubay, "Changes to Repatriation Policy Best Left to Tax Refonn," Heritage Foundation Issue BriefNo. 

4347, Feb mary 17, 20 15, http://www.heritage .org/research/reports/20 15/02/chllllges-to-•·epatriation:Policy-best-lefto· ax~refon . 

JRichard Rubut, "U.S. Comp!lllies Are Stashing S2.1 Trillion Overseas 10 Avoid U.S. Taxes," Bloomberg, March 4, 

20 I S, http://www .bloomberg.com/ncwslat1 iclcs/20 15-03-Q4 u·s-compan es-are•stashing-2-1- ri ll ion·ove~as·toavoid-taxes (accessed June t9, 2015). 

'CurtisS. Dubay and David R. Burton, "Chairman Camp's Tax Refomt Plan Keeps Debate Alive Despite Flaws," 

Hct·itage Foundation Backgrouuder No. 2890, March 14, 2014, 

bttp://www.bcritage.o•·g/•·cscarchlreports/2014/03/cbairman-eamps·tax-rcfo•m:Pian-kccps-dcbatc-alive-despiteflaws. 

3 
25 


22333A.017

experience windfall gains and losers that see the decline in deferred tax assets, such as foreign 

tax credits, loss carrybacks, and others. 

A territorial system would free U.S. businesses to invest more abroad by making investments 

profitable that are unprofitable under the current worldwide system. The increase in foreign 

investment would increase domestic investment by businesses in support of their foreign 

operations and their efficiency and competitiveness as well. This would create jobs and raise 

wages for U.S. workers.5 It would be a tremendous benefit to the economy. 

A territorial system requires a robust set of policies to prevent improper base erosion and profit 

shifting. Without such policies, U.S. businesses could shift income earned in the U.S. to 

countries with lower tax rates. Shifting income that should be taxable in the U.S. abroad would 

improperly narrow the tax base and force tax rates to be higher on domestic-only businesses and 

families. Higher tax rates hurt growth and are therefore antithetical to tbe core purpose of 

engaging in tax reform. 

Congress should craft its own set of base erosion and profit-shifting policies. It should not be 

beholden to international efforts such as are ongoing currently with the OECD's Base Erosion 

and Profit Shifting project. 

Stand-Alone Changes to Repatriation to Fund HTF Would Be Poor Policy 

Making changes to repatriation policy within tax refonn that establishes a territorial system 

stands in stark contrast to the other set of options on the table, which would use repatriation 

cbanges to fund the HTF without moving to a territorial system. Changing repatriation policy 

without establishing a territorial system would make achieving territoriality more difficult in the 

future because the revenue that could be raised will no longer be available to aid in transition. 

Furthermore, the HTF is based on the sensible user-pays principle. Drivers pay the federal gas 

tax which is supposed to fund highway spending, although a large portion of it is diverted to 

spending in other areas. The more drivers use the highways, and the more wear and tear they put 

on roads based on the size and weight of their vehicle, the more gas they buy. When they buy 

more gas, they pay more tax. This is a fair and practical way to pay for highway spending. 

Taxing the overseas ean1ings of U.S. businesses to fund the HTF would break the user-pays 

principle. There is no connection between U.S. multinational businesses and domestic highway 

use. 

A repatriation holiday is one of the policies offered by some under the stand-alone option. Uoder 

a repatriation holiday, businesses choose whether they want to exploit a lower tax rate on their 

foreign earnings Co ogress offers them during a set period of time, for instance 2 years. 

)Cur!is S. Dubay. "A Tenicorial Tax System Would Creace Jobs and Raise Wages for U.S. Workets," Heritage 

Fouudaciou /Jackgrouuder No. 2843, September 12, 2013, bup://www.beritage.org/researchlrep<>J1sl2013f09fa· 

territorial·tax·s~n·would·create·jobs ·and·rai se·wa~for·us·workers. 

4 
26 

f 


22333A.018

However, it is highly questionable whether a holiday would lower or raise revenues in the 

trad.itional 10-year budget window. Whether it does or does not depends almost entirely on how 

much foreign income the JCT anticipatej) businesses wiU repatriate over the next decade uttder 

current law. Given a one-year or two-year span, there is linle doubt that a holiday would shift 

revenue forward to those years. Hence, a holiday could raise more revenue in those years even 

though it would cut taxes over the entire I 0-year period relative to the current baseline. 

Since Congress is beholden to the 10-year window, some have floated a more troubling change 

to repatriation policy that would unambiguously raise revenue in that window. In order for 

Congress to make sure it would raise revenue through changes to repatriation policy, it would 

have to treat U.S. businesses' overseas earnings as deemed repatriated without making other 

changes to the international tax system. 

Under deemed repatriation, unlike a repatriation holiday, businesses have no choice whether to 

pay tax on their foreign earnings. instead, it assumes they have already brought all their 

accwnulated foreign earnings back to the U.S. and applies a tax on that income inlmediately, 

even if businesses never actually bring the money back to the U.S. or never intended to do so. 

As a stand-alone measure, deemed repatriation is a tax hike, even though the rate applied to the 

overseas income would likely be less than tmder current law. It would be a tax hike because it 

would force businesses to pay tax on their foreign income before they planned to. and it would 

tax income that these businesses never planned to repatriate, and thus would never have paid 

U.S. tax on. This makes a stand-alone deemed repatriation yet another tax-and-spend scheme. ln 

addition to that, it is also more troubling than a holiday because it is compulsory rather than 

voluntary. 

Either a repatriation holiday or deemed repatriation (as a stand-alone option) would be a 

temporary fix. Congress would be back looking for other sources of revenue in a few years if it 

took this path. It should instead focus on other refom1s to the highway program that would be 

sustainable, would not break the user-pays principle, and would not raise taxes. 

Conclusion 

Tins year, m addtllon to makmg certam expmng provtstons pennanent, such as 50 percent 

expensing, which is often called bonus depreciation, Congress has the chance to advance the 

cause of tax refonn by improving the way the tax code handles international taxation. Finally 

moving to a territoria l system would be strongly pro-growth and improve opporrwlities for 

American families of all income levels. 

If Congress changed repatriation policy as a stand-alone measure to cover a hole in the HTF, it 

wou.ld create less incentive to change the tax policy from a worldwide system to a territorial 

system. Instead, Congress should focus on establishing a territorial system and reserve changes 

to repatriation policy for aiding that si.zeable improvement to the tax code. 

5 
27 

Chairman REICHERT. Thank you. 

Mr. Suringa, you are recognized. 

STATEMENT OF DIRK SURINGA, 

PARTNER, COVINGTON & BURLING LLP 

Mr. SURINGA. Chairman Reichert, Ranking Member Neal, and 

Members of the Committee, my name is Dirk Suringa. I am a partner with the law firm of Covington & Burling. I appreciate very 

much the opportunity to testify today before you. I appear before 

you on my own behalf and not on behalf of my firm or any firm 

client. 

I would like to make three basic points. My first point is that 

international tax reform is needed now to address the increased 

risk of double taxation faced by U.S. companies operating abroad. 

Reform also is needed to address new foreign tax incentives, socalled patent boxes, that are intended to lure U.S. researchers and 

innovators to relocate abroad. 

You may have heard of the OECD’s BEPS, Base Erosion and 

Profit Shifting project. This is a think tank project that was started 

in 2013 to try to come up with ways to tax so-called stateless income or income that is not subject to tax anywhere. The project is 

still ongoing, but the results to date are disturbing. The main result so far has been to encourage foreign countries to come up with 

new and creative ways to tax U.S. companies operating abroad. 

This has led to increased double taxation of their foreign income. 

At the same time, many foreign countries have started to adopt 

patent box tax incentives over recent years. These are incentives 

for intangible income arising out of research activities performed in 

their country. These incentives, combined with threats of increased 

taxation under BEPS, are putting more and more pressure on U.S. 

companies to move themselves and their high-skilled jobs outside 

this country. 

My second point is that adopting an innovation-friendly exemption system and our own version of an innovation box would help 

to address these problems. Of course, the best way to address these 

problems would be to adopt comprehensive tax reform, including 

rate reductions. But these specific problems also can be addressed 

in sequence by first adopting an exemption system and a U.S. innovation regime and then moving on to broader reform. Countries 

like the United Kingdom, Japan, Spain, and others have shown 

that this can be done. Each of those countries adopted an exemption system and then in subsequent years reduced corporate tax 

rates. 

The adoption of an exemption system would help reduce the immediate risk of double taxation caused by BEPS. Under current 

law, active foreign income is subject to tax at 35 percent when repatriated and a foreign tax credit is allowed for foreign taxes imposed on that income. But the foreign tax credit is subject to many 

limitations under current law, and U.S. companies, as a practical 

matter, are not able to credit all of the taxes asserted by countries 

under BEPS. 

Under an exemption system, active foreign income would simply 

be exempt from U.S. tax. There would be no threat of current or 

residual U.S. tax on the same income. An exemption system also 

28 

would end the lockout effect on foreign earnings and level the playing field in foreign markets for U.S. companies. 

The adoption of a U.S. innovation box would help to counteract 

the incentive to move U.S. research activity abroad. The innovation 

box would be broad in terms of the technology covered and the returns to IP covered, but it could be narrow, and I think it should 

be narrow, in requiring the underlying research to be performed in 

the United States. 

My third point is that any tax revenue raised by changing to an 

exemption system should be used in the design of that system to 

encourage U.S. job growth and innovation. Active foreign earnings 

are currently subject to tax at 35 percent when they are brought 

home. Under an exemption system, active foreign earnings going 

forward would be largely exempt from tax when they are brought 

home. Rather than requiring companies to trace which pools of 

earnings are exempt and which are still subject to the deferred taxation, it would make sense to have a transition rule to tax those 

earnings at a low rate over an extended period of time. 

The reason for the low rate and the extended time period is because a majority of those earnings are invested in foreign operating 

assets that cannot readily be sold to pay the tax. Most importantly, 

however, any tax revenue generated by the transition tax should 

be used to design an exemption system and an innovation regime 

that favor U.S. job creation and U.S. research. 

There are many different ways to design an exemption system, 

including ways that increase taxes on the very same companies 

that are now confronting BEPS and foreign tax incentives to relocate. At the same time, there has been a discussion of imposing a 

one-time tax on foreign earnings that have been permanently reinvested abroad—again, a tax on the same companies that are confronting these foreign tax pressures. 

From a policy perspective, it would make the most sense to use 

any revenue generated from taxing those earnings to provide tax 

relief to the companies that are paying those taxes. Congress can, 

of course, choose to credit those revenues to the Highway Trust 

Fund accounts upon receipt should it so desire. But the transition 

tax revenue should be used in designing an international tax system that solves the problems that U.S. companies are now facing. 

Thank you for allowing me to testify, and I look forward to your 

questions. 

[The prepared statement of Mr. Suringa follows:] 

29 


22333A.019

STATEMENT OF DIRK SURINGA 

BEFORE THE SUBCOMMITTEE ON SELECT REVENUE MEASURES 

OF THE 

COMMITTEE ON WAYS & MEANS 

OF THE 

U.S. HOUSE OF REPRESENTATIVES 

ON THE SUBJECT OF 

THE REPATRIATION OF FOREIGN EARNINGS AS A 

SOURCE OF FuNDING FOR THE HIGHWAY TRUST fUJI(]) 

J UNE 24,2015 

Chairman Reichert, Ranking Member Neal, and Members of the Committee: 

My name is Dirk Suringa. I am a partner in the law fim1 of Covington and 

Burling LLP. From 2000 to 2003, I served as an Attorney-Advisor in the Office oflntemational 

Tax Counsel in the Department of the Treasury. I appreciate very much the opportunity to 

testify today before the Committee. I appear before you today on my own behalf and not on 

behalf of my fim1 or any finn client. 1 

I am testifYing as a practitioner who works with the existing mles for the taxation 

of U.S. companies operating abroad. I would like to focus my testimony on two recent 

developments, which may be important to the Committee as it addresses the topic of the 

repatriation of foreign earnings. These two developments are, first, the OECD's Base Erosion 

and Profits Shifting ("BEPS") Project, which bas led to increased double taxation of U.S. 

companies operating abroad; and, second, the recent proliferation of foreign research tax 

incentives called "patent boxes," a phenomenon which is expected to accelerate in the coming 

years. These and other related developments have increased the urgency for reforn1 of the U.S. 

rules for taxing the foreign operations of U.S. companies. 

Started at the behest of the G-20 in 2013, the OECD's BEPS Project has 

developed 15 Action Items, addressing technical tax topics ranging from transfer pricing of 

intangibles to the taxation of digital goods and services to the threshold for source-country 

taxation under the "permanent establishment" standard. 

2 From its inception, the OECD's 

primary purpose in this Project has been to propose measures that governments can adopt to tax 

so-called "stateless income," defined as income not subject to current taxation by any country. 3 

1 Covington represents clients in the technology and pharmaceutical industries, among others, 

which have an interest in the matters discussed before the Committee today. We are not 

currently registered to lobby on behalf of these clients for such matters, but it is our expectation 

that we will register for one or more such clients in the near future. 

2 See Organisation for Economic Co-operation and Development [OECD], Aclion Plan on Base 

Erosion and Profll Shifting, at 13- 27 (July 20I3). 

3 See id. at I 0 ("BEPS relates chietly to instances where the interaction of different tax rules 

leads to double non-taxation or less than single taxation."). 
30 


22333A.020

The BEPS Project assumes stateless income to be a pervasive problem and one 

that must be addressed by expanding the taxation of cross-border income. However, the BEPS 

Project does not clearly distinguish between stateless income from income earned in a country 

that decides for its own policy reasons not to tax it, or income that is subject to deferred taxation 

in the taxpayer's country of residence, such as the U.S. system of taxing certain foreign business 

income on a deferred basis.< Instead, the BEPS Project starts from the premise that 

multinationa and in particular U.S. multinational are using "base erosion and profits 

shifting" techniques to avoid foreign income taxation, and it proceeds immediately to the 

conclusion that new and largely untested methods of taxation, or of allocating income to a 

country, must be devised to capture that tax revenue. 5 

So far, 7 of the 15 J'lanned BEPS "deliverables" have been issued, and the 

remainder are expected this Fall. However, the main practical effect of the BEPS Project 

already is being felt by U.S. companies operating abroad. Tite effect so far bas been to 

undenuine whatever consensus may have existed on several longstanding tenets of intemational 

taxation, such as the threshold level of activity required for a source country to tax a nonresident 

enterprise and the ann's length standard for transfer pricing ithout replacing them with any 

new consensus. Countries thus have responded to the BEPS Project through a series of unilateral 

tax measures, such as the "Diverted Profits Tax," a tax regime adopted by the United Kingdom 

in April 2015 primarily to tax U.S. teclmology companies that were not subject to tax under the 

pemtanent establishment definition that existed before BEPS. 7 The U.K. is not alone in adopting 

or considering such measures. 8 

BEPS also has become a common pretext for aggressive foreign tax audits of U.S. 

companies. It has become a running joke among international tax practitioners that BEPS stands 

for "Basically Everything is a Profit Split," since many countries appear to be abandoning the 

ann's length standard in favor of taxing whatever they perceive to be their "fair share" of tax 

revenue from international trade. 9 Under one BEPS action item, "country-by-country reporting," 

the IRS plans to collect data from U.S. companies, including how much revenue and profit they 

eam in each country around the world, and the IRS would then share this infomtation with 

4 Cf id. at 9- 11. 

5 See, e.g., id. at 8. 

6 See id. at 29-40 (laying out the BEPS deliverables timeliJte). 

7 See Kevin A. Bell, U.S., U.K., OECD Delegates Differ On Evaluation of BEPS Project, 34 

T.M. W.R. 749 (June 15, 20 15) (reporting on the "disappointment" of the U.S. Deputy Assistant 

Treasury Secretary for International Tax Affairs with the current status of the BEPS Project and 

recent unilateral action by the U.K. and Australia). 

8 See id. 

9 See, e.g., David D. Stewart and Stephanie Soong Johnston, Australian Tax Chief Challenges 

Multinationals' Claims, 78 Tax Notes Int'l327 (Apr. 27, 2015) (reporting on the hearings before 

the Australian Senate). 

2 
31 


22333A.021

foreign govenunents. 10 Although this infonnation is not intended to be used by foreign 

governments to Jay claim to a share of the tax revenue allocated to other countries, it is difficult 

to imagine that it will not be used for that very purpose. As a result of these and other BEPS 

deliverables, U.S. companies operating abroad are becoming subject to double taxation of their 

income i.n an increasing number of cases. The new aggressiveness of foreign tax audits already 

is being reflected in the number of requests for treaty relief from foreign-initiated audit 

adjustments. 

11 

A second development, related in part to BEPS, is the proliferation of foreign 

"patent box" regimes, which are foreign tax incentives designed to encourage companies to 

relocate research and development activities into the country offering the incentive. Although 

such regimes come in many varieties, in general terms, they are designed to grant a 

concessionary tax rate for income from the development and exploitation of intangible property, 

particularly patents, within a jurisdiction. 12 The OECD recently identified 15 separate 

preferential intangible regimes within OECD member states and associate countries: Belgium, 

Colombia, France, Hungary, Israel, Luxembourg, Portugal, the Netherlands, Sgain (3 separate 

regimes), Switzerland (2 separate regimes), Turkey, and the United Kingdom. 3 

These incentive regimes are expected to spread further to other countries and, 

going forward, to concentrate more specifically on the relocation of skilled professionals. 14 In 

20 I 0, the existing preferential intangible regimes were subjected to scmtiny by the OECD and 

10 See OECD, Guidance on Transfer Pircing Documentation and Coun11y-by-Coun11y 

Reporring- Action i3: 20i4 Deliverable (Sept. 2014). 

11 See Dolores Gregory, iRS Releases MAP Statistics for 20i4 Showing Jump in Filings and 

Invento1y, 23 T.M.T.R. !606 (Apr. 30, 2015) (" Requests for double tax relief jumped 

significantly in 20 14, adding to a growing inventory of mutual agreement procedure (MAP) 

cases before the Internal Revenue Service, an agency official said, citing a report released April 

16."). 

12 Joint Comm. on Tax'n, Present Law And Selected Policy issues in The U.S. Taxation Of 

Cross-Border Income, JCX-51-15, at 41-47 (2015) (hereinafter JCX-5i-15] (describing the 

general idea motivating the patent box along with differences between various patent box 

regimes). 

13 See OECD, Counrering Harmfitl Tax Practices More Effectively, Taking into Accoum 

Transparency and Substance-Action 5: 2014 Deliverable, at 59 (Sept. 20 14) (hereinafter Action 

5 Deliverable). See also European Co1111nission [EC), A Study on R&D Tax Incentives: Final 

Report, Working Paper N. 52 - 20 14, at 53 (Nov. 2014) [hereinafter Working Paper N. 52 -

20i4] (identifying eleven European countries with patent boxes). 

14 See, e.g., Working Paper N. 52 - 2014, at 5 (Nov. 2014) ("Tax benefits applying to income 

from il1llovation (mostly patent boxes) are proliferating. At the moment of writing, eleven EU 

member states offered corporate tax reduction for income resulting from to [sic] intellectual 

property."); JCX-51 -15, at 46 ("Policymakers have also pursued intellectual property regimes 

under the premise that the location of legal entitlements to intellectual property influences where 

companies make investments related to that intellectual property."). 

3 
32 


22333A.022

by the European Union as potentially "hannful" tax practices. 15 In February 2015, however, a 

consensus was reached, which in general terms states that patent boxes are pem1issible if there is 

a nexus between the tax benefit provided by a country and research performed within that 

country, even if the tax benefits extend to the income derived from the intangible and not just the 

perfonnance of research. 16 Now that a clear consensus has been reached, additional countries 

(such as Ireland and Italy) may be expected to adopt such incentives, and the existing incentives 

may be expected to target more directly the relocation of research operations to those countries. 

The combination of aggressive source taxation ofU.S. multinationals with new 

tax incentives to relocate their research personnel abroad put further pressure on the U.S. tax 

system and present a compelling case for addressing at least some aspects of u1temational tax 

reform now. The most effective way to address these challenges would be comprehensive U.S. 

tax reform, in which the United States brings its corporate income tax rate, as well as its 

approach to taxing foreign income, into closer confom1ity with that of its major trading partners. 

It is well known that the U.S. corporate income tax headline rate is the highest in the OECD, and 

approximately 15 percentage points above the OECD median.

17 While effective rates of tax vary 

by industry and some industries bear lower effective tax rates, statutory rates do matter to 

companies in making investment decisions. 18 

Although comprehensive tax refonn should remain the ultimate goal, the recent 

pressures that are being exerted on U.S. companies as a result of the BEPS Project and foreign 

patent box regimes can and should be addressed now, through a subset of measures that can be 

accomplished in advance of comprehensive international tax refo1m. As discussed below, the 

adoption of an innovation-friend! y exemption system for taxing foreign income, and the adoption 

of a U.S. innovation box, could be taken as frrst steps towards more comprehensive tax refom1. 

In this regard, the recent examples of the United Kingdom and Japan are 

instructive. Both countries adopted an exemption system ftrst, and then lowered their corporate 

income tax rate. TI1e United Kingdom adopted an exemption system in 2009, and it followed up 

with reductions to its corporate tax rate in 20 II and then additional rate cuts. 

19 Between the 

adoption of an exemption system in 2009 and 2015, the United Kingdom's corporate tax rate has 

15 See Action 5 Deliverable, at 55- 56 (Sept. 20 14) ("The current review of member country 

regimes commenced in late 20 I 0 with the preparation of a preliminary survey of preferential tax 

regimes in member countries, based on publicly available infonnation and without any judgment 

as to the potential hannfulness of any of the regimes included."). 

16 See OECD, Action 5: Agreement on Modified Nexus Approach for IP Regimes (Feb. 2015). 

17 See Joint Comm. on Tax'n, Present Law and Background Related to Proposals to Reform the 

Taxation of Income of Multinational Ente1prises, JCX-90-14, at 38 (20 14). 

18 See id. at 38- 39. 

19 SeeJCX-51-15, at 39; PricewaterhouseCoopers, Evolwion ofTerritorial Tax Systems in the 

OECD, at 6 (2013) [hereinafter Territorial Tax Systems Report]. 

4 
33 


22333A.023

fallen from 28 percent to 20 percent. 20 Japan also ado~ted an exemption system in 2009 and 

started to reduce its corporate income tax rate in 2013. 1 Between 2012 and 2015, Japan's 

corporate tax rate has fallen from 39.54 percent to 32.11 percent, and the Japanese government 

hopes to reduce it below 30 percent. 22 Other countries, such as Spain and New Zealand, have 

followed a similar pattern. 23 As these examples illustrate, adoption of an exemption system for 

the relief of double taxation can be a first step towards rate reduction, and changing the system 

tor relieving double taxation does not present an obstacle to fi.lrther reform. 

Adoption of an exemption system would help to address the increased risk of 

double taxation stemming from the BEPS Project. As discussed, U.S. companies are confronting 

increasingly aggressive assertions of taxing jurisdiction by foreign countries, which now use the 

BEPS "stateless income" argument as a pretext for taxing profits that are either subject to current 

U.S. taxation or to residual U.S. taxation upon repatriation. There is considerable concern that 

these assertions will result in foreign taxes for which no U.S. foreign tax credit will be allowed 

by the IRS, resulting in economic double taxation.

24 This outcome would create a serious 

competitive disadvantage for U.S. companies operating in foreign markets. 

The adoption of an exemption system would help to address these concerns by 

mitigating the risk of international double taxation. Under an exemption system, foreign taxes 

imposed on active income would no longer be creditable against U.S. income taxes, as they are 

under the current system. Because foreign active income would be wholly or partly exempt, 

however, there would be no threat of current or residual U.S. taxation of the same income. 25 

Although this solution will not prevent taxation by multiple foreign taxing authorities, it would at 

20 SeeJCX-51-15, at 39; Table /J.1. C01porate Income Tax Rale, OECD STAT EXTRACTS (June 

22, 20 15), http://stats.oecd.org/lndex.aspx?Queryld=58204. 

21 See id. at 39; Territorial Tax Systems Report, at 5. 

22 See JCX-51-15, at 39; Table 11.1. Co1porate Income Tax Rate, OECD STAT EXTRACTS (June 

22, 2015), http://stats.oecd.org/lndex.aspx?Queryld=58204; Tetsushi Kajimoto and Antoni 

Slodkowski, Japon 's Abe Unveils Plan 10 Cui C01porate Tax Ra1e 10 Spur Growth, Reuters 

(June 13, 2014, 8:06 AM), http://www.reuters.com/article/20 14/06/ 13/us-japan-economy-abeidUSKBNOEOOK320140613. 

23 See id. at 39; Territorial Tax Systems Repot·t, at 5-6. 

24 1n 2013, the Supreme Court considered whether a novel income tax imposed by the United 

Kingdom was eligible for the foreign tax credit. See PPL Cotp. v. Commissioner, 133 S.Ct. 

1897 (2013). Although the taxpayer prevailed in that case, it raises concerns that the IRS migllt 

oppose a foreign tax credit for some of the novel taxes imposed in the name of preventing BEPS. 

25 See Joint Comm. on Tax'n, Present Law and Background Rela1ed /o the Repalriation of 

Foreign Earnings, JCX-96-15, at 13 (20 15) [hereinafter JCX-96-1 5] ("However, the question of 

whether the government cau credibly commit to a one-time deemed repatriation under the Camp 

and Administration proposals is less relevant, or irrelevant, because, prospectively, active 

income earned by CFCs bears little or no residual U.S. tax, so that the stock of untaxed CFC 

earnings may accumulate slowly over time (if at all). lf this is the case, little or no revenue can 

be collected from another deemed repatriation."). 

5 
34 


22333A.024

least ensure that the United States does not also tax the same income. Of equal importance, 

adoption of an exemption system would lower the significant tax barrier in current law to 

repatriating foreign profits for investment in U.S. economic activity and job creation, and a 

properly designed exemption system would help to level the playing field for U.S. companies 

competing for customers in foreign markets. 

If an exemption system were to be adopted, it has long been accepted that a 

transition mle would be needed to address the treatment of foreign eamings that are already 

invested abroad.26 Under current law, those eamings are subject to residual U.S. federal income 

taxation at the full corporate tax rate of35 percent. Nevertheless, these eamings typically are 

invested in foreign operations, joiJJt ventures, and other loug-tenn investments. Because they are 

indefinitely invested abroad, they are already effectively exempt from U.S. taxation, provided 

that they arc never repatriated. Forced acceleration of a residual tax liability for those eamings, 

at the full 35 percent corporate tax rate, would cause significant economic disruption, as 

companies in many cases would be forced to sell business assets to raise the cash necessary to 

pay the tax. There are other practical barriers to repatriation as well, such as exchange control 

restrictions and corporate-law limits on distributions. Any transition tax regime should take such 

factors into account by lowering the applicable tax rate and providing au extended, interest-free 

transition period for the payment of any transition tax liability. Such a regime also should 

provide relief for U.S. companies with overall foreign losses, earnings deficits, and other tax 

attributes that would distort the amount of tax due in the transition period. 

The funds generated by the transition to an exemption system relate to the 

adoption of that system and should be used in designing a system that favors job creation and 

technological innovation in the United States. Various legislative proposals have been offered 

regarding the use of tax revenue from the deemed repatriation of foreign earnings, including 

proposals to tax those earnings now for spending unrelated to tax refonn.27 Without challenging 

the validity of the goals sought by those proposals, they would amount to a tax increase on the 

very companies that already face an increasing risk of foreign taxation and competitive pressure 

to relocate their operations abroad. TI1e best use of any revenue generated by the move to an 

exemption system would be to design the system in a way that provides meaningful tax relief to 

tbe companies paying the tax and that encourages job creation and the creation of intellectual 

property in the United States. Once these revenues are received by the Federal Govenunent, 

their allocation to Highway Trust Fund accounts docs not raise international tax policy concems. 

A U.S. incentive for the conduct of innovative research within the United States 

would be a further, appropriate response to the expansion of foreign research incentives- a U.S. 

26 Joint Comm. on Tax'n, Background and Selected Issues Related to the U.S. International Tax 

System and Systems that Exempt Foreign Business Income, JCX-33-11 , at 13 (2011) ("If the 

United States adopted a territorial system of taxation, various transition issues would need to be 

considered. One issue is the treatment of earnings attributable to periods before the enactment of 

the territorial legislation."). 

27 SeeJCX-96-15, at 8- 12 (describing proposals fonvarded by fonner House Ways and Means 

Committee Chainnan David Camp and the Administration). 

6 
35 

f 


22333A.025

innovation box comparable to the foreign regimes now endorsed by the BEPS Project. An 

effective U.S. innovation box would broadly define the type of technology covered, but it would 

narrowly define the geographic nexus of the underlying research to require that it be perfonned 

within the United States. Regarding the scope of the technology covered, neither the existing 

U.S. research credit nor the innovation box regimes adofsh:d by countries such as the United 

Kingdom limit their scope to patented technology only. 8 A narrowly defmed, patent-only box 

would raise complex allocation issues and might exclude innovative research for which no patent 

has been sought for trade secrecy reasons, or for which a patent has been applied but not granted, 

or for which a patent has been granted but has subsequently expired. In terms of geographic 

scope, by contrast, the U.S. innovation box could be limited to research activities conducted 

within the United States in order to encourage retention of high-skilled jobs in the United States. 

Neither an exemption system nor an innovation box are complete solutions, but 

they would serve as important first steps towards comprehensive intemationaltax reform and 

would serve as an important legislative response to recent intemational developments. Thank 

you again for inviting me to present my views to the Committee on these important subjects. 

28 See JCX-51-15, at 42- 44. 

7 
36 

Chairman REICHERT. Thank you for your testimony. 

Ms. Gravelle, you are recognized. 

STATEMENT OF JANE G. GRAVELLE, SENIOR SPECIALIST IN 

ECONOMIC POLICY, CONGRESSIONAL RESEARCH SERVICE 

Ms. GRAVELLE. Thank you very much. 

Traditionally, the Highway Trust Fund has been financed by user 

fees, primarily gasoline tax. The collections from these taxes have 

declined, both because they have not been adjusted for inflation— 

if they were, the 18.3 cents per gallon excise tax on gasoline would 

be 31 cents now—and because of increases in fuel economy. As a 

result, the Highway Trust Fund faces a shortfall in revenues relative to spending. 

Proposals have been made to finance the shortfall with a repatriation holiday. To be a little repetitive of Tom, under current law 

firms pay taxes on worldwide income but not for foreign subsidiaries until the income is paid as a dividend to the parent, or repatriated. Firms have a substantial amount of untaxed earnings 

abroad that they have not returned to the United States, perhaps 

because of the 35 percent corporate rate and perhaps because it is 

reinvested in physical assets. A repatriation holiday would allow 

additional earnings to be returned and taxed at a lower rate. 

There are several issues surrounding the use of taxes on the repatriation of accumulated earnings as a source of revenue for the 

Highway Trust Fund. First, even if these proposals could raise revenue, they are transitory and will not address the long-term needs 

of the Trust Fund. Voluntary repatriations, or ‘‘holidays,’’ which 

allow firms to choose to repatriate additional earnings, are scored 

as revenue losers rather than revenue gainers. 

For example, the Paul-Boxer Invest in Transportation Act would 

tax these voluntary repatriations at a rate of 6.5 percent by allowing an 81.4 percent exclusion. The Joint Committee on Taxation estimated that the proposal, while gaining $30 billion in the first 3 

years, loses $148 billion over the next 8 years for a total loss of 

$117.9 billion from fiscal year 2015 to fiscal year 2025. All of the 

other estimates of repatriation holidays have projected an overall 

revenue loss in the budget horizon. 

A different type of repatriation, called deemed repatriation, has 

also been proposed to be used for infrastructure spending. A deemed 

repatriation would impose a tax on the stock of untaxed overseas 

earnings, and it is normally part of a transition in an international 

tax reform. The Tax Reform Act of 2014, introduced in the 113th 

Congress by then Chairman of the Ways and Means Committee 

Dave Camp, would have transferred $126.5 billion of taxes to the 

Trust Fund through a deemed repatriation. That would have left 

the remainder of that revenue bill at a revenue loss over the 10- 

year period. 

The Administration’s fiscal year 2016 budget proposals also include a deemed repatriation as a transition to a new international 

system allocating $205 billion to surface transportation. 

Deemed repatriations subject to a mandatory tax have never 

been suggested as stand-alone policy. If they were, they might also 

lose revenue, and they raise important policy concerns. Estimates 

indicate that over half of the $2.1 trillion of untaxed income abroad 

37 

is invested in physical assets, such as plant and equipment. These 

earnings cannot be returned and imposing a tax on them is just a 

lump sum tax on assets. 

A deemed repatriation could be imposed on cash. However, depending on the tax rate, a deemed repatriation of either type could 

lose revenue—could lose revenue—because it would allow firms to 

reduce future repatriations, which would have been subject to a 

higher tax rate. 

It is important to note that the revenue gain in the Camp proposal is not a guide to the revenue effect of a deemed repatriation, 

because it is estimated under the assumption and other provisions 

of the bill that future dividends would be taxed at close to a zero 

rate rather than a 35 percent rate. When you look at revenue estimates, it is very important to look at where they are stacked in 

order of estimation. 

Deemed repatriations as a transition rule for a shift to a new 

type of international tax system would lead to numerous contentious and difficult issues that are currently far from agreed upon 

and that are unrelated to the more narrow concern about the Highway Trust Fund. 

In addition, much of the interest in international tax reform has 

been associated with the proposal to lower the corporate tax rate, 

which introduces some further issues, and that in turn with an 

overall individual and corporate tax reform. 

If there is a desire to link spending on transportation infrastructure with increased revenue from foreign source income, however, 

there are numerous proposals that have been advanced to address 

profit shifting and other issues in the international system. Some 

of them are in the President’s budget proposals. 

Thank you. 

[The prepared statement of Ms. Gravelle follows:] 

38 


22333A.026

Statement of Jane G. Gravelle 

Senior Specialist in Economic Policy 

Congressional Research Service 

Before 

The House Ways and Means Subcommittee on Select Revenue Measures 

United States House of Representatives 

June 24,2015 

on 

Repatriation of Foreign Earnings as a Source of Funding for the 

Highway Trust Fund 

Traditionally, the highway trust fund has been financed by user fees, primarily the 

gasoline tax and to a lesser extent the tax on diesel fuels. The collections from these taxes 

have declined both because they have not been adjusted for inflation (if they were, the 

18.3 cents per gallon excise tax on gasoline would be 3 1 cents) and because of increases 

in fuel economy. As a result, the highway trust fund faces a shortfall in revenues relative 

to spending. ' 

Proposals have been made to use taxes on the repatriation of previously untaxed 

foreign earnings of U.S. multinationals to fund investment in highways or infrastructure, 

including the Invest in Transportation Act (S. 981), introduced by Senators Paul and 

1 For a discussion of the 11nancing of the trust fund, see CRS Report RL30304, The Federal Excise Tax 011 

Motor Fuels tmd the Highway Trust Fund: Currenr Ltnv tmd Legislative Histol)·. by Sean Lowry. See also 

Joint Commiuee on Taxation. Long-Term Financing of the Highway Trust Fund. JCX-92· t 5, June 15. 

20 15. at hnps://www.jcl.gov/pubticalions.html?func=startdown&id=4790. for data and estimates of 

intlation indexed rates. H.R. 680 would increase fuel taxes to address financing. 
39 


22333A.027

Boxer. This proposal would rely on taxing a voluntary repatriation at a lower rate. A 

different type of repatriation, called deemed repatriation, as an element of a broader tax 

refom1 proposal, has also been proposed to be used for infrastructure spending. A deemed 

repatriation would impose a tax on the stock of untaxed overseas eamings and is 

nom1ally discussed as part of a tmnsition in an international tax reform. The Tax Reform 

Act of20 14 (H .R. I) introduced in the 1131h Congress by then Chairman of the Ways and 

Means Committee, Dave Camp, would have transfeJTed $126.5 billion of taxes to the 

trust fund through a deemed repatriation.

2 This bill embedded transition provisions in a 

broad individual and corporate income tax reform. The administmtion' s FY20 16 budget 

proposals also include a deemed repatriation as a transition to a new international system 

embedded in a general business tax refonn proposal. In the proposal, the revenues from 

the tax on the current stock of unrepatriated eamings ($205 billion) are allocated to 

surface tmnsportation (both new spending and shonfalls in the trust fund).

3 

There are several issues surrounding the use of taxes on the repatriation of 

accumulated eamings as a source of revenue for the highway trust fund. First, these are 

one-time sources of flinding, and will not address the long-term needs of the trust fund. 

Second, voluntary repatriations, or "holidays" are scored as revenue losers rather than 

revenue gainers. Third, deemed repat1iations, subject to a mandatory tax, have never been 

suggested as a stand-alone policy; if they were, they might also lose revenue. Past 

proposals for deemed repatriations were for a transition rule for a shift to a new type of 

2 See Ways and Means Committee, Tax Reform Acl of 20 14 Discussion Draft Scclion-by-Section, p. 143, 

http://waysandmeans.housc.Qov/UploadedFiles/Ways and Means Section bv Section Summary FINAL 

0226 14.()()f. The tax raised $ 170 billion. inc ludjng income taxes on dividends paid by U.S. mullinmionals 

to their shareholders, as a result of access to the deemed repatrialions. 3 U.S. Department of the Treasury, General Explanations of lhe Administration's Fiscal Year 2016 Revenue 

Proposals (Green Book), Washington, DC, February 20 15, http://www.Lreasury.gov/resource-center/taxpolicy/Documents/Generai-Ex planations-FY2016.pdf. 

2 
40 


22333A.028

international tax system, which involves numerous contentious and difficult issues that 

are unrelated to the more narrow concern about highway tmst fund finance. In addition, 

much of the interest in international tax reform has been associated with a proposal to 

lower the corporate statutory tax rate, which would require a broader corporate reform. 

That corporate reform, in turn, has implications for unincorporated businesses and may 

lead to an even broader reform involving the individual income tax, as in the case of the 

Camp proposal. 

I f, however, there is a desire to link spending on transportation infrastmcture with 

increased revenue from foreign source income, there are a number of anti-abuse 

proposals that have been presented in previous administration budgets that could be 

considered to fill the gap in highway tmst fund revenues on a pennanent basis. 

A Repatriation Holiday 

The U.S. tax system imposes a tax on worldwide income, with a credit against 

U.S. tax liability allowed for income taxes paid to foreign countries. Income from foreign 

subsidiaries of U.S. firms is not taxed until it is repatriated, or paid to the U.S. parent as a 

dividend. This feature of the lax code produces an incentive to retain earnings abroad that 

have not been subject to significant foreign taxes. This effect may be more important 

because of profit shifting to low-tax jurisdictions, which has been increasing due to the 

growth of intangible assets.4 

ln2004, the American Jobs Creation Act of2004 (P.L. 108-357) provided for a 

repatriation "holiday." Firms were allowed a deduction equal to 85% of the increase in 

foreign earnings repatriated. At a corporate statutory rate of 35%, the effective rate on 

4 See CRS Report R40623, Tax Hm•e/IS: lntemalional Tax A voidance and Eva:.·ion. by Jane G. Gravelle. 

pp. 16·19 for a discussion of the evidence on the magnitude and growth of protit shifting by U.S. 

multinational firms. 

3 
41 


22333A.029

repatriated earnings was 5.25%. Proportional foreign tax credits were allowed. The 

rationale for the provision was to increase investment and employment in the United 

States by bringing back cash that was trapped abroad. The legislation restticted certain 

uses of funds, including the payment of dividends to the U.S. parent's shareholders. 

Since money is fungible, there was no way to effectively enforce the restrictions 

on use. Subsequent studies indicated that most of the repatriated funds were used for 

share repurchase (equivalent to a dividend payment), acquisition of other firms, or debt 

reduction. 5 These effects would not increase investment or stimulate the economy, thus 

undermining the stimulus justification for a repatriation holiday. 

Moreover, repatriation holidays are expected to lose, not gain, revenue. A 

proposal in 20 14 to provide a one-time repatriation provision similar to that in 2004, with 

an 85% deduction (equivalent to a 5.25% rate given the 35% corporate rate) was 

estimated by the Joint Committee on Taxation (JCT) to lose $95.8 billion over FY20 14-

FY2024.6 The JCT estimated that the Paul-Boxer proposal, which imposes a slightly 

higher rate (an 8 1.4% deduction for a 6.5% rate), but allows for a longer ti me period to 

repatriate. would, while gaining $30 billion in the first three years, lose $148 billion over 

the next eight years, for a total loss of $117.9 billion from FY20 15-FY2025.7 

These voluntary repatriation proposals lose revenue because some of the funds 

would have been repatriated in any case, but would have been taxed at the statutory tax 

s Most of these studies are reviewed in CRS Report R40 I 78, Tax Cuts 011 Repatriation Earnings as 

Economic Stimulus: An Economic Analysis, by Donald J. Marples and Jane G. Gravelle. See a lso Thomas 

J. Brennan, Where the Money Reall y Went: A New Understanding of the AJCA Tax Holiday, 

Northwestern Law and Economics Research Paper 13-35, March 6. 20 14. 6 Lener to Honorable Orrin Hatch, from Thomas Barthold, Staff Director, Joint Comminee on Taxation, 

June 6, 2014, http://www.hatch.senate.gov/public/ cache/files/lb24c4cf-6005-4a4e-bab7-

9c3& 0c509/ C[%206-6-l4.pdf. 

Lener from Thomas Barthold, Staff Otrector, Joult Comn11ttee on Taxatoon. Aprol 30. 2015. 

http:/lnewsletters.usdbriefs.com/20 15/Tax/TNV I I 5050 l 2suppA.pdf. 

4 
42 


22333A.030

rate of 35%. For each dollar that falls into this category during the budget horizon, there 

is an overall revenue loss due to the difference in the normal tax rate and the lower 

repattiation rate. They also lose revenue because repatriation holidays create an incentive 

to delay future repatriations in anticipation of future holidays. Although there is some 

gain in revenue due to individual income taxes on dividends paid from repatriated funds 

to shareholders, overall the losses o ffset the gains, as illustrated by the JCT cost estimates 

cited above. 

Increasing the tax rate applying to the repatriations during the holiday may reduce 

the revenue loss but is unlikely to result in signi !kant (or any) gain. In 20 I I, a revenue 

estimate provided to Representative Doggett estimated a 10-year revenue loss of$78.7 

billion for a 5.25% rate for a tax holiday; the revenue esti mate for doubling the rate to 

10.5% was a $4 1.7 billion loss.8 As the rate ri ses. firms would be expected to repatriate 

less so that the loss shrinks, but a gain is still unlikely. 

A Stand Alone Deemed (Mandatory) Repatriation 

As noted above, there have been proposals for a deemed, or mandatory, 

repatriation tax. These proposals deem the accumulated untaxed eamings abroad subject 

to a repatriation tax (although there is no requirement to actually repatriate them). T o 

date, all of these deemed or mandatory repatriation proposals have been part of are 

transitions to an alternative international tax system. 

Such a deemed repatriation tax could be made as stand-alone policy. Recent 

estimates by Credit Suisse indicate that at the end of 2014, $2. 1 ttillion of unrepatriated 

8 See lette r to Honorable Lloyd Doggett from Thomas Barthold, Chief of Staff, Joint Committee on 

Taxation. April 15. 201 1. at hup://doggett.house.gov/ima!!eslpdf/jct repatriation score.pdf. 

5 
43 


22333A.031

earnings were held abroad.9 For the companies that disclosed cash (accounting for $ 1.5 

trillion of the total), the cash share was 45%. The authors of the study suggest the 

percentage held in cash might be less if the firms that did not disclose cash had smaller 

holdings. 

If an objective, in addition to gaining revenue, is to unlock earnings abroad, it is 

important to separate the two types of earnings. Some portion of the earnings (apparently 

over halt) is invested in physical assets such as plant and equipment. Short of liquidating 

propetty, these funds would not be repatriated in any ca~e and imposing a mandatory 

stand-alone tax is basically a lump sum tax on assets. (The Camp bill imposed a lower tax 

rate of 3.5% Oil these types of holdings investments as part of its transition rule, 

compared to an 8.75% rate on cash holdings.) 

Unless a large tax is imposed to include physical plant and equipment abroad, 

w hich cannot be repatriated, it is unlikely that a stand-alone deemed tax w ill raise 

revenue. If a tax is imposed on deemed cash held abroad at the rate of the Paul-Boxer bill 

(6.5%), the deemed repatriation tax could raise slightly over $60 billion (45% of $2. 1 

trillion times 0.065) from the repatriation tax. 10 Some of this tax would be offset, 

however, by the foreign tax credit. If the offset is similar to the foreign tax credit offset 

reported for the 2004 holiday, the yield would decline by 11.4% or to $54 billion. 11 

Potential revenues would also be reduced by the regular tax that would have been paid on 

the portion of funds that would otherwise be repatriated. T here would be an additional 

9 David Zion, Ravi Gomatam, and Ron Graziano Parking A-Lot Overseas, Credit Suisse. March 17, 2015. 

'

0 If it were imposed on all earnings abroad including plant and e<1uipment. at the same rate. it would 

initially raise $ 136.5 billion, offset to some extent by foreign tax credits as well. 

"Melissa Redmiles, The One-Time Received Dividend Deduction, Internal Revenue Service Statistics of 

Ioconte http:llwww.irs.gov/publirs-soi/08codivdeductbul.pdf http://www.irs.gov/pub/irs· 

soi/08cod i vdeductbu l.pd f. 

6 
44 


22333A.032

revenue gain from dividend taxes to the extent ca~h was used to pay the shareholders of 

the parent firm, which amounts to about $44 billion.t2 But once earnings abroad have 

been subject to tax and are available to return to the parent company, these earnings could 

be used to satisfy cash needs, such as dividend payment, and reduce the need to repatriate 

future earnings. Thus there would still be an offsetting negative effect that would likely 

overwhelm the deemed repatriation tax.t 3 

It is impottantto note that the estimates of a revenue gain in the Camp proposal of 

$170 bi llion($ 126 bi llion in transition taxes by the finn and the remainder from dividend 

taxes of the U.S. parent's shareholders) is not a useful guide for the revenue gain from a 

stand-alone deemed repatriation, even if the same rates were used. The revenue gain 

estimate was stacked after the shift to a territorial tax; that is, it was made under the 

assumption that future repatriations would be subject to a virtually zero tax rate. t

4 Thus, 

there would be no offsetting loss of significance from reductions in future repatriations. 

A Deemed (Mandatory) Repatriation as a Part of Tax Reform 

Both the Camp proposal in the 1131hCongress and the Administmtion's current 

budget proposal, as well as a set of tax refonn discussion papers released by the Senate 

Finance Committee in 2013 under Chaitman Baucus, have two items in common: they all 

proposed moving to a system of taxation of foreign source income where repatriation no 

longer triggers a tax t

5 and they both embedded the international proposals in a broader 

12 The estimate of dividend tax payments in the Camp bill, the difference between the total gain of $170 

billion and the amount dedicated to the highway trust fund, was $44 billion. 13 The positive re,•enue gain from the repatriation tax wou ld be eliminated if future repatriations were 

reduced by 18.4% of the deemed cash repatriation (which wou ld occur if tl1e revenue from tl1e repatriation 

tax were d ividend by 0.35). A somewhat larger effect would be required to otrset the dividend tax. 14 Because of the 5% "haircut," 5% of future dividends would be subject to tax. which at a 25% rate would 

be a 1.25% tax. 15 As noted in the previous footnote, the inclusion of 5% of dividends in income creates a small repatriation 

tax of 1.25%. 

7 
45 


22333A.033

tax reform proposal. The move to a system where foreign source income would not 

trigger a tax on repatriation meant that a mechanism was needed to address the existing 

accumulated untaxed earnings abroad. H.R. 625 (Delaney) would begin with a standalone deemed repatriati on at an 8.25% rate, but the bill also has a trigger that would 

automatically enact an unspecified international reform after 18 months i f such a refom1 

is not separately adopted. t

6 

These three international tax refotm proposals (Camp, the Administration, and the 

Baucus discussion proposals) are quite di fferent in the detai ls. Achieving tax reform, 

even a nan ow one that focused on international reform, could be difficull because of 

maj or disagreements about elements of the reform. Questions that would have 10 be 

agreed upon to move forward with international reform include: 

• Is there a revenue gain, loss, or neutrality? The Camp i nternational 

provisions, excluding the transition gains, lose $102 billion over ten years: 

the Administration proposal gains $34 billion- not enough revenue to 

close the highway trust fund spending gap for the next few years.

17 

• What rate is imposed going forward? The Camp proposal was 1.25% on 

dividends, the Administration proposal would impose a 19% minimum tax 

on earni ngs per country regardless of repatriation, and the Senate Finance 

draft discussion from 2013 would tax all foreign earnings at 80% of the 

tax rate (which had not been determined, but would have been 20% at a 

16 Absent such action a minimum tax. similar to that oft he administration. but smaller. would go into 

effect. 17 See Joint Committee on Taxation, Estimated Revenue Effects of the Tax Reform Act of20 14, JCXFebruary 26, 20 14. httos://www.ict.oov/publjcatjons html?func-startdown&jd=4562 for estimates of the 

Camp proposal and U.S. Department of the Treasury, General Explanations of the Administration's Fiscal 

Year 2016 Revenue Proposals (Green Book). Washington. DC, Februar y 2015. 

http://www.treasury.gov/resource-center/tax-policy/Documents/Generai-Explanations-FY2016.pdf . 

8 
46 


22333A.034

statutory 25% tax rate) or alternatively taxing active income at 60% and 

passive at 100%. 

• What rate would be imposed on the existing accumulated untaxed earnings 

abroad? The Camp proposal would have imposed a 3.5% tax on non-cash 

investments and 8.75% on cash investments; the Administration proposal 

would impose a 14% rate. 

• There are numerous other technical issues. Among them are what types of 

anti-abuse provisions are included to deal with profit shifting (both 

through leveraging and transfer pricing of intangibles); changes to the 

existing Subpart F income provisions (which taxes income ea~ily subject 

to relocation), including how to treat the now expired " extender" that 

exempts active financing income from Subpa1t F; whether relief should be 

provided for royalties as the new systems eliminate most or all excess 

foreign tax credits that have been used in the past to shield foreign 

royalties; provisions to address earnings stripping by foreign parents of 

U.S. subsidiaries; provisions to deal with inversions; and whether special 

provisions are needed to address reinsurance and the extractive industries. 

ln short, while there is some common ground in these proposals, there are also broad 

differences in the details and numerous issues to discuss which may make adoption of an 

overall international reform difficult. 

There is also some unce11ainty as to whether a stand-alone international refonn 

would be considered. Much of the interest by the corporate sector in tax reform is to 

lower the statutory corporate tax rate. A corporate tax reform which lowers the rate 

9 
47 


22333A.035

would, however, rely on base broadening provisions that would affect both corporations 

and unincorporated businesses (such as slower depreciation). Not only would many other 

issues arise in determining what provisions would be revised, but an i ncrease in taxes on 

unincorporated firms may a banier to a corporate-only tax reform. 

Even a reform limited to corporate-only tax reform may not be feasible. While 

administration proposals have focused on corporate or business reform, interest in 

Congress has generall y been for broader refonn that would encompass changes in the 

individual income tax, a major policy initiative that raises broader issues than revenue for 

the highway trust fund. The Camp proposal, once revenue is allocated to the trust fund, 

has an overall general revenue loss that may be of concern, with even larger losses likely 

in the future. The Camp proposal, the only recent full y developed broad tax refonn plan, 

did not advance in the legislative process, and no proposal is yet under consideration at 

the committee level. 

Permanent International Provisions to Finance the Highway Trust Fund 

An issue with using repalliation taxes is both that they are unlikely to yield 

sufficient (or even positive) revenue and they are transitory. If there is a desire to use 

taxes on foreign source income for a pennanent revenue source, a number of proposals 

have been made by the Obama Administration over the years. They include disallowing 

interest and overhead deductions for the share of the finn's income that is earned abroad 

and not cun·ently repatriated and taxed, and allowing foreign tax credits only in 

proportion to the income repatriated. The most recent administration budget proposal 

el iminated some of these provisions because of the proposal for an intemational tax 

reform, but the previous FY20 15 budget contains a number of provisions, which at that 

10 
48 

f 


22333A.036

time were projected to raise $276 billion in revenue.18 They are also discussed in a CRS 

rep01t on international taxation.'9 

18 U.S. Department of Treasury, and U.S. Department of the Treasury, General Explanations of the 

Administration's Fiscal Year 2016 Revenue Proposals (Green Book), Washington, DC. February 2015. 

hup://www. treasury. gov/resource-center/mx -pol icv/Doc u ments!General-Explanat ions-FY20 15 .pdf. 19 See CRS RL34115, Re[on11 of U.S. lmematiollal Taxatio11: Altemarives, by Jane G. Gravelle, pp. 19-20. 

II 
49 

Chairman REICHERT. Well, thank you all for your testimony. 

And now Members of the panel, I am sure, would like to ask some 

questions regarding your testimony to drill down a little bit on 

some of the information you provided. It also gives us an opportunity to learn a little bit. 

So, Mr. Barthold, in our full Committee hearing last week on the 

Highway Trust Fund some of the witnesses testified that a permanent solution to the Trust Fund shortfall would take several years 

to implement. I believe we need to get there and that we will eventually, but it seems we are in need of an interim option. 

Mr. Barthold, can a deemed repatriation of foreign earnings that 

is used as a transition rule or moving to an exemption system in 

a pro-growth revenue-neutral package help us to get to an interim 

option? 

Mr. BARTHOLD. Well, thank you, Mr. Chairman. 

Perhaps the best model to look at to answer your question is to 

return back to former Chairman Camp’s H.R. 1. In his comprehensive reform bill, the legislation itself would have directed revenues 

from the deemed repatriation to the Highway Trust Fund. His plan 

had payments directed to the Highway Trust Fund. Taxpayers 

themselves had up to 10 years to pay. 

So if you are asking a question about cash flow and what cash 

goes to the Trust Fund as opposed to a unified budget, it would 

seem that if the Congress chose to use funds from a repatriation 

in the way that Chairman Camp did, that you could direct that in 

pretty much any scale and over any time period that you would 

choose to the Highway Trust Fund. 

Chairman REICHERT. So we could direct that to any scale or 

any timeframe. Do you think we can design it to provide a specific 

amount of revenue to the Highway Trust Fund on an annual basis 

for the duration of a multi-year highway authorization? 

Mr. BARTHOLD. Well, that would depend upon, as I think your 

question anticipates, the design. Former Chairman Camp’s proposal provided for a 10-year installment payment. Now, that was 

at the election of the taxpayer. Some taxpayers might choose to accelerate their payments, depending upon their business situation. 

Others might choose the full 10 years. So if you were trying to 

think of the payments that the taxpayers made and link them up 

on a year-by-year basis, you might want to revisit the design. 

Chairman REICHERT. Thank you. 

Mr. Suringa, I hear concerns that if we reform our uncompetitive 

international tax rules now, we will lose momentum for the very 

important goal, which I share and am committed to achieving, of 

reducing the corporate rate. 

In your testimony you describe how the U.K. and Japan, the two 

most recent major economies to shift from a worldwide system to 

an exemption system, first enacted legislation transitioning systems in 2009. Shortly thereafter, both countries reduced their corporate rates by about 8 points. 

Mr. Suringa, should the experience of the U.K. and Japan reassure us to some degree that if we act now to reform our international tax rules to meet risks, such as the OECD BEPS project, 

there will still be sufficient political momentum, not to mention 

50 

economic need, to reduce our high corporate rate in the next couple 

of years? 

Mr. SURINGA. Thank you, Mr. Chairman. 

I do think there is going to be continued momentum to get the 

corporate rate down regardless of what is done with respect to this 

particular issue. I think in terms of transitioning to an exemption 

system, that is probably the most important thing to do to relieve 

double taxation of U.S. companies operating abroad and to end the 

lockout effect, to bring that money, the untaxed foreign earnings 

home and also to level the playing field in foreign markets between 

U.S. companies and their competitors. 

I think that is a narrow enough reform that the domestic reform 

push in terms of lowering the rate and the other measures that 

have been suggested in Chairman Camp’s draft and the other proposals will continue to face a lot of pressure to be taken up in the 

near term. My testimony is really focused on the pressures in the 

international sphere that companies are now facing. I think these 

are measures that are appropriate to take in the short term. 

Chairman REICHERT. Thank you. 

Mr. Neal. 

Mr. NEAL. Thank you, Mr. Chairman. 

We have heard a number of times—this is a point of clarification 

for some of our panelists—we have heard a number of times that 

there are a huge amount of earnings stashed overseas by multinational companies. In fact, a recent report by Credit Suisse claims 

that as much as $2.1 trillion in foreign earnings is invested overseas. 

Now, some of that is reported on company statements as permanently reinvested overseas—that is, in actual buildings, brick and 

mortar, or in operations—while some in cash is being held overseas 

and not being taxed under current deferral rules until that cash is 

repatriated. 

Ms. Gravelle, could you discuss what portion of that approxi- mately $2.1 trillion in cash and easy to repatriate, what portion is 

permanently invested overseas and more difficult to liquidate? 

Ms. GRAVELLE. Well, according to the Credit Suisse report, 

they based their analysis on financial reports, and for the companies that reported cash holdings, they found that about 45 percent 

of the assets abroad were held in cash. So a little over half was in 

plant and equipment. Now, they really don’t know for sure how to 

extrapolate to other firms, but that should be sort of a reasonable 

measure of how much of those assets are invested. 

They also had some very interesting data on which firms had 

these cash holdings with actually a handful of firms, about five or 

six firms, I believe, holding about half of it. 

Mr. NEAL. Okay. And, Mr. Barthold, I assume that you and your 

colleagues at the Joint Committee have done estimates of the 

makeup of the overseas earnings. Can you elaborate for us on those 

findings? 

Mr. BARTHOLD. Thank you, Mr. Neal. I believe you are, again, 

referring to our estimates of former Chairman Camp’s proposal, 

since he would have applied a differential tax rate to the unrepatriated earnings of foreign corporations based upon whether it is cash, 

liquid assets, or nonliquid assets. 

51 

I can’t actually give you the details of our breakdown on the estimate on that partly just because one of my colleagues is currently 

in Scotland attending the commencement of his son from the University of Glasgow and he was the primary economist working on 

that. But I can tell you that from our background work, we looked 

at some of the work that Ms. Gravelle reported. There is also some 

academic work based on 10 years of data by Blouin, Krull, and 

Robinson which suggests that perhaps maybe 45 percent of retained earnings are held in cash or liquid forms. 

In terms of doing our estimate, and in terms of your potential 

policy design, there are a number of difficult questions to think 

about. Do you treat working capital the same as nonworking capital? How do you treat some of the portfolio investments that a 

business might have in a related enterprise, where in order to gain 

partial control of an entity that is in your line of business, you are 

perhaps a 25 percent shareholder in an otherwise public corporation, would that be considered invested in a business, bricks and 

mortar, or would that be considered a portfolio holding? 

Those are some of the issues that we looked at in terms of analyzing Chairman Camp’s proposal. 

Mr. NEAL. Could you provide the Members of the Subcommittee with a breakdown of the estimated $2.1 trillion that is overseas 

and at that point let us know what is liquid, what is illiquid, and 

some further detail on the financial industry’s holdings overseas 

given that oftentimes the local sovereign reserve requirements 

really make holding cash overseas a lot more comfortable than 

something permanently invested more in the nature of bricks and 

mortar? 

And I call that question up, Mr. Chairman, because I think that number, $2.1 trillion, is easily thrown around. When you have a 

chance to drill down on the statistical data, you come to a very different conclusion. And I hope that with Mr. Barthold and his staff, 

they can provide us some of that information. I think it would be 

helpful to the totality of the conversation. 

Mr. BARTHOLD. Mr. Neal, Mr. Chairman, my colleagues and I 

will provide some additional information of the sort you mentioned. 

If I could indulge you for an additional minute, we have done some 

work based—and I should note that the reported $2.1 trillion, and 

in our testimony we reported $2.3 trillion, of indefinitely reinvested 

earnings, remember, that is a financial statement concept and that 

is different than what we look at in terms of tax returns. 

Some U.S. businesses may invest funds abroad but do not list 

them for financial statement purposes as indefinitely reinvested, 

which means that they don’t have to carry a deferred tax liability 

on their income statement. But if they were to pay a dividend back, 

there would still be a cash tax liability in the United States. To 

look at some of the cash tax liabilities, we have looked at in detail 

a lot of the reported controlled foreign corporation returns that the 

parent companies must provide to the IRS. 

And to go a little bit to your question about the insurance, banking, and other financial sectors, looking at industries that report 

themselves to be in insurance, banking, other foreign services, we 

found in the 2010 data that approximately 10 percent of total untaxed unrepatriated foreign earnings were in the banking, insurVerDate Sep 11 2014 14:12 Apr 20, 2017 Jkt 022333 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\22333\22333.XXX 22333
52 

ance, and other financial services sector. So about 10 percent of 

whatever the total might be. 

But my colleagues and I will provide a little bit more detailed 

discussion in a written response. 

Chairman REICHERT. The gentleman’s time has expired. 

Mr. NEAL. Thank you. 

Chairman REICHERT. I appreciate the detailed answer. I let 

you go a little bit longer than usual. This is a highly interesting, 

complicated, and important topic. So I appreciate that. But if you 

could provide the additional information in writing. 

Mr. BARTHOLD. I will. 

Chairman REICHERT. Thank you. 

Mr. Tiberi. 

Mr. TIBERI. Thank you, Mr. Chairman. Thank you for holding 

this hearing as we try to come up with a long-term solution to fund 

our country’s roads and infrastructure, and also urgently try to fix 

our international tax system to make U.S. multinationals more 

competitive in today’s global marketplace and hopefully not taken 

over by a foreign competitor. 

And it seems, Mr. Chairman, we have an opportunity to address 

both of these policies in the coming year, in the coming months, 

and hopefully the issues that we are discussing today at this hearing, including repatriation, will move us one step closer toward 

those goals. 

If the only thing that you understand today is one thing from 

these panelists, I hope it is that not all forms of repatriation are 

created equally. 

Mr. Dubay and Mr. Suringa, thank you. Thank you for explaining that precisely to the point. There are two significant pieces of 

Camp’s draft, one is that repatriation is done as a transition from 

a worldwide system to an exemption system—we have to put a dollar in a bowl, Mr. Dubay, if we say territorial system—so exemption system. That was a joke, and no one laughed. I guess not. I 

should keep my day job. 

But the other point is that illiquid assets are treated differently 

than liquid assets. Liquid assets are taxed at a higher rate than 

illiquid. So anyway, that’s a really good point. 

One thing is clear, a highway bill is urgently needed. Just this 

morning a markup in the Senate occurred on the Inhofe-Boxer 6- 

year bill that requires $107 billion, billion with a ‘‘B’’, for the Highway Trust Fund. Others have said they prefer to extend it through 

the election, which is about a $25 billion nut for the Trust Fund. 

We have to come up with that. They don’t. 

Another thing is clear, Speaker Boehner has made this clear, a 

gas tax is not going to happen. Chairman Ryan made that clear 

last week. And I think most of us agree that a user-pay system is 

the way to go for funding our highways and our infrastructure. 

At last week’s hearing we heard about different alternatives. We 

also heard from witnesses that a vehicle miles traveled tax would 

take years to implement. So we want to continue to look at those 

issues, but nothing is imminent in terms of user pays this year. 

So we have a couple of other options to come up with $25 billion 

to $100 billion. We can cobble together a bunch of revenue raisers, 

either $25 billion through the election or $100 billion. We have 

53 

done that in the past. People in this room up here usually aren’t 

unanimously happy. I wouldn’t be happy with a number of random 

pay-fors. The low-hanging fruit is gone. 

So we really have two options as I see it. We can cobble together 

a bunch of things or we can explore this option that Chairman 

Camp had in his draft. And by doing that, by the way, we transition our U.S. multinationals to an exemption system that makes 

them more competitive. That is the key. Reporters and others 

throw around repatriation like it is all the same stuff. It is not all 

the same stuff. Policy matters. How it is done matters. Going to an 

exemption system is critically important to making this work. 

So, Mr. Suringa, Mr. Dubay, based upon your testimony, what do 

you think? Is it better policy to cobble together a bunch of revenue 

raisers or to do repatriation the right way, which we clearly did not 

do in 2004, going to an exemption system treating illiquid assets 

differently than liquid assets? 

Mr. Suringa. 

Mr. SURINGA. Thank you, Congressman Tiberi. 

I think doing a 6-year repatriation-related funding measure 

would make the most sense to give Congress the opportunity to 

look for a more permanent solution that we can all get behind, and 

repatriation is a good way to do it, particularly and really only if 

it can be used as a way to transition to a new system for taxing 

foreign income of U.S. multinationals. 

Mr. TIBERI. Mr. Dubay. 

Mr. DUBAY. Thank you. As long as you are transitioning to an 

exemption system and using repatriation to help grease the skids 

for that improvement, I think it could be doable. I would just say 

that you can’t spend the same dollar twice, although I don’t want 

to discount Congress’ ability to do that. 

Mr. TIBERI. That was a joke, right? 

Mr. DUBAY. Yes, that was a joke. 

So you have to have some revenue to pay for the tax cut that Mr. 

Barthold and JCT will score moving to an exemption system rule. 

And in tax reform there is always winners and losers, so just keep 

in mind when doing that, there are other needs for the revenue 

that pertain specifically to tax reform. 

Chairman REICHERT. Thank you. 

Mr. Thompson. 

Mr. THOMPSON. Thank you, Mr. Chairman. Thank you for 

holding the hearing. 

And, witnesses, thank you all very, very much for being here. 

I just wanted to reiterate something that Mr. Neal said in his 

opening testimony, and I just want to make sure that everybody 

got the full gravity of that. He basically pointed out that we, American taxpayers, are subsidizing the European tax rates in large 

part because of our defense budget. I think it is really important 

to have that understanding when we look at how we are dealing 

with this issue, probably as important as the explanation from the 

witnesses today that the previously thought of $1.2 trillion, if you 

recognize the fact that some of those assets aren’t liquid, you are 

really talking about a trillion dollars. And those are just some basic 

facts that we ought to have at hand while we are doing this hearing. 

54 

Much has been said about Chairman Camp’s previous draft, and 

I think it has been pointed out by a number of folks that there was 

a little budget trickery or double counting that went into that too. 

So I think we would be much better off if we all were working with 

the same set of facts rather than what we may perceive as the bottom line, and I just think that is critically important. 

Ms. Gravelle, if a tax holiday loses the government money, a 

mandatory repatriation is politically unpopular and the revenue effects are unknown because it depends on the rate, that leaves repatriation as part of international or business tax reform. However, 

if we use the revenue to fund lower corporate rates and/or make 

other international reforms, where does that leave funding for the 

Highway Trust Fund? 

Ms. GRAVELLE. Well, I think that is the problem with this dis- cussion of the Camp transition. The $126 billion is supposed to go 

to the Trust Fund, but then it is supposed to go to offset the revenue losses in the bill. If you take the $226 billion out of the bill, 

then you have approximately a $120 billion revenue loss. So I think 

that is where the double counting is. 

So certainly in isolation that deemed repatriation will raise revenue, particularly if it is stacked after no tax on any—zero tax. But 

you can’t use it—well, maybe you can try to use it twice, but technically speaking, it is only there once. So that is a problem. 

Mr. THOMPSON. So you can’t spend the money twice? 

Ms. GRAVELLE. Right. 

Mr. THOMPSON. Can you think of any economically efficient 

way to invest in the Highway Trust Fund using repatriation? 

Ms. GRAVELLE. Well, frankly, I am puzzled about how one is 

supposed to be connected with the other. I mean, I think the sort 

of natural thought you would have is we have traditionally always 

financed roads with user fees. Economists approve of those in a lot 

of ways, because they really mimic the private market as closely 

as you can for any public good. So they are viewed as benefiting 

the people, the people who benefit pay. So if I were a Martian coming down here I might wonder why that is not kind of an obvious 

solution. But, of course, CRS never recommends anything. So—— 

Mr. THOMPSON. Could we use repatriation to both fund the 

Trust Fund and do business tax reform and do it effectively? 

Ms. GRAVELLE. Well, you can’t—I mean, if you wanted to make 

true revenue-neutral tax reform, say, for the Camp proposal, and 

you want to use that money for the Highway Trust Fund, then you 

need to set it up so it raises, if you want to make it neutral with 

the budget, so it raises $126 billion. And I think adding to that is 

the fact that outside of the budget window, it is actually going to 

lose a lot of revenue. 

Mr. THOMPSON. Mr. Barthold, is this double counting, budget 

trickery? Can we spend the money twice? 

Mr. BARTHOLD. Let me tell you what we estimated. The Joint 

Committee estimates on a unified budget basis for the Members, 

and Congress decides what they do with the unified budget. I mean, 

there are many proposals that Congress has considered that have 

effects. We report, for example, an effect for excise taxes that are 

dedicated to the Highway Trust Fund as having offsetting effects 

on payroll tax and income tax receipts, but we report to the ConVerDate Sep 11 2014 14:12 Apr 20, 2017 Jkt 022333 PO 00000 Frm 00058 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\22333\22333.XXX 22333
55 

gress on a unified basis. What we reported for Chairman Camp’s 

bill was on a unified basis. 

Mr. THOMPSON. If we can spend it twice, we can solve a lot of 

problems. It would be good to get an answer on that. 

Chairman REICHERT. Could you provide that in writing for us, 

Mr. Barthold? Thank you. 

Mr. BARTHOLD. I will provide our scoring in writing, yes, sir. 

Mr. THOMPSON. Thank you. 

Chairman REICHERT. Mr. Paulsen. 

Mr. PAULSEN. Thank you, Mr. Chairman, for calling this hearing. It is obviously sort of a combination hearing, right? I mean, we 

have had the components of the transportation funding and then 

you have the issue of fixing the international Tax Code. 

If you look back, I think there is a reason that Chairman Camp, 

when he did his three different drafts of different white papers that 

came out on how to adjust the Tax Code, I mean, I think there is 

a reason that the international tax component was the first one 

that he looked at, right, and it is this issue of making sure that 

we are competitive vis-a-vis the rest of the world. The Tax Code 

has clearly not kept pace with the modern economy, and certainly 

not with the international Tax Code. 

So if you look at 1960 where 17 of the top 20 companies in the 

world were U.S. companies, and then by 1985 there were only 13, 

and then today we are in the single digits, and so there is a reason, 

again, that Chairman Camp, I think, wanted to focus on this, rightfully so. And this modernization is needed now to stop the Tax 

Code from causing our companies here in the United States to be 

acquired by foreign companies. 

Let me just ask you, Mr. Suringa, there have been a lot of additional news reports about U.S. companies that are being acquired 

by foreign companies with substantial tax savings as a part of that, 

and that is being cited as the driving factor for those acquisitions. 

Do our tax rules provide incentives currently for foreign competitors to acquire U.S. companies? 

Mr. SURINGA. Yes, I think they do. I think the way that the 

current rules are structured places U.S. companies that have competitors that have inverted at a competitive disadvantage, and that 

is what tax departments in a lot of cases are ending up looking at. 

Their competitors have moved to Ireland and now are paying tax 

at 12% or less, and management is saying: Can we compete with 

these people now that they are paying so much less, and the investors are looking to us to say, hey, why haven’t you guys done this 

too. 

It is very disturbing, and I think the foreign tax incentives for 

research are going to make it more disturbing, because historically 

you would think of an inversion as having two main benefits. One 

benefit is that the inverted company can try to extract earnings 

from the offshore subsidiaries at the former U.S. parent without 

paying the residual tax, they would distribute it up to the foreign 

parent and not pay the U.S. tax in the middle. 

The second benefit was and continues to be base erosion, which 

is putting deductible payments in the U.S. system and making 

those deductible payments deductible at 35 percent and includable 

at the foreign parent at some lower tax rate to get a net tax benVerDate Sep 11 2014 14:12 Apr 20, 2017 Jkt 022333 PO 00000 Frm 00059 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\22333\22333.XXX 22333
56 

efit. But historically, there wasn’t as much of a concern that the 

U.S. activities would be, other then through base erosion, that the 

U.S. activities would not have a reduced rate of taxation. They 

would still be taxed at the full 35 percent rate. 

The concern with the foreign tax research tax incentives is now 

you have a foreign tax incentive to actually move the people who 

are doing the work, the high-skilled jobs that are creating innovation in the United States, to move that offshore as well. And that 

is something that is new and particularly disturbing. 

Mr. PAULSEN. So since it is new, should our tax rules provide 

such incentives as well? 

Mr. SURINGA. Well, I think as a part of a change to a new system we should put that on the table, because that is where 28 out 

of the 34 countries in the OECD are using exemption systems. It 

used to be that it was sort of half and half, but over the last few 

years more and more countries have gone to exemption systems for 

relieving double taxation. 

Now you have 15-plus countries that have introduced patent box 

regimes. I think that is the trend of where corporate international 

taxation is going and our companies are at a competitive disadvantage when they deal with our rules instead of their rules. 

Mr. PAULSEN. And it seems like, of course, as the headquarters 

move overseas, the jobs move overseas as well. 

Mr. Dubay, would you say this illustrates more of an immediate 

need as well for the modernization of our antiquated international 

tax regime? 

Mr. DUBAY. Thanks for the question. I think it is important 

that we modernize quickly because I think our businesses do 

look very enticing to foreign competition. They are just more valuable as a foreign company than they are as a U.S. company because our tax rate is so out of whack and because of the worldwide 

system. 

I think the recent wave of inversions has now ended. I don’t 

think we are going to see another inversion. I think the next step 

is going to be a moderate-sized European or foreign business buying a really big U.S. business. They are not going to bother with 

the inversion, they are just going to buy it outright. It is going to 

be similar to what InBev did with Anheuser-Busch a few years ago. 

And as was mentioned, it is dangerous because you start losing 

highly-skilled, highly-talented people to those foreign locations. 

Mr. PAULSEN. Thank you, Mr. Chairman. 

Chairman REICHERT. Ms. Sanchez. 

Ms. SANCHEZ. Thank you, Mr. Chairman. And I want to thank 

the witnesses for joining us here today. 

You know, there hasn’t been a whole lot of debate on how to address the insolvency in the Highway Trust Fund until last week 

when the Ways and Means Committee finally took up this issue. 

And I am sitting here wondering why, because we can’t continue 

to use the lack of funding in the Highway Trust Fund as a political 

football when our infrastructure is crumbling. Our economy cannot 

continue to run if we don’t have the infrastructure to move goods 

and people efficiently throughout the country. 

But that is what we have been doing for quite some time. Since 

1998 there have been 24 short-term patches to the Highway Trust 

57 

Fund, including one that just occurred last month. And we are 

watching literally our infrastructure crumble because of the inability to act, to come up with some ideas for fixing the problem. We 

want to talk about them, and I guess Congress is pretty good at 

talking, but there comes a day when you really have to put up or 

shut up, as my father used to say, and you have to do something 

about it, you can’t just discuss it. We cannot continue to kick the 

can down the road. 

I think short-term patches to our Highway Trust Fund are not 

the way to go. They don’t provide certainty for local jurisdictions 

to plan their budgets and get construction projects underway, construction projects, I might add, that create millions of jobs. 

But it is my belief, in having listened to the testimony, that a 

repatriation holiday isn’t a viable solution to the problem because 

a one-time repatriation, which has been offered as a solution to the 

Highway Trust Fund issue, we have already seen in the past what 

a one-time repatriation does to our economy. 

My colleagues have mentioned that in 2004 repatriating firms 

didn’t reinvest that money to create U.S. jobs here in the United 

States. Instead, they repurchased their own stock and paid bigger 

dividends to their shareholders. So I am, quite honestly, a little bit 

baffled why we think that this is such a great panacea for fixing 

a very real need that we have. 

Companies that have the resources to transfer profits and jobs 

abroad have an unfair advantage, in my opinion, over truly domestic companies that do their research here, that provide good-paying 

jobs here, that manufacture their products here in the United 

States. And we can’t, in my opinion, allow multinational corporations to avoid paying taxes on almost $2 trillion without doing 

something to level the playing field. 

So while it is great that we can have this discussion about the 

international tax regime, we need to have that broader discussion 

again, a serious one about overall comprehensive tax reform, because without that we are not going to get to a fairer, simpler solution for our tax fund, and again we are not going to really focus 

in on what the steps are that we can take to shore up the Highway 

Trust Fund. 

With that, I am going to ask Ms. Gravelle, we are discussing 

international-only reforms, which creates an advantage, a competitive advantage against our domestic manufacturers, so how can we 

use the Tax Code instead to help create good-paying jobs here in 

the United States so that our domestic manufacturers aren’t at a 

competitive disadvantage? 

Ms. GRAVELLE. Well, there are some provisions that we could 

shift to favor lower tax rates in the United States compared to 

abroad. Our biggest corporate tax expenditure is deferral of foreignsource income, so we don’t have to move to a territorial system, 

and that would probably encourage more investment abroad. 

We can also look at things among the extenders. R&D tax credit 

might be something to think about, but there are also some international extenders that could go the other way. But I think ultimately there is a limit to how much you can do with tax provisions 

because taxes, corporate taxes aren’t that big. 

58 

But there are a lot of spending things, one of them being infrastructure. I mean, infrastructure is crucial to productivity. If you 

can’t move around, you can’t produce. And also things like education, even health, all of those things that include the workforce, 

productivity of the workforce, would be beneficial to productivity 

and wages of workers. 

Ms. SANCHEZ. So if I were to ask you, like, how could we specifically tailor—the Tax Code is a system of carrots and sticks, fundamentally boiled down, and raises revenue obviously for the Federal coffers. But how could we specifically tailor the Tax Code to 

sort of help domestic businesses who take on the risk of doing research and development and manufacturing here in the United 

States? 

Ms. GRAVELLE. Well, I think we already help them with very 

generous tax incentives. We could go further in encouraging the investment up-front, like with the R&D credit and the expensing of 

R&D. Those create negative tax rates already. We could expand 

those, because there is a justification for subsidizing R&D. 

But I am not sure whether economic theory supports a patent 

box, because some economic theory actually says it is better to have 

the subsidy at the beginning instead of the end because the government shares in risk taking as well as returns. So there are a lot 

of theories that say doing up-front subsidies is better. 

Chairman REICHERT. The gentlelady’s time has expired. 

Ms. SANCHEZ. Thank you, Mr. Chairman. 

Chairman REICHERT. Mr. Reed. 

Mr. REED. Thank you, Mr. Chairman. 

Thank you to our witnesses. This is an important issue and I am 

glad to have this conversation. 

Ms. Gravelle, you just said tax extenders, maybe there is something to do on R&D. I would assume that you think the permanency of those tax extenders should be taken into consideration 

and therefore I would assume that you support permanent extension of those tax extenders for business planning purposes. Yes or 

no? 

Ms. GRAVELLE. CRS does not support any. 

Mr. REED. All right, very good. 

Ms. GRAVELLE. But I would say, if you give me a second, that 

there is a lot of evidence that the social return to R&D on average 

is considerably larger than the private return, which would create 

a reason to have very significant, potentially, incentives for R&D. 

Mr. REED. And so to make it a permanent policy, I would just 

assume that is a much better way for businesses to have those social returns and the benefits of such a tax policy. 

Ms. GRAVELLE. There is just a general argument for certainty 

in the Tax Code so that if you are going to have it, and we have 

had it since 1981, there is certainly an argument for throwing the 

towel in and saying we are making it permanent. 

Mr. REED. I appreciate you recognizing that argument. 

A question for you, just to get into the nuts and bolts and the 

practical effect of switching from the present system to a new system. I am very interested and concerned about the complexity of 

that transition, especially with the old earnings, if you would, that 

are trapped overseas. Because when I was in my private life, in 

59 

private business, cash is king. And a lot of these investments, it 

is my understanding, are tied up in inventory, facilities, capital investments, capital structures, equipment, et cetera. 

How would you recommend—I am going with Mr. Dubay—how 

would you recommend the best way to avoid that complexity and 

also allow that cash flow consequence to be minimized to the extent 

practicable? 

Mr. DUBAY. Thank you. I think the best way is to give ample 

time for the businesses to figure out what to do with it. So like 

Chairman Camp did last year, give the full 10-year window and 

then close it off. So you give them a full decade to figure out how 

to unwind that. And you do give them a lower rate in the interim 

period, because they started to pay tax at the 35 percent rate with 

the foreign tax credit on the overseas earnings. 

That stays in place, as far as I understand how the law goes, if 

you move to a territorial system, but it just makes sense to get everything over to the territorial system as soon as you can, but give 

them time to figure it out on their own and not try to write too 

many rules. 

Mr. REED. How would you write that legislation, essentially just 

saying it is up to you to determine how much you are going to pay 

each year of that 10-year window? 

Mr. DUBAY. I would give them a lot of discretion as to when 

they pay it back during the 10-year window, but I would not allow 

it to go past the window. 

Mr. REED. Okay. And then how would you define what is qualifying trapped foreign earnings versus nonqualifying? 

Mr. DUBAY. I would have to think about it more, I haven’t 

looked into that too much, but, I mean, I think you are looking at— 

everything that has not been repatriated I think is where you start 

and then you start looking at the stuff that has been permanently 

reinvested and figure out and try to break that into buckets like 

we do with—— 

Mr. REED. So does that not create an unintended consequence 

of those foreign earnings if someone sees the reform coming down 

the pipeline to immediately make those investments into capital 

structures, capital equipment, and other items overseas rather 

than what we want them to do, and that is bring the cash back 

and make investments on American soil? 

Mr. DUBAY. I think it certainly does, and I think that is something that will have to be grappled with. 

Mr. REED. I appreciate it. 

Mr. Suringa, can you offer any insight into that? 

Mr. SURINGA. I think I would agree that a long period and a 

relatively low concessionary rate on the earnings are the best way 

to ensure that it can be done smoothly. 

Mr. REED. And then how about the unintended consequence 

that I potentially saw on the horizon, how would you minimize 

that? 

Mr. SURINGA. I think if that was a significant concern—and I 

also would have to look at sort of exactly how it would be derived, 

because what you would presumably do is take a snapshot of the 

earnings and profits as of the date of enactment or a particular 

date that is chosen by Congress and then spread that out over the 

60 

period and say the tax associated with those earnings has to come 

back in. 

So I think the way to deal with it would be to provide one rate 

and let people sort it out for themselves rather than try to say, 

well, we are going to give a concessionary rate to this piece and not 

to that piece, because then you have people interested in—— 

Mr. REED. One rate for the old earnings and the new earnings. 

Mr. SURINGA. To my mind, one rate is easier. I mean, it certainly is easier to administer. There may be companies that come 

in and say: No, that just isn’t going to work for us. But you have 

a lot of complexity associated with trying to categorize assets and 

you may have gamesmanship. 

Mr. REED. And that is one of the big concerns I have too as we 

go down this path. If one of our fundamental goals of tax reform 

is to simplify the Code, both corporate and individuals, I am fully 

in on both, does this not generate much more complexity and isn’t 

that a concern that has to be taken into serious consideration as 

we go forward? 

Mr. SURINGA. Well, this particular complexity would only be 

with respect to the transition rule, then it would be done. So the 

system as a whole could be much simpler going forward than it is 

now. It wouldn’t be hard for it to be simpler than it is now. 

Mr. REED. Very good. I appreciate that. 

I yield back, Mr. Chairman. Thank you. 

Chairman REICHERT. Mr. Larson, you are recognized. 

Mr. LARSON. Thank you, Mr. Chairman. I thank you and Mr. 

Neal for holding this hearing. I thank the witnesses. 

I wish we had an opportunity to further delve into some proposals made by our colleagues, Mr. Renacci, Mr. Pascrell, and Mr. 

Blumenauer, to really tackle this issue. But we are talking about 

repatriation. Is repatriation an economic term or is it a political 

term of art? 

Mr. Dubay. I mean, what does it mean economically, or is it a 

political term of art? 

Mr. DUBAY. I think I am going to go with political. 

Mr. LARSON. Is it political, Mr. Suringa? 

Mr. SURINGA. I only see things from a tax perspective, so I view 

it as a tax term of art. 

Mr. LARSON. A tax term of art. So repatriation, what would 

patriation be as a tax term? 

Mr. SURINGA. So patriation refers to the United States. 

Mr. LARSON. Oh, it is the United States? 

Mr. SURINGA. Yes. 

Mr. LARSON. Well, I am just trying to help out the people at 

Augie & Ray’s who are trying to figure out when we talk about this 

repatriation, patriation is United States, repatriation is—— 

Mr. SURINGA. Bringing it back to the United States. 

Mr. LARSON. Bringing it back because it went where? 

Mr. SURINGA. It was earned abroad and we are bringing it 

home. 

Mr. LARSON. Oh, it is earned abroad, so it is overseas. So then 

what would deemed repatriation be? 

Mr. SURINGA. Even if you didn’t bring it back, we treat you as 

if you did. 

61 

Mr. LARSON. Okay, so patriation is United States, repatriation 

is bringing it back, and deemed is we deemed it so even if you 

didn’t? 

Mr. SURINGA. Yes. 

Mr. LARSON. And those are economic policies? 

Ms. Gravelle, do you agree with that or—— 

Ms. GRAVELLE. Well, there are economic concerns and considerations with repatriation because our laws limit in some ways the 

freedom with which you can use the money abroad, although experience with 2004 showed that it didn’t have anything to do with investment. 

So without some kind of a scheme, which these gentlemen or at 

least you may know more about it than I do, to try to get that 

money back without paying the tax, you are not supposed to use 

it for investment in your own firm or for paying dividends to your 

shareholders. So it does matter. 

Mr. LARSON. Mr. Barthold, deemed, what does that mean when 

we say it is deemed? Because, again, I am trying to just help out 

the people back home trying to figure out this policy, because we 

are dealing with infrastructure, and yet we are dealing with 

patriated, repatriated, deemed repatriated, and it is kind of confusing, I would daresay even to Members of Congress. 

Mr. BARTHOLD. Well, as Mr. Suringa pointed out, when we talk 

about a proposal about deemed repatriation, we are first of all talking about subjecting to current U.S. tax foreign-source earnings. 

We permit under present law the tax on foreign-source earnings to 

be deferred until you repatriate or bring the money back to the 

parent corporation. Deemed repatriation says, regardless of what 

you actually do with that money, we are going to pretend that you 

bring it back and subject it to taxes. 

Mr. LARSON. I think that phrase, ‘‘regardless of what we do,’’ 

I think that is the operative phrase. 

Mr. BARTHOLD. Regardless of what the business does. 

Mr. LARSON. And so this hearing, while I wish it was delving 

into the very substantive proposals that our colleagues on both 

sides of the aisle have addressed, we are going to deem as kicking 

the can down the road because it is politically not safe to make decisions, whether it relates to a gas tax, whether it relates to a carbon tax, whether it relates to any of the solid proposals that are 

out there, because you are never going to get profiles in courage 

when the country is crumbling around us. We have these faux 

hearings on a complicated set of terms when all American citizens 

want us to do is reinvest and rebuild the country as it is crumbling 

around us. 

And deeming it so doesn’t make it so. And I think this Congress 

and this Committee has to face up to its responsibility, and that 

is to make sure that in order for commerce to travel, as a number 

of you have pointed out, we need to make those very investments 

which will continue to help our economy flourish. 

Mr. Chairman, I do thank you for this opportunity. I do hope we 

get to our colleagues’ proposals. But let’s all be clear about this. 

This is all punting until after the session, deeming until after this 

session is over to an opportunity politically to maybe put a big bow 

around an omnibus bill. And I have said this before and I will say 

62 

it again, that the House of Representatives and this Committee 

shouldn’t be a sophisticated messaging body. We should actually 

legislate. 

And with that, I will yield back my time. 

Chairman REICHERT. Thank you, Mr. Larson. 

Mr. Young. 

Mr. YOUNG. Well, I thank the Chairman, and I will begin the 

same way I began last week as we discuss the Highway Trust 

Fund and the need to invest in infrastructure. I think it is important, Mr. Chairman, that we are focusing on this issue and I thank 

our witnesses. 

So start beyond that by acknowledging there are things beyond 

direct funding that we can be doing to help solve our longer-term 

infrastructure problems, and some of that pertains to tax policy 

that encourages the development of public-private partnerships, 

and I think we need to do more of that. I also want to be clear that 

I understand the need to safeguard the Highway Trust Fund so it 

can fund more of these infrastructure improvement projects. 

I am opposed to the enactment, as are so many of my colleagues 

and for so many of the same reasons, of a one-time repatriation. 

So go on record with that, but do not rehash the same questions. 

I think if a repatriation is done, it is going to have to be done 

in conjunction with broader improvements in our own competitive 

international tax system. That is really where I want to go with 

my line of questioning. 

Companies are being forced in my home State of Indiana and 

across this country to move their operations overseas. And so many 

foreign countries are getting a jump on us with respect to changing 

their tax rules in a way that will cause more U.S. companies to 

leave unless we act fairly quickly here. 

Indiana on a per capita basis is the biggest U.S. manufacturing 

State we have, and we have a robust life sciences industry. So research and development on both the manufacturing side and the 

life sciences side is quite important. Some countries have already 

changed their tax rules, so it will effectively force these types of 

companies to move operations overseas. 

And I want to get your sense, Mr. Dubay and Mr. Suringa, as 

to why this is happening, just from a very basic standpoint. Why 

are they locating operations from our manufacturing and life science 

companies in Indiana overseas? 

Mr. DUBAY. Thank you for the question. 

I think there are two reasons why. First is nontax, and that is 

that overseas markets are growing, that is where the growth markets are, so you will see businesses opening up operations there to 

meet those growing demands. And as I always point out when the 

issue of jobs overseas and outsourcing comes up, is let’s not lose 

sight of the fact that if a U.S. business’ products are in more demand around the world, that is a good thing for the business and 

for the United States Let’s not denigrate that. 

There also is certainly a tax aspect to it. It is just more advantageous, it is more profitable to locate overseas. Tax rates are 

lower, there are other issues besides just the tax rate that go into 

it. But it just is more profitable to invest overseas right now than 

it is here in the United States because of our high rate. 

63 

Mr. YOUNG. Mr. Suringa, focusing not on the demand-related 

reasons, but specifically the tax-related component, please. 

Mr. SURINGA. So I think it is a combination of lower rates, it 

is an increasing prevalence of tax incentives, and it is also pressure 

to make those tax incentives specifically focus on moving people. So 

part of BEPS is that tax policy should follow where the people are. 

And so countries that have these—historically the patent box regime was where you just registered a patent in a tax haven, it 

didn’t matter where it was created, you got a special tax rate. Now 

you have to move the people there. 

Mr. YOUNG. So, Mr. Dubay, I know you work at Heritage, you 

are here representing yourself. Heritage, as someone who worked 

there for a very short period of time, I know is not just a think 

tank, but you also take into account political factors when it comes 

time to making policy recommendations. So I would ask you if you 

could factor in what is realistic, what can Congress do between now 

and, say, the end of the year to help address some of these dynamics that are hurting Indiana workers? 

Mr. DUBAY. Sure. Thanks again for the question. 

So recently I released a paper that hit on this very topic. I don’t 

think there is time left in this year for broad fundamental tax reform. I think the window is closing on business owner reform, but 

I thought for a while there was a window with President Obama 

and Congress where there was interest on both sides for business 

or corporate tax reform. I think that is less likely as time goes on. 

But I see no problem with not only breaking down to business 

individual, but breaking down business into its component parts, 

which would be a lower rate or fixing the cumbersome and outdated depreciation rules or moving to international. Any of those 

three pieces would be tremendously beneficial. You could also do 

things like make bonus depreciation permanent, and that is a big 

step in the right direction on depreciation. 

Mr. YOUNG. Thank you. I yield back. 

Chairman REICHERT. Mr. Doggett. 

I might point out that Mr. Doggett and Mr. Blumenauer and Mr. 

Pascrell, who just disappeared, are not Subcommittee Members, 

but they are part of the full Ways and Means Committee and are 

invited here. 

And we are pleased to have you. 

And they will be asking questions. 

Mr. DOGGETT. Thank you, Mr. Chairman. I am just following 

you from our last Subcommittee working together. 

I want to begin by commending the National Association of Manufacturers, the Business Roundtable, the Alliance for Competitive 

Taxation, and the National Retail Federation for speaking out this 

week against repatriation as a means of financing the highway system which needs not only moneys, but it needs certainty. These 

groups have noted that this is not the way to go either for our 

highway system or for our tax system. 

These various repatriation proposals are certainly a loser for the 

United States Treasury. And the suggestion that, well, we are 

going to have repatriation and it is only a step to moving toward 

a territorial system that we can’t get this year, but maybe we will 

get it after the election, or maybe we will get it in 5 or 6 years, 

64 

is really misleading. All we are really doing is just repeating the 

failure of 2004, the so-called American Jobs Creation Act, when it 

came through this Committee and the floor of the House. 

And I think it is understandable why this approach is being advanced. Indeed, one of the Members of this Subcommittee is quoted 

this afternoon in Politico as saying that repatriation is the only 

thing the Republicans can agree on as a means of financing our 

highway system. And it is extremely appealing. You have a handful 

of multinational companies that benefited in 2004, that really got 

away with highway robbery in paying a nickel on the dollar, a deal 

that any American working family would love to have as their tax 

rate on all their earnings, 5, 6 cents, less whatever credit they 

might have had overseas. 

And they are out there saying we would love the government to 

tax this, just don’t tax us more than a nickel, a dime would be extortion, don’t tax us more than a nickel on a dollar of our earnings. 

And all this money is available right now, we are begging you to 

take it, so we can bring back our earnings as we did in 2004 and 

pay our executives more and give more stock buybacks and dividends, but not create jobs with it as we promised we would do. 

That kind of system is extremely appealing when the only other 

alternatives which could be initiated immediately and should have 

been initiated years ago are to provide reliance on a user-pay system, which built our highway system beginning with President Eisenhower and which has been the means of bipartisan support for 

transportation infrastructure in the past. 

The cost of moving to repatriation in any form is very, very real. 

That is one of the reasons as far as any kind of temporary system 

that Senator Grassley with the Senate Finance Committee promised that it would be one time only when it was done in 2004, because he realized what a costly approach it was. Of course, it is not 

one time only because ever since then there have been those whose 

appetite was whetted by this one-time opportunity and what they 

got away with, and so they are asking it be done again, and they 

will ask that it be done again if this is permitted. 

These profits that are allegedly trapped offshore are often at 

work right here in America. They can be invested in Treasury bills 

here, they can be invested in a hedge fund, they can be invested 

elsewhere. They just can’t be used to pay executives more money 

or stockholders more dividends. 

The deemed repatriation approach, Dr. Gravelle, that you talked 

about, isn’t it true that even if the—they call it deemed, it is really 

forced repatriation, and in the case of some businesses it really 

amounts to tax on wealth as held abroad, a concept that hasn’t 

been a principle of our taxation system here in the United States. 

But isn’t the effect really revenue-wise likely to be a loss for the 

Treasury, whether you call it forced mandatory repatriation or voluntary repatriation? 

Ms. GRAVELLE. Well, it depends on the rate and whether, of 

course, you have a large rate on this fixed wealth amount or the 

stuff that can’t be brought back anyway. So it would depend. But 

the point is at the rates, for example, in the Camp bill, there would 

probably be a revenue loss at those low rates because it will still 

allow you, if you had it within our current system, that is a standVerDate Sep 11 2014 14:12 Apr 20, 2017 Jkt 022333 PO 00000 Frm 00068 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\22333\22333.XXX 22333
65 

alone, because it would still say that you don’t then have in the future to repatriate at 35 percent. You have already done it, you already got that money to send back without paying tax. And plus 

you again have this moral hazard sort of problem, this incentive to 

say: Well, they gave us a great deal here, so maybe we will get one 

in the future, so better to stash your money abroad. 

Chairman REICHERT. The gentleman’s time has expired. 

Mr. DOGGETT. Thank you. 

Chairman REICHERT. Thank you. 

Mr. Renacci. 

Mr. RENACCI. Thank you, Mr. Chairman. It is really clear—and 

I appreciate you having this hearing and I appreciate what I have 

heard from the witnesses—but it is really clear that our international tax system is outdated and anticompetitive, our current 

rules discourage domestic investment and make U.S. companies 

vulnerable to foreign takeovers. 

I also recognize the urgency for reform. I am aware that actions 

resulting from the BEPS project will not only further erode the 

U.S. tax base, but also force U.S. multinationals to consider relocating their skilled professionals abroad. I think I heard one of the 

witnesses say that. That is why I really believe reforming our 

international tax rules to make the U.S. companies more competitive in the global marketplace is one of the most important things 

this Congress can do this year. 

We need to stabilize our tax base, to ensure that we still have 

that tax base when we actually have an Administration that is serious about engaging in comprehensive tax reform. 

What I have heard so far, though, I think there is a consensus, 

at least with Mr. Dubay and Mr. Suringa, is there is a consensus 

that in conjunction with moving to a territorial-based dividend exemption system, some form of deemed repatriation is acceptable. 

Mr. Dubay, do you agree with that? 

Mr. DUBAY. Yes, I agree. 

Mr. RENACCI. Mr. Suringa, do you agree with that? 

Mr. SURINGA. Yes, sir. 

Mr. RENACCI. The purpose, though, is not really to talk about 

good repatriation, bad repatriation. And one of the things that is 

important to me—and I do have a bill out there with several colleagues and it really says we need to look at all these options, and 

repatriation is one of the options we should look at. But bad repatriation or good repatriation in my mind wasn’t the purpose of this 

hearing. This hearing is really to understand better repatriation of 

foreign earnings as a source of funding for the Highway Trust 

Fund. 

So I was trying to make some notes. Mr. Suringa, you said actually in your testimony: ‘‘The best use of any revenue generated by 

the move to an exemption system would be to design the system 

in a way that provides meaningful tax relief to the companies paying the tax and encourages job creation and creation of intellectual 

property in the United States.’’ I assume you agree with that comment. 

Mr. SURINGA. I do. 

66 

Mr. RENACCI. You also made a comment earlier, though, to Mr. 

Tiberi that the use of the revenue could be used for the Highway 

Trust Fund. 

Mr. SURINGA. I think that is more of a—that is a government 

accounting issue. I am not an expert on government accounting, 

but it seems the money comes in and how it is allocated from the 

general fund to the Highway Trust Fund is a matter Congress can 

decide. 

Mr. RENACCI. But you would agree the best use would be to design the system in a way that provides meaningful tax relief to 

those individuals—— 

Mr. SURINGA. Yes, sir. 

Mr. RENACCI. I am trying to really again better understand repatriation and what some of your thoughts are. 

Mr. Barthold, do you have the expertise on whether repatriation—and, again, this just gets back to, is repatriation a good idea 

for the Highway Trust Fund? I am looking for that answer. Do you 

have the expertise on whether repatriation of foreign earnings is a 

viable source of funding for the Highway Trust Fund? 

Mr. BARTHOLD. Mr. Renacci, that really isn’t a question for me 

representing the Joint Committee to answer. We try to provide 

the Members with information about technical policy aspects, economic aspects of different proposals that you consider, but I wasn’t 

elected to make a tough decision like that one. 

Mr. RENACCI. Okay, I appreciate that answer, that is why I am 

asking the question. 

Mr. Suringa, do you have the expertise on whether repatriation 

of foreign earnings is a viable source of funding for the Highway 

Trust Fund? 

Mr. SURINGA. My focus is international tax, but what I guess 

I could say is, look, it is 6 years’ worth of revenue and it gives you 

time to think of a long-term funding solution, which I think we all 

agree is necessary for the Highway Trust Fund. So to the extent 

it scores like that, I think it is worth thinking about, it is worth 

putting it on the table. 

Mr. RENACCI. So if it all went to the Highway Trust Fund—— 

Mr. SURINGA. That is right. 

Mr. RENACCI [continuing]. But you have also said that the best 

use is to lower the tax rates for—— 

Mr. SURINGA. That is right, that is right, sir. 

Mr. RENACCI. Mr. Dubay, do you have the expertise to tell me 

whether repatriation of foreign earnings is a viable source of funding for the Highway Trust Fund? 

Mr. DUBAY. Partially. As long as enough revenue is available to 

facilitate the change to the territorial system or a dividend exemption regime from the worldwide system, how the rest of the revenue is used I will leave to the budget experts to decide whether 

that is good or bad policy. Enough revenue needs to be used to 

make sure that you can get to a good and proper dividend exemption regime, and that does require a portion of the money that 

would be raised from deemed repatriation. 

Mr. RENACCI. Thank you. 

I do believe it is important for Congress to act this year to make 

our international tax rules more competitive, although I do have 

67 

concerns on whether international tax reform can truly be a source 

of funding. I appreciate your comments. I do know that we need 

to address a long-term, sustainable Highway Trust Fund. And we 

cannot continue to pass this on to our children and grandchildren. 

Mr. Chairman, I yield back. 

Chairman REICHERT. Thank you, Mr. Renacci. 

Mr. Blumenauer is recognized. 

Mr. BLUMENAUER. Thank you, Mr. Chairman. I appreciate 

your courtesy and Mr. Neal allowing us to sit in on the proceedings. It has been fascinating. I appreciate the big picture that 

is being asked. There are those who float repatriation as sort of a 

Holy Grail, that it is a painless way to somehow weave our way 

through the minefield that has eluded us for 22 years with the 

Transportation Trust Fund. 

And I think the breadth of testimony indicates that there are 

some complexities here. There are policy questions, there are severe questions about tradeoffs, cost to the general fund. As has 

been pointed out, this is not free money, depending on how it is 

structured. It may well just be deferred money that ultimately will 

have a cost. And there are competing interests. 

I think all of us who have worked on the Ways and Means Committee for more than 15 seconds agree that we need to make significant adjustments to the corporate tax scheme. And we appreciate our colleague, Chairman Camp, working hard on that in a 

number of sessions that we were involved. I thought some progress 

was made. 

And I think it is important to approach it in the way that you 

have done. And this for me, I think, points out that this, even if 

it meets the criteria that I think are necessary for meeting the 

needs of the Highway Trust Fund, that is, it has to be enough 

money, it has to be dedicated, and it has to be sustainable, so that 

we are not back in the same pickle in 2 years, or 4 years, or 6 

years. And so I think what I am hearing is there are some questions about that based on the give and take that we have had at 

this point. 

I would just make one point, and I won’t take my full 3 minutes, 

but I do think that it is important to note that we are making this 

slightly more complex than it needs to be. There is an action that 

this Committee could take 1 week after we come back from the 4th 

of July recess. 

The gas tax is not complex. It is extraordinarily simple, it is a 

one-page bill. The gas tax is not something that is expensive to administer, the mechanism is right there. I have had extensive conversations, as I know others have, with our friend the Chairman 

of the T&I Committee, Mr. Shuster, and Ranking Member DeFazio, 

who are chomping at the bit to be able to come forward with reauthorization. But the key is they have to have a number, they have 

to know what they are working with. 

And if Congress in its wisdom, with the Ways and Means Committee following regular order, with men and women who have 

been in this hearing room over the last 10 days, really dove in with 

this for 2 or 3 days of extensive hearings like we used to do, I 

mean, real work sessions, a markup, we could answer the questions 

that people have about the economic impact, the burden, the costs, 

68 

and consequences. And before the month of July is out, we could 

give them a number, and they could give us a transportation bill 

before the end of the fiscal year, September 30. They can do this. 

The other thing that I am struck with, and I really like how our 

leadership, Mr. Boehner, Mrs. Pelosi, the three committees of jurisdiction, came together on the SGR fix. That kind of felt good. We 

had, I don’t know, 290 votes or whatever it was, we jammed the 

Senate for a change. And did something that eluded us for over 15 

years. 

And I just think we could have at this dais at the next hearing 

the president of the AFL–CIO, the president of the U.S. Chamber, 

we could have truckers and AAA, local government, we could have 

bicyclists and people who care about transit and the people who 

build and maintain roads, we could have this room filled with experts who were all on the same page, supporting what has happened already this year in six Republican States, raising the gas 

tax. 

So I think this is helpful to provide the context. I appreciate the 

role this Subcommittee has played in the past. And I hope that we 

would consider maybe having a couple, 3 days someday doing a 

deeper dive on the gas tax, because we can provide Mr. Shuster 

with what he wants in 2 weeks. 

Thank you. I am sorry, I did take the 3 minutes. I apologize. 

Chairman REICHERT. Yes, you did. 

Mr. BLUMENAUER. Thank you for your courtesy. 

Chairman REICHERT. I thank the gentlemen for his comments. 

We are going to go to Mr. Pascrell next. Mr. Kelly wanted to be 

present for your comments. 

Mr. PASCRELL. I am glad he is here. Kelly and I, Kelly and 

Pascrell will end on a very docile note, I am sure it will be peaceful. 

Mr. Barthold, thank you, by the way, for your service. Can you 

explain briefly why a repatriation holiday would create revenue at 

first, but then add billions to the deficit in subsequent years? Can 

you explain that? 

Mr. BARTHOLD. I will try for a brief version, Mr. Pascrell. 

Mr. PASCRELL. Thank you. 

Mr. BARTHOLD. Remember, we start from baseline projections. 

One thing to observe is that foreign-source income of U.S. persons 

is growing. There is repatriation under present law under the baseline on which there is residual income tax paid. And so there are 

multiple effects that go into our analysis of a proposal such as the 

Paul-Boxer proposal for a repatriation holiday. 

In terms of early year pluses, we think that the attractiveness 

of the lower rate does mean that companies will try to pay back 

more dividends. Even at the low rate, if more comes back that can 

lead to an increase in cash receipts to the Treasury. 

I should note that as part of that analysis we recognize that 

when companies repatriate some of the earnings, that they also 

have had in the past a tendency to increase dividends paid to individual shareholders or to engage in share buyback programs in lieu 

of dividends. Both of those are taxable events under the individual 

income tax, so that is another source of increased cash receipts to 

the Treasury in the early years. 

69 

As a longer-term matter, we view some of the repatriated earnings that would occur during the qualifying period—and in the 

Paul-Boxer bill that is a 5-year period—as being earnings that potentially would have been repatriated later in the budget window. 

And so that means what is a plus in the front of the budget period 

is a negative in the back of the budget period. 

And then also, as has been noted, having elective repeated holidays does give an incentive to perhaps shift more of the U.S. corporate tax base abroad to affirmatively make an investment decision to invest abroad rather than in the United States, which 

lowers, over the long haul, the corporate tax base. That is another 

factor in our estimate that this loses money in the outyears. 

Mr. PASCRELL. Thank you very much, I appreciate that. 

I don’t sense a sense of urgency here on this. I mean, we only 

had our first hearing just recently, and now we have a second hearing thanks to the Chairman. I don’t sense urgency at all. 

In recent years everything has changed. I am trying to change 

what is being changed to break through the political games that 

are being played here. 

Our Federal Highway Trust Fund is dead broke. In the past 10 

years no one has had the political courage to fix it. I have serious 

concerns with the proposals that we have seen both in the House 

and the Senate. The tax-deferred corporate income or repatriation 

to temporarily fund the Highway Trust Fund, that is not urgency, 

that is not a long-term solution. 

Let’s look at the record. We have heard today, 2004 is the last 

time we did this, the repatriation holiday, and what happened? 

Most of that money, the top 15 corporations which, combined, repatriated more than $150 billion during the holiday, cut their workforces by 21,000 employees between 2004 and 2007. 

I also worry that enacting a tax holiday would only create incentives for corporations to keep holding cash abroad. Why would a 

corporation invest earnings in the United States and pay full taxes 

on it when they can keep it in a tax haven, then be rewarded with 

a lower repatriation tax and use the earnings to pay themselves? 

Let’s talk about all of the folks that got paid themselves through 

that money that was available in 2004. 

No, I think the bipartisan Bridge to Sustainable Infrastructure 

Act, which myself and my good friend from Ohio, Mr. Renacci, have 

sponsored, is a good way to do this, a bicameral commission to 

fund, find a way to fund the Highway Trust Fund, a long-term, 

sustainable way. If the commission tells us that the repatriation is 

part of the solution, I would have to consider it as part of the solution. 

But I cannot stress enough that whatever we do, we must also 

reinstitute the policy of users paying for our transportation system 

and address the long-term revenue. The fact is that repatriation 

cannot and must not be just a more complicated and expensive 

patch which allows the Congress to avoid the hard decisionmaking 

on our highway system. 

Today’s hearing should give pause to those banking on repatriation. Our witness last week said VMT will take 10 years. 

Chairman REICHERT. The gentleman is over his time. 

Mr. PASCRELL. I will yield back to the Chairman. 

70 

Chairman REICHERT. Thank you, Mr. Pascrell. 

Mr. Kelly. 

Mr. KELLY. Thank you, Chairman. 

Mr. Pascrell, it’s always good being with you. 

And, panel, thanks for being here. 

Mr. Suringa, just so I have this clear, you said that if we were 

to do the repatriation, it would be a 6-year window, depending on 

the percentage that we charge to bring this money back. It would 

provide enough money, is that correct, for the Highway Trust Fund 

for 6 years? Did I understand that correctly? 

Mr. SURINGA. That is my understanding based on the revenue 

score from Chairman Camp’s proposal and the estimates that I 

have read of the needs for the Highway Trust Fund. But I would 

defer to experts on the Highway Trust Fund. 

Mr. KELLY. And I understand about referring to experts. I have 

to tell you, these hearings are oftentimes very complicated. I know 

Mr. Larson was trying to get down to everyday terms of what people understand and what they don’t understand. 

And I appreciate my friends on the other side who may talk 

about in 2004 we had an opportunity for repatriation, we brought 

the money back, and we gave the money to the people, they paid 

a low percentage on it, then they got to spend their money the way 

they wanted to. I am assuming they probably bought some other 

things and maybe created jobs in that market. I think there is a 

bounce effect with that. 

But I also know that in 2009, with the American Recovery and 

Reinvestment Act, we spent $800 billion-plus of taxpayers’ future 

money, and with interest now it is $1 trillion. I would have loved 

to have seen the same appetite then for the Highway Trust Fund, 

because we used about $30 billion of that $800-and-some billion to 

actually put into shovel-ready projects. My God, if that wasn’t a 

jobs bill, what the hell was? That was an opportunity to change the 

face of this country and put us in a much better position. And the 

residual benefits of it would have been phenomenal. 

My son just came back. I am in the automobile business. We 

meet quarterly, and they call it a 20 Group, and they sit down and 

they exchange their financial statements and they talk about best 

business practices. 

I would just say that what we are talking about today, we don’t 

live in a void, we know what is going on around the world, and for 

us to sit here with hands over both eyes and plugs in our ears and 

say: No, I don’t want to hear what is going on overseas because, 

quite frankly, that doesn’t appeal to me, is wrong. 

People are not leaving this country because they are not patriotic. They are leaving this country because they are not going to 

stand here and try to operate a business model where the exact 

people who depend on their profitability for the revenue to drive 

the machine make it hard for them, whether through taxes or 

through regulations. You all have looked at these things. 

Now, Mr. Barthold, you are in a very interesting position. You 

are a statistics guy. You can tell. If the manager for the Nationals 

asked you, ‘‘Listen, how is my lineup doing? Pretty good? How 

should I change it?’’ 

71 

‘‘I don’t tell you how to change it. All I can tell you is you have 

the 3, 4 and 5 hitters that are not doing what they are supposed 

to do.’’ 

So I understand where you are coming from. But for the rest, you 

see it every day. Mr. Dubay, you see it. Mr. Suringa, you see it. 

Ms. Gravelle, you see it. There is no reason for this country with 

its assets to be sitting where it is and looking at crumbling infrastructure. It is a lack of political will to get it done. 

It just doesn’t seem like it should be that hard. And whether it 

is Mr. Pascrell’s and Mr. Renacci’s bill, it really doesn’t matter to 

me as long as we get these things fixed. 

The upside from an economic standpoint of how this country 

would profit from that is off the charts. The problem is how do you 

get the money and where do you get it from? And I will tell you 

this, a drowning man grasps at all straws. Right now we have an 

opportunity at repatriation which will help us to a certain degree, 

but if we don’t have comprehensive tax reform, both internationally 

and right here at home, we are still in the middle of a really bad 

situation. 

I want to go back to what you said. So tell me again about this. 

Repatriation now would supply enough revenue to do—is it a 6- 

year? And not just to get us through the end of the year, but going 

forward, if we were able to do repatriation and dedicate that money 

to infrastructure, would that not raise the profitability of all the 

people that live in this country, the companies that work in this 

country, wouldn’t that also just by the very nature of becoming 

more profitable raise tax revenue? 

Mr. SURINGA. I think it would. 

Mr. KELLY. Well, I mean, you can’t say you think it would. It 

absolutely would. It is just math. I mean, the President says all the 

time do the arithmetic on it. More profitable companies pay more 

taxes, right? We are hoping for tax revenue, how do we get there? 

We get there by roads, rivers, railways, and runways. 

So why in the heck do we sit back and let it unravel on us when 

we do have things available? This repatriation is a very important 

part of an overall fix, yes or no, to all of you, just tell me? I know 

you can’t talk Tom. 

Mr. DUBAY. As long as a dividend exemption regime or territorial system is established beforehand and the money is there to 

make sure that that gets established, I see it could possibly be a 

solution, yes. 

Mr. KELLY. Okay. 

Mr. SURINGA. I would think it also is important to consider an 

innovation box to keep research jobs here, highly-skilled jobs here. 

Mr. KELLY. Yes. Ms. Gravelle. 

Ms. GRAVELLE. A holiday loses money. Most deem repatriation 

stand-alone would lose money. And with tax reform it is used to 

finance other parts of tax reform. So it is hard for me to see how 

repatriation would play a role in financing the highways. 

Mr. KELLY. No role at all? 

Ms. GRAVELLE. It is hard to see it. 

Mr. KELLY. It is hard to see it? 

Ms. GRAVELLE. Yes. 

72 

Mr. KELLY. Okay. So revenue that could possibly come back in, 

I mean, it is part of it. 

I would just say this. The other thing is when you collect this 

money, why not spend it on the people that put it in? I have to tell 

you, the people that I represent back home say: Listen, we don’t 

mind paying more money, just don’t use it for something else, keep 

it where it is supposed to be. 

We have an excellent opportunity right now to bring this around 

and turn the whole country around. It is going to be through fixing 

our highways and our railways and our rivers and our runways. It 

is just that simple. This isn’t magic. The old saying it is magic just 

doesn’t ring true. Pulling a rabbit out of the hat isn’t magic, it is 

how you get the rabbit in the hat to begin with. 

So thanks to all of you for being here. 

And, Chairman, thank you. 

Chairman REICHERT. Thank you, Mr. Kelly. 

Our last two speakers were interesting. It kind of brings me back 

to my old profession of police officer, hostage negotiator. We have 

differences of opinion that we need to smooth over, and we will continue the discussion at a later time. 

But thank you all for the time that you took today to be here 

with us, because this is complicated. And I think, as Mr. Larson 

said, all of us are in a learning mode and trying to understand this 

and how it may help us or may not help us. There have been, as 

you heard last week, a lot of ideas on how we might move ahead 

on a permanent basis to fund our highway trust fund. 

Here is what I heard today from folks on the panel. We are in 

agreement that we can’t continue to kick the can down the road. 

We are in agreement that user fees are a must have in any solution as we move forward. And we are in agreement this is critical 

to our Nation, its productiveness, and our ability to lead in a global 

economy. 

So, once again, I thank all of you for your testimony. 

I have to read one last paragraph here because it is part of the 

rules. That concludes today’s hearing. Please be advised that Members may submit written questions to the witnesses. Those questions and the witnesses’ answers will be made a part of the record. 

I would also like to thank all of our witnesses for appearing 

today. It has been an educational discussion. 

And with that, the Committee is adjourned. 

[Whereupon, at 4:15 p.m., the Subcommittee was adjourned.] 

[Submissions for the Record follow:] 

73 


22333A.037

merican· 

Chemistry 

ouncil 

American Chemistry Council Statement for the Record 

Repatriation of Fo•·eign Earnings as a Source of Funding for the Highway Trust Fund 

Submitted to the Subcommittee on Select Revenue Measures, 

Committee on Wnys and Means 

June 24, 2015 

(submitted July 8, 2015) 

Thank you Chainnan Reicher! and Ranking Member Neal for holding this imponam bearing. 

The American Chemistry Council (ACC) represents the leading companies engaged in the 

business of chemistry. ACC member companies apply the science of chemistry to create 

innovative products and services that make people's lives better, healthier and safer. The 

business of chemistry is an $801 billion enterprise and a major contributor to the nation's 

economy, accounting for fourteen cents of every export dollar. Last year, the chemical industry 

spent $59 billion on research and development For every job created by the business of 

chemistry, 6.3 jobs are generated elsewhere in the economy, totaling six million American jobs. 

ACC appreciates the opportunity to file a statement for the record following the Select Revenue 

Measures Subcommittee hearing on June 24. 20 15 entitled "Repatriation of Foreign Earnings as 

a Source of Funding for the Highway Tmst Fund." 

ACC would be interested in playing a constntctive role in broader international tax reform 

discussions. However. there is much uncenainty and an apparent lack of understanding on 

Capitol Hill with respect to the complexity of issues surrotmding repatriation of foreign 

earnings. ACC strongly opposes proposals to tax historical foreign earnings. particularly if 

attempted outside the context of broader international tax reform. For that reason, ACC offers 

the following observations and comments. 

For most chemical manufacturers, such proposals would tax earnings from previous years that 

have been reinvested abroad in physical plant and equipment and in the working capital 

necessary to serve our customers and grow our businesses in very capital-intensive foreign 

operations. In the case of the chemical industry, the capital expenditure necessary for 

construction of a world-class plant can be in the billions of dollars. A connnon scenario for the 

U.S. chemical industry when making a significant overseas capital investment in a chemical 

facility is the need to be near competitively-priced and ample sources of feedstocks and to be 

close to the prime markets for the products, with earnings often then reinvested in facility 

infrastructure or new physical versus paper investments. 

americanchemistry.com• 700 Second St., NE I Wa•hington, DC 20002 I (202) 249.7000 
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22333A.038

July 8, 2015 

Page 2 of3 

In most cases, earnings are not held offshore as cash or cash equivalents, except for that level of 

working capital necessary to support the local businesses. It is critical to understand this, in 

contrast to the business models of some industries that require little or no reinvestment of 

foreign earnings in high-cost plant and equipment. 

Among proposals under consideration for raising tax revenue to pay for highway and 

infrastrucrure projects, and subject of the June 24 hearing, is the device sometimes referred to as 

"deemed repatriation" of dividends from foreign subsidiary companies (also described as 

"mandatory repatriation"). Under deemed repatriation. the accumulated earnings of foreign 

subsidiary companies would be considered acrually to have been paid to U.S. parent 

corporations as dividends, even though there is no pool of cash from which the subsidiaries 

could remit acrual dividends. This is in contrast to proposals also under discussion for 

"voluntary repatriation'' of dividends from foreign subsidiaries, under wh.ich d.ividends of cash 

acrually would occur. 

In the case of the chemical industry, reinvestment of foreign earnings in plant, equipment, and 

operating assets means. as noted. little or no cash acrually available from which to pay dividends 

to the U.S. parent companies. With the exception of relatively small amounts of working capital 

to pay local taxes and receivables and meet other current expenses, foreign subsidiaries typically 

retain only incidental amounts of cash. Accordingly, for the chemical industry, the distinction 

between acrual and deemed dividends is very real and has very serious economic consequences. 

Reinvestment of foreign earnings means there is insufficient cash available for dividends to the 

U.S. parent corporation from which the parent could satisfy tax liability arising from the deemed 

repatriation. The term "repatriation" in this context is inaccurate and misleading because the 

proposa ls do not require nor anticipate any acrual return of cash. The deemed repatriation 

proposals simply mandate U.S. lax on foreign earnings as though the earnings were distributed 

to U.S. parent corporations as dividends. 

ACC member companies oppose proposals for deemed repatriation all the more when such 

proposals are taken without regard to efforts to enact international business tax refonn. 

Reformers regard the U.S. worldwide system of taxation as obsolete, with the U.S. virtually 

alone among developed countries retaining the system. Practically and fundamentally, deemed 

repatriation would disregard global economic and business realities to which the key sector of 

chemicalmanufacruring is subject The timing of these proposals is unfortunate, given the 

unprecedented growth in domestic manufacturing as a result of the chemical industry's 

continued and looming expansion. 

The chemical industry has budgeted overS 140 billion over the coming years for facilities to rake 

advantage of shale gas resources beginning to come on line. Shale gas will restore a h.istorical 

cost advantage enjoyed in past years by U.S. chemical manufacturers. The new cost advantage 

will result in lower supply costs for all manufacturing sectors. because virtually all rely upon 

chemical products. The effects of shale gas should create a "manufacturing renaissance'' 

expanding jobs and the U.S. economy, as well as growth of U.S. export markets. However, 

deemed repatriation and its demands against capital otherwise available 10 the chemical industry 

would slow and perhaps undern1ine constmction of chemical facilities to exploit shale gas 

development. 

americanchemistry.com• 700 Second St., NE I Wa•hington, DC 20002 I (202) 249.7000 
75 

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July 8, 2015 

Page 3 of3 

ACC provides this statement for the record with the hopes that it will inform the discussion on 

broader international tax reform, as well as clearly articulate the inappropriateness of utilizing 

such proposals as a temporary fix for the Highway Trust Fund. Deemed repatriation bas very 

real consequences for the manufacturing sector, and in particular the chemical industry. 

International tax refom1 may well be a topic of serious consideration in coming months. and we 

are hopeful that the complexities of deemed repatriation will be fairly understood for an 

informed discussion. 

• ••• 

americanchemistry.com• 700 Second St., NE ] Wa•hington, DC 20002 I (202) 249.7000 
76 


22333A.040

rD~ American Road & niBil TranSJ?Or:tation Builders 

iiiiiiiiiiN,.. . Assoctatton 

Testimony of the American Road & 

Transportation Builders Association 

Repatriation of Foreign Earnings as a Source of 

Funding for the Highway Trust Fund 

House Ways & Means Committee 

June 24, 2015 

Chairman Reichert and Representative Neal, we appreciate you scheduling today's hearing to 

discuss potential alternatives to stabilize the Highway Trust Fund. The American Road & 

Transportation Builders Association (ARTBA) is pleased to provide this statement for the 

subcommittee's deliberations on this important topic. 

Highway Trust Fund Needs a Permanent Solution 

The federal highway and public transportation programs are already on their second temporary 

extension since the 2012 surface transportation law, the "Moving Ahead for Progress in the 21" 

Century Act" (MAP-21), expired more than eight months ago. President Obama and leaders of 

both parties and both chambers have all routinely pointed to a long-term surface 

transportation reauthori zation bill as an area of common ground where meaningful progress 

could be achieved in 2015. That will not happen unless and until the Highway Trust Fund's 

revenue stream is stabilized and increased. 

While we understand the focus of today's hearing is the potent for repatriation of foreign 

earnings as source of revenue to temporarily stabilize the Highway Trust fund, it is important 

that all members appreciate why the fund continues to experience revenue shortfalls. The root 

of the trust fund's challenge is not an antiquated gas tax, alternative-fueled vehicles dominating 

the U.S. automobile fleet, or improved vehicle fuel economy, but a more direct and obvious 

flaw: the federal motor fuels tax rates and other highway user fee rates have not been adjusted 

for 20 years. As such, it should surprise no one that the Highway Trust Fund is on the verge of 

insolvency. The only surprising thing is that it did not happen sooner. 

1 
77 


22333A.041

Allowing the Highway Trust Fund's structural revenue deficit to persist has forced five separate 

revenue shortfalls since 2008 and a sixth crisis is looming later this summer. Instead of 

generating sufficient resources to support needed federal investment in the nation's surface 

transportation network, Congress has chosen to infuse the trust fund with more than $60 

billion from non-transportation portions of the budget-$50 billion of which added to the 

deficit. The U.S. Department of Transportation (DOT) will be forced to begin rationing 

reimbursements to state departments of transportation in August unless the trust fund is 

stabilized. Further, the Congressional Budget Office (CBO) projects that without new resources 

the trust fund will be unable to support any new spending when FY 2016 begins- requiring a 

one-time cut in surface transportation investment of nearly $49 billion. This uncertainty about 

future federal investment has caused seven states in 2015 to delay roughly $1.6 billion in 

planned highway improvements. 

Mr. Chairman, the Highway Trust Fund's revenue shortfall is not going away. In fact, the CBO 

March baseline shows failing to permanently address this situation will allow the problem to 

get dramatically worse. The gap between incoming revenues and existing levels of highway and 

public transportation investment will be $11 billion in FY 2016. The shortfall would grow to $23 

billion by FY 2025. 

Getting Beyond Gridlock 

Supplementing the Highway Trust Fund's existing revenue stream with the proceeds of a new 

repatriation tax on foreign earnings of U.S. based multi-national companies has been frequently 

discussed as a way to temporarily stabilize the trust fund. Repatriation-like the "pension 

smoothing" mechanism used in 2012 and 2014-is a temporary solution to a permanent 

problem. 

If repatriation revenues were used to support a six-year surface transportation reauthorization 

bill, Congress would again be confronted with a Highway Trust Fund revenue shortfall. This 

time, however, the annual gap would be $19 billion instead of t he $11 to $16 billion Congress is 

seeking over the next six years. By comparison, the trust fund shortfall at the end of six years 

under the Obama Administration repatriation plan would exceed $30 billion. 

If repatriation is, indeed, politically viable, the anticipated revenue could be used in a creative 

way-to pay for a federal tax rebate-that would assure a sustainable, long-term revenue 

stream for federal highway and transit investments long beyond when the repatriation window 

closes. 

2 
78 


22333A.042

ARTBA's "Getting Beyond Gridlock" (GBG) plan would marry a 15 cents-per-gallon increase in 

the federal gas and diesel motor fuels tax- if politically necessary- with a 100 percent 

offsetting federal tax rebate for middle and lower income Americans for six years. The plan 

would fund a $401 billion, six-year highway and mass transit capital investment program and 

provide sustainable, user-based funds to support it for at least the next 10 years. 

Under the GBG plan, a single tax filer with an Adjusted Gross Income {AGI) of $lOOK or less 

would receive a $90 per year tax rebate- the average annual cost to them of a 15 cent gas tax 

increase. Joint filers with an AGI of $200K or less would receive a $180 rebate. Internal 

Revenue Service data show the rebate would completely offset the gas tax increase for 94 

percent of American tax filers. 

There is recent precedent for such federal tax rebates. During the Bush Administration, 

Congress provided tax rebate checks of up to $600 for individual filers and $1,200 for joint filers 

in 2008. A similar tax rebate plan was enacted in 2001. 

The GBG tax rebate proposal would require $103.3 billion over six years. A one-time federal 

repatriation transition tax could pay for it. 

The Obama Administration has proposed using a 14 percent transition tax to augment the 

existing HTF revenue stream and fund its $478 billion six-year transportation proposal. 

Last year, former House Ways & Means Committee Chairman Dave Camp {R-Mich.) proposed 

raising $126.5 billion over 10 years through a repatriation transition tax for the HTF to fund an 

eight-year status quo surface transportation investment authori zation as part of his 

comprehensive tax reform plan. 

This year, Rep. John Delaney (D-Maryland) has introduced legislation to use deemed 

repatriation at an 8. 75 percent tax rate to generate an additional $120 bill on to the HTF for six 

years. 

The GBG proposal provides an answer for those who believe Americans are not will ing or able 

to invest another $90 a year to improve their mobility and help keep the cost of just about 

everything they buy down. The proposed additional gas tax cost over a year is less than we all 

pay each month for cell phone service. 

A 15 cent motor fuels tax increase would generate an additional $27 billion per year for HTF 

investments. That would end the eight-year HTF revenue crises cycle. With the additional 

3 
79 

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22333A.043

revenue, the existing core highway and transit programs could keep pace with forecasted 

inflation. Given that the FHWA forecasts truck traffic will increase 56 percent between now and 

2040, we recommend using a significant portion of the remaining newly generated user 

revenue-about $12 billion per year- to fund federal investments in multi-modal capital 

projects that upgrade the U.S. freight network and help reduce traffic congestion bottlenecks 

on it. 

The GBG proposal gives the Congress additional time to fully explore, and if deemed 

appropriate and workable, transition to other user-related mechanisms that have been 

discussed for funding future transportation infrastructure investments-like dedicated energy 

development fees, per barrel or refinery fees, VMT fees or Interstate tolling. In the meantime, 

state programs and the mobility of U.S. businesses and all Americans won't be held hostage to 

indecision in Washington. 

Chairman Reichert, Representative Neal and all subcommittee members, thank you again for 

convening today's hearing. ARTBA and its members look forward to working with you to 

develop and enact a long-term Highway Trust Fund fix that will enable needed highway, bridge 

and public transportation improvements to move forward. 

4 
80 


22333A.044

june 23, 2015 

AMERICAN 

SUSTAINABLE 

BUSINESS 

CoUNCIL 

The Honorable Dave Reichert 

Chairman Select Revenue Measures SC 

House Ways and Means Committee 

Washington, DC 20515 

Dear Representative Reichert. 

The American Sustainable Business Council (ASBC) opposes the use of repatriated 

foreign earnings to finance the Highway Trust Fund. A tax holiday is the most likely 

way for Congress to repatriate the offshore profits, but these one-off events do not 

work. 

Senators Rand Paul (R-KY) and Barbara Boxer (D-CA) have introduced a tax holiday 

bill (S. 981) to let companies repatriate offshore profits at a 6.5 percent tax rate 

instead of the usual 35 percent. The tax revenue would go into the Highway Trust 

Fund and one-quarter of the rest of the money would have to go into new U.S. jobs 

and research among other things. 

This has been done before, in 2004 under the American jobs Creation Act, and it 

failed badly, according to a 2011 report by the majority staff of the Senate's 

Permanent Subcommittee on Investigations The AjCA taxed repatriated funds at a 

5.25 percent rate and like the Paul-Boxer bill required the funds to go into U.S. job 

creation and research. 

Despite that tax holiday's $3.3 billion cost in lost tax revenues, the number of U.S. 

jobs fell rather than grew. After repatriating $150 billion, the top 15 repatriating 

corporations cut their U.S. workforce by 21.000 jobs. They also reduced their U.S. 

research. 

The AjCA said the funds couldn't go to stock buybacks, yet the top 15 corporations 

boosted their stock buybacks. It said the funds couldn't go to executive 

compensation, yet executive compensation grew at those same 15 corporations. 

The 2004 tax holiday did nothing to slow the use of tax havens although most of the 

funds had been repatriated from tax havens. In fact, the firms that had repatriated 

the most money during the holiday, moved funds offshore at a faster rate after the 

holiday. 

TEL: 202.595.9302 

lAOl NEW VOAK AV;. NW 

SUIU 1225 

WAS ... INGTOH OC 20005 

AS8COUNCILOQG 
81 

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22333A.045

The 2004 holiday did little for the larger U.S. economy. To be sure, U.S. 

multinationals in the pharmaceutical and technology industries got tax breaks on 

the $140 billion they brought home. But U.S. domestic companies - with no money 

offshore - got nothing. In effect, that tax holiday put them at a competitive 

disadvantage. 

ASBC believes that all businesses must pay their fair share of taxes. Many businesses 

that had no profits offshore continue to pay their full share of the essential 

investments and services that no individual or business can make alone. Every 

business operating in the U.S. relies on these investments for their success. They 

should not have to carry this burden alone. U.S. multinationals must pay their fair 

share. 

Another holiday would once aga in reward our multinationals for avoiding the taxes 

they owe on their offshore profits. It would once again encourage them to send even 

more money offshore. It w ill not fix the Highway Trust Fund's financing problem. 

President Obama has a proposal that would repatriate offshore profits as a part of 

corporate tax reform. Under this, U.S. multinationals would pay a one-time 14 

percent tax on all of their current offshore profits and then a 19 percent minimum 

tax on all subsequent foreign earnings. Whatever the merits of this- and ASBC 

believes that the 14 percent repatriation rate is too low- there's no prospect that 

corporate tax reform will happen this year. 

Congress needs to pass a long-term highway bill now and not at some indeterminate 

time down the road. The current funding patch is the 33rd such patch. That's 

irresponsible. Businesses know intimately how badly U.S. roads and bridges need to 

be upgraded. Congress must take responsibility now and not resort to another failed 

tax holiday. 

ASBC is the leading business advocacy group working to implement public policies 

that build a sustainable economy. Through its national member network it 

represents more than 200,000 businesses and more than 325,000 entrepreneurs, 

executives, managers and investors. 

Sincerely, 

David Levine 

CEO and co-founder 
82 


22333A.046

SAFER ROADS SAVE LIVES 

United States House of Representatives 

Committee on Ways and Means 

Subcommittee on Select Revenue Measures 

Hon. Dave Reichert, Chairman 

Testimony of: 

Mr. Scott Seeley, Chairman 

American Traffic Safety Services Association (ATSSA) 

July 24, 2015 
83 


22333A.047

Chairman Reichert, Ranking Member Neal and members of the Subcommittee- thank you for 

accepting my testimony on behalf of the American Traffic Safety Services Association (ATSSA). 

My name is Scott Seeley, and I serve as Chairman of the Board of ATSSA. In addition, I am Vice 

President of Ennis-Flint, the world's largest pavement marking manufacturer. 

ATSSA's 1,600 members manufacture, distribute and install roadway safety infrastructure 

devices such as traffic signs, pavement markings, rumble strips, guardrail and cable barrier and 

work zone safety devices, among others. Our mission is "To Advance Roadway Safety" with the 

goal of reducing roadway fatalities toward zero. 

A decade ago, more than 43,000 people were killed annually on U.S. roads. Today, that number 

has been reduced to less than 33,000. However, 33,000 fatalities are still unacceptable. We 

know that roadway safety advancements help save lives. In fact, nearly 61,000 men, women 

and children are alive today because of improvements. Investments in roadway safety are 

critical and must be continued in the reauthorization of the MAP-21 1egislation. 

In order for ATSSA members and roadway safety professionals across the nation to continue to 

move toward zero deaths on our roads, Congress must take action and pass a robustly-funded, 

long-term highway bill. However, in order for this to occur, the Highway Trust Fund (HTF) needs 

to be financially stable. At a time of growing transportation investment needs, we cannot allow 

the HTF to become insolvent. 

ATSSA supports an increase in the federal gas and diesel excise taxes. While we understand the 

hesitancy of Congress to increase these user fees, t hese are an efficient, proven and easily 

administered method for raising the revenue needed for transportation projects across the 

country. The Federal gas tax is currently 18.4 cents and has stayed fixed since 1993. Adjusted 

for inflation over those 22 years those dollars would now be equivalent to 11.2 cents. This is 

not sustainable and we have already seen for several years now the effect of not properly 

funding our Nation's transportation needs. To get us to where we should be based on 18.4 

cents back in 1993, adjusted for inflation, we are asking for the gas tax to be immediately 

increased to $30.2 cents 

If Members of Congress remain unwilling to support an increase in these direct user fees, t hen 

another option to fund the federal transportation program is to use repatriated foreign 

earnings. ATSSA supports an initiative to use these dollars for transportation projects, especially 

if a percentage of that investment is dedicated to infrastructure safety which will reduce 

roadway fatalities. 

In addition to finding a funding solution, ATSSA supports efforts to provide financing options as 

well. The ability to leverage private funds through public-private partnerships (PPP) ·for a 

public good, such as transportation projects· can be an important tool for certain situations. 
84 

f 


22333A.048

Are PPPs a panacea? We do not believe so; however, in this era of funding challenges across 

the board, it is an option that must be considered. 

ATSSA supports your efforts to investigate, find solutions, and most importantly, find the 

revenue needed for Congress to pass a long-term, safety-focused transportation bill. 

Chairman Reichert, Ranking Member Neal and members of t he Subcommittee, thank you for 

the opportunity to submit testimony on behalf of the men and women who work daily to 

reduce roadway fatalities toward zero. 
85 


22333A.049

THE VOICE OF RETAIL 

Submission for the Record 

to the 

Select Revenue Measures Subcommittee 

of the 

House Ways and Means Committee 

on behalf of 

The National Retail Federation 

for the 

Hearing on Repatriation of Foreign Earnings as a Source of Funding for the Highway 

Trust Fund 

NATIONAL RETAIL FEDERATION 

1101 New York Avenue. NW. Suole 1200 

Wash•ngton, DC 2{1005 

WIN'tN.nrl.com 

Rachelle Bernstein 

Vice President, Tax Counsel 

National Retail Federation 

202.626.8168 

bernsteinr@ruf.com 
86 


22333A.050

National Retail Federation 

June 24, 2015 

Page 12 

The National Retail Federation (NRF) strongly supports proposals for comprehensive 

reform of the federal income tax by lowering tax rates and broadening the tax base. We 

believe this type of reform will greatly boost investment in the United States, economic 

growth, wages and consumer spending. We are concerned about Congress selecting 

individual income tax base broadeners and using them to finance spending programs. This 

would be the case if Congress enacted a mandatory tax on accumulated foreign earnings, 

so-called "repatriation." to pay for the highway trust fund. Not only would this result in a tax 

increase for our members with international operations, but also it would remove an 

important element of many tax reform proposals. The only way that the United States can 

reduce its corporate tax rate to a level that will bring investment back to this country is if 

base broadeners are used to reduce the tax rate, not pay for various spending programs. 

By way of background, the NRF is the world's largest retail trade association, 

representing discount and department stores, home goods and specialty stores, Main Street 

merchants, grocers, wholesalers, chain restaurants and Internet retailers from the United 

States and more than 45 countries. Retail is the nation's largest private sector employer, 

supporting one in four U.S. jobs- 42 million working Americans. Contributing $2.6 trillion to 

annual GOP, retail is a daily barometer for the nation's economy. 

~o ate Tax Rate Reduction Will Drive Economic Growth 

Because the U.S. corporate tax rate is the highest in the industrialized world, U.S. 

companies are choosing to make more investments outside of the United States and foreign 

companies are choosing to make more investments in countries with lower corporate tax 

rates rather than the United States, where they can achieve a better return on their 

investment (ROI). Since 1988, the average statutory foreign corporate income tax rate 

(including both national and subnational corporate income tax rates) has fallen from 45.4% 

to 29.6%. This is more than 24% lower than the current 39% rate in the United States, 

which is the combined federal and average state statutory corporate tax rates. 

According to a study performed by Ernst & Young and Tax Policy Advisors for the 

RATE Coalition, in the long-term U.S. GOP will be 1.5% - 2.6% lower than it otherwise 

would be because the high U.S. corporate income tax rate is driving investment out of the 

United States.1 This decline in GOP leads to a drop in real wages for U.S. workers and a 

decline in consumer spending. In the long term, wages are approximately 1% lower 

because of the higher U.S. corporate tax rates, and consumer spending is 2.1% - 3.1% 

lower. The study pointed out that even in 2013, consumer spending was 1.6%- 2.1% 

I Cruroll. Robert, John Oirunoud, and George Zodrow, 2013. M<•croeconomic Ejfecrs of J..qwer CorJ)()rate Income Tax 

Rates ll.ecenr(•• Enacred Abr()(ld. EnJSl & YolUlg LLP, Wasbiuglon, OC. 
87 

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National Retail Federation 

June24,2015 

Page 13 

lower because of the impact of the high corporate tax rates on investment in the United 

States. 

Mandatory Repatriation Is a Tax Increase 

There is a common misconception that foreign earnings of U.S. multinationals are 

"trapped" overseas and that these companies will gladly repatriate those earnings and 

invest them in the United States if the corporate tax rate is low enough. This is not the case 

for most retailers. Retailers, like most multinationals, have overseas operations in order to 

expand their markets. Our industry's foreign earnings are invested in stores, distribution 

centers, inventory, and the working capital needed to sustain and grow these operations. 

Many retailers do not have excess cash to repatriate, regardless of how low the tax rate is 

that is applied to these earnings. If an immediate tax is placed on these earnings, it will 

dampen the ability of these companies to grow in foreign markets and ultimately hurt U.S. 

headquartered companies. 

Retail is the highest effective taxpaying industry in the United States. Retailers have 

been willing to give up their tax expenditures in exchange for a substantially lower tax rate. 

It would be blatantly unfair to raise the effective tax rate on retailers even more by placing a 

tax on their overseas investments, which cannot be repatriated to the United States 

because they are invested in hard assets overseas. 

Conclusion 

The National Retail Federation strongly supports tax reform that will substantially 

lower the U.S. corporate tax rate, driving investment in the United States, economic growth, 

wages and consumer spending. We urge Congress not to pick off the pieces of tax reform 

and, thereby, create a barrier to achieving that much needed lower tax rate. 
88 


22333A.052

peopleforbikes· .......... .r~~ 

P.O. Box 2359 Boulder, CO 80306 

PeopleforBikes.ori I 303.449.4893 

Statement for the Record By Jenn Dice, Vice President, Business Network, PeopleForBikes 

Hearing on Long-Term Financing of the Highway Trust Fund 

Before the House Committee on Ways and Means 

June 17, 2015 

Chairman Ryan, Ranking Member Levin, and Members of the Committee, thank you for the 

opportunity to provide input on the need to find a long-term solution to financing the Highway 

Trust Fund. 

PeopleForBikes Business Network represents the bicycle industry ranging from retailers to 

suppliers to manufacturers in communities across the country. Bicycling contributes significantly 

to the national, state and local economics. PeopleForBikes Business Network has 1,825 business 

members who depend on very modest federal investments in bike infrastructure to grow their 

businesses. 

Bicycling directly generates $81 billion annually for the United States economy - a figure that 

includes more than $10 billion in state and local tax revenues. More than 750,000 U.S. jobs are 

supported by the bicycling industry. Across Wisconsin, there are 367 bicycle retailers, employing 

1,841 people, with $95 mi llion in annual sales. In Michigan, there are 530 bicycle retailers, 

employing 2,602 people, generating $191 million in annual sales. 

Bicycling means business - and this business depends on a transportation system that not only 

provides safe places to bike but also the efficient shipment of our product to market. For these 

reasons, the U.S. bicycle industry supports a wel l-funded federal transportation program not only 

because it improves bicycle infrastructure, but also because the shipping of our products from 

factory to warehouse to retail point of sale depends on a well-maintained and connected 

transportation system. Close to 18 million bikes are sold in the US every year. 

Communities across the country are realizing the economic development potential that comes from 

an integrated transportation system, where bicycle infrastructure is just one part of their larger 

system to efficiently move goods to market and reduce congestion during the morning and evening 

commute. For example, Indianapolis cites the construction of the eight-mile Cultural Trail with 

attracting at least $100 million in new investment in the city. Continued federal investment in 

bicycle infrastructure is essential to helping more communities capitalize of bicycling to meet their 

transportation chal lenges. 
89 

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I! peopleforbikes· .......... .r~....r 

P.O. Box 2359 Boulder, CO B0306 

PeopleforBikes.org /303.449.4893 

Commuting by bicycle has doubled since 2000, and a new study shows that one in four Americans 

rode a bicycle last year or 103 million people. Also, half the trips Americans take are four miles or 

less. We are seeing a growth in Americans who look to the bicycle for these short trips. For example, 

a trip to the grocery store that is a few miles from their house to pick up a few items. As more of 

these trips are taken by bike, road congestion, air pollution and parking infrastructure needs are all 

reduced. This saves our nation money. 

Finding a long-term funding solution to the Highway Trust Fund is critical to states and 

communities across the country to meet the needs of their transportation system, including the 

construction of good bicycle infrastructure. Without the certainty of a long-term funding solution 

many states and communities wil l hold back on investing in projects due to the lack of certainty 

that they will receive a reimbursement from the federal government for transportation projects that 

have a multiyear construction timeline. 

We look forward to working with the Committee to find a long-term funding solution to the Highway 

Trust Fund that recognizes our integrated transportation system. 
90 


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215 Pennsylvania Avenue, SE • Washington, D.C. 20003 • 202/546-4996 • www.clrlzcn.org 

PUBLICCITIZEN 

June 24, 2015 

United States House of Representatives 

Subcommittee on Select Revenue Measures 

Committee on Ways & Means 

1102 Longworth House Office Building 

Washington, DC 20515 

Via email to: waysandmeans.submissions@mail.house.gov 

Re: funding for infrastructure investments 

Dear Chairman Reichert and Honorable Subcommittee Members, 

On behalf of Public Citizen's more than 400,000 members and supporters, we appreciate the 

opportunity to submit this statement for the record outlining our recommendations for securing longterm funding for transportation and infrastructure funding. 

Public Citizen strongly urges the committee to consider funding options tha t both maximize the benefit 

for taxpayers and that are sustainable over the long term. For these reasons, we recommend that you 

avoid short-term fixes such a repatriation tax holiday for multinational corporations' profits stashed 

overseas and concentrate instead long-term funding sources that would also create an incentive to 

reduce harmful emissions from vehicles such as increasing the gas tax or implementing a tax on carbon. 

It's clear that America has an infrastructure crisis: bridges are crumbling, roads are in desperate need of 

repair and mass transit options are too few and far between. The American Society of Civil Engineers 

2014 " Report Card for America's Infrastructure" estimates that $3.6 trillion in investments are needed 

to modernize and repair U.S. infrastructure. 

The short-t erm funding for the Highway Trust Fund will run out again this summer, and it is encouraging 

that this committee is searching for long-term funding solutions instead of continuing to move from 

patch to patch as has been done in recent past. However, as you weigh your options, it is important to 

not choose solutions that would be a losing proposition for American taxpayers. 
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One such losing proposition is a repatria tion "holiday" for taxes owed on profits listed as being earned 

by foreign subsidiaries of American corporations. Because of the current system of deferral, where taxes 

may be indefinitely put off until profits are repatriated or "brought back" to the u.s. in the form of 

dividends or other shareholder payments, multinational corporations are able to play games with their 

accounting books and transfer profits between entities, usually to companies located in low or no tax 

jurisdictions (or "tax havens.") 

This type of corporate tax haven abuse costs the federal government $90 billion in lost revenue every 

year. In total, more than $2 trillion in profits are booked offshore. It's true that without changes to our 

tax code, those monies will continue to be stashed in offshore accounts. But, it is not a good solution to 

allow corporations to voluntarily repatriate those profits at much lower tax rates than would have 

otherwise been due, using a tactic that is known as a "repatriation holiday." This experiment was tried 

and failed in 2004, and as a country we must learn our lesson and not repeat the same mistake. 

A 2011 Senate report analyzing the tax repatriation holiday in 2004 found that much of the profits that 

multinational corporations were supposedly holding offshore were actually sitting in U.S. bank accounts 

and other assets, undercutting the concept of "bringing the money back." And, the repatriated taxes 

came from a small number of corporations that used the money to pay dividends instead of reinvesting 

in the economy and at the same time ended up cutting their workforces. 

Proposals like the one offered by U.S. Sens. Barbara Boxer (D-Calif.) and Rand Paul (R-Ky.) would allow 

companies to choose to repatriate offshore taxes at the bargain-basement rate of only 6.5 percent, 

slightly more than 1 percent higher than the rate used in the 2004 tax holiday. The Joint Committee on 

Taxation scored the Boxer-Paul bill as costing $118 billion over 10 years. In addition to losing money in 

the long run, as a funding option, a repatriation holiday would only be a one-time source of money that 

would do nothing to fix the long-term funding shortfall for infrastructure investments. Additionally, 

allowing another repatriation holiday would reward corporations that have for years avoided paying 

taxes by using accounting gimmicks to shift profits to the books of related foreign corporations. 

Mandatory "deemed repatriation" proposals, such as the 14 percent rate put forward by President 

Barack Obama in his FY 2016 budget proposal, are still not a good deal for taxpayers. This is because 

corporations are given a break on the tax rate, forcing the U.S. to give up the other 21 percent of taxes 

that could have been assessed if loopholes like deferral were ended and companies were forced to pay 

the full 35 percent statutory rate on offshore profits (after receiving a credit for foreign taxes paid.) 

Research by t he Institute for Policy Studies and the Center for Effective Government in their April 2015 

"Burning our Bridges" report examines the myriad of infrastructure investments that could be made if 

loopholes were closed and offshore profits were taxed at the full statutory rate. 

Though the President's budget proposal was encouraging in that it proposed to require a minimum tax 

on offshore profits of 19 percent moving forward, meaning it could be used for a long-term funding 

source, given the difference between that rate and the normal statutory rate, it would continue t he 

incentive for companies to play accounting games and shift profits to overseas subsidiaries. 
92 

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A better alternative would be to instead fund transportation and other infrastructure investments with 

long-term funding pots that are not only sustainable, but that are tied to the use of highways and would 

incentivize positive behavioral shifts to reduce emissions that contribute to climate change. Examples 

include increasing the gas tax and instituting a carbon tax. 

The gas tax has not been raised for more than two decades and because of inflation, the value of the 

18.4 cent tax continues to fall. The gas tax provides a disincentive for fuel use, and it makes sense to 

raise the tax since it has not been changed since 1993. It should also be tied to inflation in order to 

ensure its value holds steady. 

Another great option for long-term funding for infrastructure investments (among other things) would 

be to implement a tax on carbon dioxide pollution, with a refund given to U.S. consumers on a per 

capita basis as a way to balance out the regressive nature of the tax. Since transportation produces 

around a third of our nation's C02 pollution, which causes climate change, it makes sense to t ie a 

portion of the proceeds from a carbon tax to fund improvements to highways and mass transit. 

Either way, both the gas tax and a carbon tax would be directly tied to the use of our highways and 

provide long-term solutions to funding infrastructure investments, as opposed to a one-time option like 

a corporate tax repatriation holiday. 

Th e American people should not have to settle for a repatriation holiday's discounted tax revenue at the 

expense of further incentivizing activities by multinational corporations that disadvantage responsible 

small business owners and ordinary taxpayers. Instead, the incentive we should be creating is to reduce 

carbon pollution and limit the harmful impacts of climate change. 

Thank you again for the opportunity to submit our thoughts on this important topic. 

Sincerely, 

lisa Gilbert 

Director 

Public Citizen's Congress Watch division 

Tyson Slocum 

Director 

Public Citizen's Energy program 

Susan Harley 

Deputy Director 

Public Citizen's Congress Watch division 
93 


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FOR IMMEDIATE RELEASE: 

JUNE 24, 2015 

MEDIA CONTACT: 

Jim Manley 

jmanley@qga.com 

202-255-3736 

WASHINGTON, D.C.- RATE Coalition Co-Chairs Elaine Kamarck, former White House 

adviser to President Bill Clinton and Vice President AI Gore, and James P. Pinkerton, 

former White House domestic policy adviser to Presidents Ronald Reagan and George 

H.W. Bush, made the following statement in advance of today's Subcommittee on 

Select Revenue Measures hearing on the taxation of the repatriation of foreign earnings 

as a funding mechanism for a multi-year highway bill.: 

We represent the RATE Coalition and we have a simple message about any 

effort to pay for highway funding using repatriation, either deemed or voluntary, 

outside of fundamental corporate tax reform that permanently lowers rates: 

"Don't do it, because it won't work." 

While it might seem like a silver bullet that solves two problems at once --

funding our highways, and allowing U.S.-based multinational companies a 

chance to bring home the money they've parked overseas -- the reality is that 

repatriation does not necessarily infuse the U.S. Treasury with more tax 

revenues. 

Real, comprehensive corporate tax reform that lowers the corporate tax rate to a 

globally competitive 25% or less would boost U.S. GOP by hundreds of billions 

of dollars annually, and create a robust U.S. business environment conducive to 

investment and wage growth. 

Here are three sobering facts about repatriation: 

First, voluntary repatriation does not raise revenue. In fact, the opposite is true; 

voluntary repatriation outside of corporate reform is simply a tax holiday for 

certain American companies. It ends up costing the government tens of billions 
94 

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of dollars, and does nothing to fix the systemic problems businesses face 

because of our broken tax code. For repatriation to actually raise revenue, it 

would have to be forced or "deemed," which would be a tax increase. In this 

case, all companies would face higher taxes even if they did not, or could not, 

repatriate those overseas earnings. 

Second, without changes to the underlying tax code, a voluntary tax holiday is 

nothing more than a pointless vacation. Going forward, there would be no 

incentive for companies to bring overseas income back to the United States 

unless (and until) they have another tax holiday. It sets a terrible precedent, and 

would simply force companies to continue to keep monies overseas - and it's 

the opposite of what can be accomplished through tax reform. 

Third, we have gone down this road before. And it didn't work. In 2004, the 

Congress passed, and the President signed, a repatriation holiday bill, which the 

Senate Permanent Subcommittee on Investigations ("PSI") ultimately found to 

be a "failed tax policy." It cost the Treasury $3.3 billion over ten years, and it 

created no new American jobs. 

And as history is too often an indicator of the future, PSI found that repeating 

such a tax holiday now would cost the Treasury $95 billion over ten years this 

time around. 

The answer to growing the U.S. economy and growing U.S. wages is not 

repatriation, either deemed or voluntary. It is fundamental tax reform 

that lowers America's worldwide corporate rate, and that's what Congress 

should be focused on right now. 

RATE is a coalition of 34 companies and organizations advocating for sensible 

corporate tax reform. Making the tax code fairer and simpler will help spur job growth 

and stimulate the U.S. economy, and make us more competitive globally. RATE 

members currently include: AT&T, A/tria Client Services Inc., Association of American 

Railroads, Babcock & Wilcox, Boeing, Brown Forman, Capital One, Cox Enterprises, 

CVS Caremark, Edison Electric Institute, FedEx, Ford, GAP Inc., General Dynamics, 

Home Depot, Intel, Kraft Foods, Kimberly-Clark, Uberty Media, Lockheed Martin, 

Macy's, National Retail Federation, Nike, Northrup Grumman, Raytheon, Reynolds 

American, Southern Company, Time Warner Cable, T-Mobile, UPS, Verizon, Viacom, 

Walt Disney and Walmart. RATE members and affiliated companies represent over 30 

million employees in all 50 states and support innumerable numbers of suppliers and 

small businesses. 

More information about the coalition is available at www.RATEcoalition.com. 
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Statement of the U.S. Chamber of Commerce 

ON: Using Deemed Repatriation to Pay For Surface 

Transportation Programs, and Other Highway Trust Fund 

Revenue Options 

TO: The U.S. House Ways and Means Subcommittee on 

Select Revenues 

DATE: July 8, 2015 

1615 H Street N\Xf I Washington, DC I 20062 

TI1e Chamlx:r's mission is tO ad\·ance human progress t.hrough an economic, 

political and social system based on individual freedom, 

incentive, initiative, opportunit.y a.nd responsibility. 
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22333A.060

The U.S. Chamber of Commerce (Chamber) believes that transportation infrastructure is 

a core govemment responsibility and the backbone of America's economy. Moving Ahead for 

Progress in the 21st Centwy (MAP-21), the federal law that sets highway, public transportation, 

and highway safety policy, programs, and funding levels, was extended by Congress for two 

months, through July 31 , 2015. At the end of that period, the revenues that are deposited into the 

lederal Highway Trust Fund (HTF) will once again run short of maintaining current funding 

levels, meaning that substantial cuts in federal aid to state and local govermnents are in the 

offmg unless Congress acts to reauthorize MAP-21 and provide additional revenues or offsets to 

liquidate outlays from the HTF. 

The goal of the Chamber, and the Chamber-led Americans for Transportation Mobility 

(ATM) Coalition, is completion of a long-tem1, fi.tlly funded reauthorization before July 31. 

According to recent Congressional Budget Office (CBO) testimony to the House Ways and 

Means and Senate Finance Committees, an additional "$3 billion before the end of fiscal year 

2015 and between $11 billion and $22 billion every year thereafter through 2025"1 would be 

required to support the CBO baseline projections for highway and transit spending. 

It is important to note that baseline investment levels are not sufficient to inlprove the 

conditions and performance of the nation's transportation system; ideally, investment levels 

would be higher.2 According to the American Society of Civil Engineers study titled "Failure to 

Act," at current spending levels nationwide, American households will lose about $1060 per year 

and the economy as a whole will be suppressed by nearly S I trillion by 2020. 

As noted by the Pew Charitable Trusts, "[Federal, state and, local) funding streams are 

not only sizable; they are also deeply intertwined. In general, the federal government does not 

directly invest in transportation infrastructure, but sends ahnost all of its funding to states and 

localities in the fonn of grants. States use federal and state dollars to pay for surface 

transportation and to provide funding to localities- which invest directly, using federal, state, 

and local funds.',; 

The purpose of this statement is to articulate, in detail, the Chamber's position on deemed 

repatriation as a transportation pay for, and to outline out the Chamber's general position on 

revenues to support federal funding levels for roads, bridges, public transportation, and safety. 

As discussions on possible highway funding options continue, repatriation of U.S. 

companies' foreign earnings is frequently mentioned. The Chamber is skeptical of this 

approach. 

1 http:/ / waysandmeans.house.go" / wp-content/ uploads/ 20 15/ 06/ Shuley-T estimony.pdf 

2 See (ulSert info on USOOT C&P cepocl, AASHTO Bottom Line ceport) 

l Pew Charitable Tmsts, "Intergo,·eromental ChaUeoges in Surface Trnnspo.ctatioo flulding." (September 2014). 
97 


22333A.061

Repatriation occurs when a company's foreign profits, usually earned by a controlled 

foreign corporation (CFC}, are returned to the United States usually through a dividend from the 

subsidiary to the U.S. parent company. U.S. tax is then levied on the proceeds net of any tax 

credits. When repatriation occurs at the option of the company, it is said to be "voluntary". That 

is, the company chooses to repatriate. Alternatively, if U.S. taxes are levied on foreign profits 

regardl ess of whether or not the funds are brought back to the U.S. parent company, then the 

company was deprived of its choice and the repatriation is said to be forced or "deemed". 

The distinction between voluntary and deeme.d repatriation is important to both the 

companies and for how the Joint Committee on Taxation (JCT) scores such a policy for revenue 

and budget purposes. Voluntary repatriations are seen by JCT as a net tax cut over tbe budget 

window because profits that would have been repatriated at a later date are brought back 

immediately at a lower tax rate. JCT most recently scored a voluntary repatriation proposal as 

generating a 10-year revenue loss of$118 billion.4 

Conversely, proposals involving forced or deemed repatriations, i.e., where the United 

States would tax overseas earnings whether repatriated or not, generally have been scored as 

raising revenue. For example, in Chainnan Camp's proposed tax reform bill deemed repatriation 

was estimated to raise $170 billion over the 10-year budget window.~ Likewise, the President's 

FY2016 Budget included a forced repatriation proposal estimated to raise $217 billion over 10 

years6 As indicated by the positive score, forced repatriation is a tax increase. Because tbe tax 

increase applies to previously earned profits, it is also effectively a retroactive tax hike. 

ln sum, as a matter of budget accounting one cannot usc voluntary repatriation, a JCTscored tax cut, to "pay-for" other spending programs or other tax cuts. According to the budget 

rules, only mandatory or deemed repatriation raises revenue and can be used to "pay-for" new 

spending or tax cuts. 

Cham bet· Position 

ln the past, the U.S. Chamber generally has supported voluntary repatriation. The 

Chamber position is that whether the repatriated funds are used for increased investment, 

creating jobs, increasing dividends or even stock repurchases, these funds are more of a benefit 

"See Letter frolll TI\ornas Batthold. dated Aptil 30, 2015, scoci.ttg Seoatots Paul and Boxet's "10\ .. est la1 T mnsportation 

Ac::~:y" which would allow companies ro voluntarily bring borne offshore p(ofits at ':t 6.5 pe[cent tax r.ue, as SL 17.9 billion 

revenue loss over d-le 10 yeat scot:Utg wlltdow. 

5 See Joint Committee on Taxation, <'Technical Explanation, Estimated Revenue Effects, Oistcibutiooal Analysis, .And 

Maccoeconoouc Allalrsis OfTI>e T._~ Refonn Act Of2014. A Discussion Draft OfTI1e Chaitman OfTI1e House 

Committee On \Vays And Meaos. To Reform Tile Internal Revenue Code" QCS-1- 14), at'Oiloblt o/ 

https://w\nv,ic::t.go\·/ P-ublications.html?func=startdowo&id=4674. Focme.( Chairman Cllmp's proposalle\"~'ied a ta...~ of 

8.75°/o oo cash ovetSeas aald 3.5% oatllOtt-cash foreign ass.e[s, payable O\'~'tc eight yeatS. 

6 See Jolln Contt'll.itree on Ta.-.:.atioa1, "Estitnated Budget Etlects OfTite Revenue Pro\·isioau Contained Lt Tite 

Pcesideot" s Fisc•l Y cor 2016 B\ldget Pcoposal," 0 C.:-.:-50-15), at"Oilablt a/ 

https://u'\vw.ic:t.gov/ publ.ications.hwU?fu_nc=stattdown&id=·t739. TI1e President's proposal levied a ta.-.:. of 14% Ot\ 

accumubted U.S. corpo~te profits e:unc:d abroad, regardless of wbetbec in ~sh or non·cash holdings, payable ratably 

over 6Ye years. 
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to the companies involved if the companies can allocate their resources with less interference 

from the tax code and the funds are more of a benefit to the U.S. economy when they are home.' 

However, deemed repatriations generally have raised concerns for the Chamber. While 

we understand that deemed repatriation may be part of comprehensive tax reform and are willing 

to evaluate deemed repatriation proposals within that context, we are more skeptical of deemed 

repatriation proposals to use these increased taxes to support new spending. Thus, the Chamber 

will on this basis evaluate variations on repatriation proposals as the variations and their details 

develop. 

S ecific Concerns with Deemed RenatJ·iation and Highwa ' Funding 

Recent discussions suggesting forced or deemed repatriation as a highway funding 

mechanism have raised several areas of concern for the Chamber. For example, using the 

revenue from a deemed repatriation for any purpose other than tax reform, including 

transportation and infrastructure spending, would reduce the pool of funds ava ilable to pay for 

lower tax rates, accelerated cost recovery, or shifting to a more internationally competitive tax 

system as part of revenue-neutral comprehensive refonn. 

Fllrlher, a one-time forced repatriation does not provide an ongoing revenue stream to 

fund an ongoing expenditure such as the highways. Additionally, the Chamber believes that 

infrastructure is a public good which benefits a broad segment of the economy. As such, the 

Chamber finds it inappropriate to fund such a public good with a tax on a select group of 

companies and a select subset of their profits. The long-standing framework for the federal 

highway program is that this public good is broadly enjoyed and should be fmanced by its 

beneficiaries through a user fee. A proposal to fund the system with deemed repatriation further 

erodes this framework by using general tax revenues. 

If Not Re atriation then What? 

There are three ways to address the problem of the revenue-expenditure differential, and 

this solution set for HTF revenues has not changed for several years. The Chamber has testified 

to these approaches numerous times, and CBO testimony is consistent with the Chamber's 

assessment that there are three general options in front of Congress: 

I. Cll/ ow lays to the amount thai current revenue sources can support. 

This approach would result in 20-25% cuts in highway programs and 43-49% cuts in 

transit programs between 20 16 and 2020.8 A similar approach would be to decrease 

federal investment levels even further and eliminate Internal Revenue Service collection 

7 Io. 2011, the Chambet co1nmissiooed Douglas Holtz-Eakin to UJl:dertake a study of the benefits of such repatriations. 

See Douglas Holtz-Eakin, ~~nle Need for Pro-Growdt Corporate Tax Refonn: Repatriation atl:d Od1er Steps to Erthaoce 

Short- •nd Long-Term Econoouc Growth" (A\lg. 201t). 

8 Eno Cetlt'et for Ttatlsporration Analysis of CBO Baseline . .hll~s: //www.enolmi\S.orgh£p_;: 

eontent/ ul1loads/ 2015/ 06/ How-.l\l\lch-in-8:Ulo\lts•Wo\lld.Still-Be-Needed-ll: New-HTF-Obs-Were-C•pped·•t·Ta.'-

Receipt·l<:'·ds.pdf Q\loe 15, 2015). 
99 


22333A.063

of excise taxes on fuels and other sources of HTF revenue.9 The Chamber is strongly 

opposed to both of these approaches, 10 and is pleased that Congress bas rejected, 

repeatedly, efiorts to make drastic cuts in federal investment on public transportation, 

roads and bridges. 

2. Continue using general fimd resources to supplement currenr user fees and 

suppo1·t highway, transit, and safety investments. 

This option includes any solutions that do not involve increasing user fee revenues or 

dedicate new ongoing transportation-related revenue streams: tax compliance measures; 

spending cuts; usc of one-time offsets such as pension smoothing; and, general tax 

increases- including proposals that tie tax repatriation to paying for transportation. The 

Chamber determines support for using general fund resources on a case-by-case basis; 

however, continuing general fund transfers and other temporary fixes that employ general 

funds are. not permanent solutions for HTF solvency. This approach weakens the longtime framework of transportation programs: the user-pay approach at the federal level 

that enables contract authority and long-tenn authoriz ation bills. 

3. Identify new or increase existing dedicated, transpol'lation-related revenues. 

This is the Chamber's preferred option and has been for several years. The Chamber's 

criteria for these revenue sources are described in detail in the next section of this 

statement. 

Five C1·itel'ia to Assess Revenue Sources 

The Chamber evaluates revenue sources along five criteria. A " five-star revenue source" 

will have a yes answer to each of the following questions: 

I. Is the revenue source transportation-related? 

Multi-year transportation bills are important for certainty in long-tem1 capital planning 

and project construction. The availability of contract authority, which historically was 

tied to user-fee (transportation-related) revenue 11 enabled passage of long-term highway 

and transit bills. As described by the Congressional Research Service, "The Federal-Aid 

9 Tite Fedetal High''"'ay Trust Flmd recei,·es revenues from excise ta.~es on major aod special motor fue s~ a.lld noo-fue.ls 

taxes on he:wy highway vehicles. Sec Joint Committee on T~ ~tio , "Present U w ~nd BackgtO\tnd Informacior\ on 

Fe<leta! Excise Taxes." (Jon. 201 t). 10 TI1e Chamber"s opposition to devolution of federal programs, eithec through cuts to current revenue sources or 

intentional devolution as is proposed i.o the :rran. ti .Jl...limpo t_.Q_ct introduced by Repccscntative OeSa.ntis 

and Senatoc Lee has been explaitled in tlumerous statemetus. including teceot testitll OtlY to the Senate Committee Otl 

Commerce, Science, ~nd Tr:mspomtion on May 5, 2015. See 

http:/_b.,. .oomm c~ e.g :d pttblic;L?a= File•.S< rve& =703(e 16b-54d4-4ef4-bd0f·820d94<!7d6o4. 

II Section 40( o f'TI1e Congressional Budget Act of 1974 prohibire<l Congress from bringing up legislation dm create<l 

.. new backdoor spcnding- lnc.luding contntct a\tthority- uole.ss grandfathercd into the Soclal Security o.r Medicare Trust 

Fu.llds ot UJUess the money is M wn 'frotn aJty other trust uttd~ 90 percent or mote of the receipts of which" e derived 

&om .. t.a};es related to the pucposcs foe wh.ich outlays ~remade." See "Highway TntSt Fund 101," page 12, by the Eno 

Center forT ransportation, Qune 2015). 
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Highway Program, unlike most other federal programs, does not rely on appropriated 

budget authority. Instead, the Federal Highway Administration exercises contract 

authority over monies in the HTF and may obligate (promise to pay) funds for projects 

funded with contract authority prior to an appropriation. This approach shelters highw~ 

construction projects from a1mual decisions about apprQpriations (emphasis added). "

12 

2. Are the revenues ongoing, rather rhan one-time? 

One-time money is a Band-Aid, rather than a solution. This is the approach to short-term 

HTF solvency used by Congress since 2009 and does not address the HTF's structural 

problems in the long term. 

3. Are the revenues sources structured to be sustainable and growing? 

The United States needs to not only meet today's demands on the national transportation 

network, but also the increasing demands projected to strain the network in the coming 

years. 13 

4. Are the revenue sources- alone or in combination-adequate forfullfunding or, 

at a minimum, able to maintainfimding levels? 

Nearly $100 billion over the next six years is required just to maintain current services 

funding levels. 

14 Current services will not reduce the backlog of maintenance and 

construction needed to improve the condition and performance of transportation systems, 

anticipate demographic changes, and accommodate and spur economic growth. ln 

reauthorizing MAP-21 and paying for the programs, Congress should aim for "full 

funding," meaning what is required of the federal government to assist state and local 

entities in bringing a seriously outdated network of highways, bridges and transit systems 

up to par- and keep it that way- so future generations can rely upon the network. 

5. Can the federal government collect the revenues? 

There are some options, like sales taxes and value capture, which are viable at a state or 

local level but that the federal govenunent cannot use. There are other revenue sources, 

such as tolls, that are collected by state or local entities, not by the federal govenunent, 

and will not assist with Highway Trust Fund solvency.15 

12 Coa1gressional Reseatch Sen-ice, uFedetal-aid Highw•ay Program: In Brief," 

https://www.fas.otg/s!ll!/ cn/ misc/ R42793.J>Qf, (Decembc< 16, 2013). 13 Nun\etou.s sources provide both qualitati,•e and qu3J.ltitati,·e evidence for this f'act, iodudi.t1g d1e Arnet.ican Socie ty of 

Civil EngU1eecs, uAud1oriz-atioo for the Nation's Sutface T raospottation Funding Progtam: A Blueprint for Success," the 

U.S. Oepactment ofT ransportation, "Conditions and PedOrrn:mce Report," and the Pew Cha.(ittble T ntsts, 

'1.,uetgo't"etJlt11etltal Challenges is1 Surface Transportation Fwtdi.ng.'' 

1

4 See Coogres.sional Budget Office March 2015 Basd.ine estitnates, 

https://ww\\·.cbo.gov I sites/ def.ult/ C.Ies/ cboiiks/ atmchments/ 43884-20 l 5·03-HighwayT n>•tFund.eill. 

l!.TI1e National SUff~ce Tmn.sportatioo Infrastructure Fitlanci.ng Commission cotldueted a dtorough review of 

transport.., bon revenue options d\triog its e..Ustence. Its ftnal report issued in Febma_cy 2009 detailed the difterences 

among fedeo.l. srnte, and local revenue so\lrces. See htte://tinancecommission.dotgov/ . 
101 


22333A.065

The Chamber's Prefet·red Revenue 0 tion 

The Chamber is strongly supportive of modestly increasing gasoline and diesel taxes and 

indexing them to inflation, and finding new federally-collectable, stable, growing, ongoing, 

transportation-related, substantial revenue streams. Based on these criteria, the Chamber supports 

raising and iJJdexing gasoline and diesel taxes knowiJlg that eventually these sources need to be 

replaced. At present, the gas tax is a simple, elegant revenue source that is and cost-effective to 

administer and maintains the tie between transportation infrastructure investment and 

transportation system use. Its problems are years of neglect (last raised in 1993), its cents per 

gallon structure, and its political unpopularity. 

Adding a penny a month for a year and indexing the total user fee to inflation could 

support current services funding levels for the foreseeable fulllre. The collection system itself is 

highly efficient: the owner of the fuel at the time it breaks bulk from the terminal rack pays the 

excise tax to the internal Revenue Service. According to the American Petroleum Institute, there 

are about 1300 terminals in the country, translating to a low number of payers and low cost of 

administration. The gas tax, if adjusted in amount and indexed, receives five stars as a revenue 

source. 

In the long nm, other revenue sources will be required. The vehicle fleet is becoming 

more fuel-efficient. Driving patterns are changing. Construction costs typically grow faster than 

the Consumer Price Index. And multi-modal transportation investment calls for more diversified 

sources of revenue. 

Cutting Costs, Leverage the Private ScctOJ·: Necessary, but Not Solutions 

In addition to addressing revenues, Congress must also look to issues of the appropriate 

federal role, cost reduction, and leveraging in order to ensure every federal dollar is used as 

effectively as possible. 

In tenus of policy and federal role, the current scope of eligible expendilllres could be 

narrowed somewhat, but MAP-21 included substantial policy and program refom1s comprised of 

program consolidation and elimination of most non-transportation expenditures. Some savings 

could be identified on the margin by shifting administrative expenses out of the HTF. The 

Chamber is strongly opposed to removing public transportation from the HTF.

16 

Moving Ahead for Progress in the 21'' Cent111y addressed many of the poijcy priorities 

that the Chamber identified for federal surface transportation program reform. The Chamber 

asked for transportation policies that cut through red tape at all levels of government so that 

projects move forward quickly. MAP-2 1 delivered with significant streamlining of 

environmental processes-much of which are still being implemented. Businesses wanted to see 

16 A deta1Jed case for federal investment in public: trnnsportacion Sltpportc:d by the Highway T n.tst f\tnd c:an be found in 

the Chamber's testimotlY to the Seoate Bank.i.og Comn'linee. See 

http://\\·w·w.banking.senatc.goy / P-!tblie/ index.cfm?Fuse.Act.ion=Hearings.T c:stimon~ea ing 10=25741 dOa.cc I ~ 

4767-ac28·]0.3b75340b6..'\:\V.tm.-., !O=tl'224966 a9ef.4a92-b70d-St4U5S796oc. 
102 

Æ 


22333A.066