Congress is finally giving due attention to task of forging a surface transportation authorization bill, but is still stymied on how to pay for it. Rushing into that vacuum is at least one good idea – but also a host of bad ones. Unless progressives amp up the pressure over the next few weeks, we’re highly likely to end up with a bill that not only doesn’t meet all of our needs but covers its cost in horrendous ways.
The latest wrinkle comes from Senate Majority Leader Mitch McConnell, whose role in this debate is proving to be a mixture of potentially good and demonstrably bad.
McConnell has been agitating for a long-term bill – important because the string of patches that last anywhere from a few weeks to two years at the most does not allow states and municipalities to plan big, multiyear projects with the knowledge that the federal support they need will be there. On Thursday, he was quoted as saying that he was pushing for a Senate procedural vote Tuesday on “a long-term, maybe a six-year highway reauthorization bill.”
He has also been hostile to a corporate tax plan that would give multinationals a break on profits that they have stashed overseas to avoid taxation, variations of which have been proposed by the Obama administration, Rep. John Delaney (D-Md.), and Sens. Charles Schumer, Barbara Boxer (D-Calif.) and Rand Paul (R-Ky.). McConnell’s motives are certainly not the same as those of the progressive groups that have lined up against this tax break for tax evaders, but nonetheless his role as a roadblock to this tax plan is important and can be used as a positive.
But the emerging plan about to get McConnell’s blessing proposes to pay a portion of the cost of road and transit funding by once again going after federal government retirees, taking $30 billion out of their retirement fund.
Sen. Orrin Hatch (R-Utah), chairman of the Senate Finance Committee, proposed the idea, and was quoted as calling it “ingenious.” He went on to say, “The Democrats are insisting on payfors, and that’s a really good payfor.”
The cut would come in the form of a reduction in the interest rate beneficiaries receive on what they deposit into the Thrift Savings Plan. In a letter to members of the Senate, the president of the National Active and Retired Federal Employees Association, Richard Thissen, wrote that the change would have the effect of “rendering the fund more than worthless, as returns wouldn’t even keep up with inflation.”
A similar move to lower Social Security payments to pay for another federal program would be unthinkable – or would it? Thissen raises the question, while reminding senators that the fund was designed similarly to the Social Security trust fund. “The decision was made more than a quarter-century ago to keep the [Thrift Savings Plan] off-budget and out of the hands of those who would use it as a piggy bank to pay for unrelated expenditures, or to reduce the federal deficit,” he wrote.
Meanwhile, a group of House Democrats introduced a bill that embraces the Obama’s funding commitment for transportation – $478 billion over six years – while focusing on a crackdown on a specific corporate tax evasion scheme to cover a portion of the cost.
That legislation, whose sponsors include Reps. Chris Van Hollen (D-Md.) and Rep. Peter DeFazio (D-Ore.), would more tightly restrict corporate inversions – the process by which a U.S.-based corporation merges with an overseas corporation in order to claim the tax identity of that corporation, without otherwise fundamentally changing the ownership structure of the parent corporation. That tactic has already been used dozens of times in the past decade, most recently by Burger King in its merger with Canada-based Tim Horton’s. That one transaction alone is expected to cost up to $1.4 billion in lost taxes over the next four years.
Tightening the rules so that mergers with overseas companies constitute actual changes of ownership and are not just elaborate ruses to avoid U.S. taxes would bring in about $41 billion, or about one-third of what Congress would have to come up with to close the gap between the spending the bill authorizes and what the government would raise through the federal gasoline tax, which is dedicated to highways and public transportation.
“The new plan put forward by House leaders is not sustainable and is not a long-term solution,” said John Olivieri, the national campaign director for transportation at the U.S. Public Interest Research Group. Nonetheless, “the House plan is still preferable over proposals to generate funding through discounted repatriation of offshore profits for which U.S. companies have deferred paying taxes. Corporate tax discounts are even more detrimental than just another budget gimmick. They actually cause the budget to lose money, while eroding the integrity of our tax system and unjustly rewarding corporations that have most aggressively exploited offshore tax havens.”
The ideal would be that House and Senate Democrats, along with a few sensible Republicans, would come together on a long-range – meaning five years or more – plan that might include a modest increase in the gasoline tax, which hasn’t kept up with inflation since it was last increased in 1993; an inversion crackdown; and other measures that would shut down corporate tax avoidance tactics, including requiring corporations to pay the taxes they owe on those profits stashed overseas. But there’s not much of a sign of that happening yet, and time is running out. We all have a stake in transportation policy and tax policy done right. It’s time to step up the pressure.