Chances for International Tax Reform Tied to Highway Funding

In their last major action on tax issues before the recess, both chambers approved and sent to President Obama the Surface Transportation and Veterans Health Care Choice Improvement Act, which extends Highway Trust Fund spending authority through October 29 and is offset in part by several noncontroversial taxpayer compliance provisions. President Obama signed the measure into law on July 31. This action will now push the debate over a long-term highway bill. Leading the debate is House Ways and Means Committee Chairman Paul Ryan, R-Wis., who has called for an international tax reform package to include:

  • A deemed repatriation levy on previously untaxed foreign-source income of US multinationals;
  • A shift to a territorial-style tax system (from the current worldwide rules);
  • An innovation box – likely modeled on the discussion draft proposal released by House taxwriters Charles Boustany, R-La., and Richard Neal, D-Mass., on July 29 – that would provide a lower tax rate on certain income generated by patents and certain other intellectual property; and
  • Various base erosion safeguards and other revenue raising provisions.

While Ryan’s approach appears to have the backing of House Republican leaders, other key lawmakers, notably including Senate Majority Leader Mitch McConnell, R-Ky., prefer to defer any discussion of tax reform until after President Obama leaves office. McConnell told reporters August 6 that, in his view, international reform is on “a totally separate track unrelated to the highway issue.” Whether Congress and the White House can resolve the complicated, politically fraught debate before the spending authority for the highway fund expires once more remains to be seen.

Lawmakers also need to address the so-called “tax extenders” – the dozens of temporary tax provisions that most recently lapsed at the end of 2014. But, as with highway funding, the House and Senate are on different pages on this issue. The Senate Finance Committee in July approved and sent to the full Senate legislation that would retroactively extend nearly all of the provisions through 2016. Majority Leader McConnell has not yet indicated when that legislation will be brought to the Senate floor for a vote, although he has stated that he wants to avoid a repeat of last year’s extenders process in which action was delayed until the closing days of the legislative session.

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