Paying for Highway repairs

Congress Could Have Paid for the Highway Bill with Taxes Owed, but it Didn't

By John O'Neill 

Congress has scrounged to pay for a highway bill that benefits all Americans, yet it wouldn't take steps to collect $90 billion a year in unpaid taxes -- money that some of our largest companies owe but avoid paying each year, by shifting income to offshore tax havens.

That makes no sense. Congress should take steps to collect that $90 billion and it could have used it to pay for the highway bill. It didn't take those steps, and instead is about to make things worse with the passage of a bill to extend temporary tax breaks.

Like Main Street businesses, the corporations that owe that $90 billion use our roads and bridges. They just don't pay their share of the costs. But other businesses do, and it's not fair to them to let our infrastructure decay while some corporations use special tax loopholes to avoid their taxes.

We've needed to pass a highway bill with a reliable funding source. The simplest answer would have been to adjust the gas tax for inflation. That hasn't happened since 1993, when the tax was created. 

Since then, inflation has driven up the cost of transportation projects by 30 percent. The case for an adjustment seems obvious, but critics call it a burdensome tax increase.

So why won't Congress use that $90 billion to pay for a highway bill? It wouldn't be a tax increase, it would be reliable, and it would cover the full cost of a highway bill. By contrast, what Congress has stitched together for a five-year highway bill -- a full year less than the six years it wanted -- is in no way a fix for the long-term gas tax shortfall.

Unfortunately it's no surprise that Congress didn't use that $90 billion to pay for the highway bill.

Even worse, Congress wants to pass a tax extenders bill that supports that very tax avoidance -- by extending two of the key tax rules that companies use to move income offshore.

These rules are the Active Financing Exception and the Controlled Foreign Corporation Look-Through Rule. Extending them for two years will cost $16.2 billion ($13.5 billion and $2.7 billion respectively), under the extenders bill approved by the Senate Finance Committee.

That $16.2 billion would be enough to cover a full year of the Highway Trust Fund shortfall.

Moreover, Congress is considering making the Active Financing Exception permanent. That would cost $78 billion under the bill the House Ways and Means Committee approved on September 17. That amount would almost cover a six-year shortfall in the trust fund.

The Active Financing Exception has had a long life. It was killed by the Tax Reform Act of 1986, reinstated on a temporary basis in 1997, and extended repeatedly ever since. At one point, President Clinton tried (and failed) to kill it with a line-item veto.

Congress should kill it once and for all, along with the Controlled Foreign Corporation Look-through Rule. If Congress closed these tax loopholes, companies would find it much harder to shift income offshore. They'd have to pay a lot of that $90 billion -- and all other taxpayers, including businesses, would benefit.

Small business owners know this tax avoidance is unfair: 76 percent of them want limits imposed on the shifting of profit offshore, according to national polling. And, believing that such activities are un-American, many are signing a pledge called, Proud to Be an American Business, which is sponsored by the American Sustainable Business Council and the Main Street Alliance.

Every American business has a responsibility to pay its full share of the cost of the country's infrastructure. Most Main Street businesses do. These larger businesses should as well. By ending these two tax loopholes, Congress would take steps towards collecting that $90 billion and towards paying the full costs future highway bills.

O'Neill is the tax analyst at the American Sustainable Business Council.