[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]






 
                    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
         
         
         
         
         
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                      COMMITTEE ON WAYS AND MEANS

                     PAUL RYAN, Wisconsin, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
DEVIN NUNES, California              JIM MCDERMOTT, Washington
PATRICK J. TIBERI, Ohio              JOHN LEWIS, Georgia
DAVID G. REICHERT, Washington        RICHARD E. NEAL, Massachusetts
CHARLES W. BOUSTANY, JR., Louisiana  XAVIER BECERRA, California
PETER J. ROSKAM, Illinois            LLOYD DOGGETT, Texas
TOM PRICE, Georgia                   MIKE THOMPSON, California
VERN BUCHANAN, Florida               JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska               EARL BLUMENAUER, Oregon
LYNN JENKINS, Kansas                 RON KIND, Wisconsin
ERIK PAULSEN, Minnesota              BILL PASCRELL, JR., New Jersey
KENNY MARCHANT, Texas                JOSEPH CROWLEY, New York
DIANE BLACK, Tennessee               DANNY DAVIS, Illinois
TOM REED, New York                   LINDA SANCHEZ, California
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

                       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              RICHARD E. NEAL, Massachusetts
ERIK PAULSEN, Minnesota              JOHN B. LARSON, Connecticut
TOM REED, New York                   LINDA SANCHEZ, California
TODD YOUNG, Indiana                  MIKE THOMPSON, California
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio


                            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


                    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:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                                CONTACT: (202) 225-3625
FOR IMMEDIATE RELEASE
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:

      
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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:

      
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    Note: All Committee advisories and news releases are available 
online at 
http://www.waysandmeans.house.gov/.

                                 

    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.
    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.
    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 stand-alone 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.
    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:]
    
    
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    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.
    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:]
    
    
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    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, so-called 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 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:]
    
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    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 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:]
    
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    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 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 
approximately $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.
    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, insurance, 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 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.
    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 
discussion 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 Congress 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 benefit. 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 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 
foreign-source 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.
    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 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 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.
    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 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.
    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, 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 stand-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.
    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 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, 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.
    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.
    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?''
    ``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.
    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:]
    
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