Obama Highway Plan Would Tax Businesses’ Overseas Earnings

Published February 19, 2015

President Barack Obama’s budget, released in February, includes a six-year plan to spend $478 billion on highway infrastructure, or roughly $1,699,519 each year per mile of the nation’s 46,876 mile-long Interstate Highway System.

The president’s transportation spending proposal would be funded by a 14 percent tax on corporations’ earnings in other countries, retroactively applied to money held by subsidiaries, and a proposed 19 percent tax on future profits.

Currently, corporations pay a 35 percent tax on income earned in other countries, if those profits are sent home to the parent company in the United States. Profits held in other countries by corporations’ international subsidiaries are not currently taxed.

Wrong Direction

Cato Institute Director of Tax Policy Studies Chris Edwards says the president’s proposal represents a step in the wrong direction.

“The dominant view of corporate tax experts is that the United States should follow the lead of other major nations by slashing our tax rate and adopting a territorial system that does not tax active foreign business income,” Edwards said.

“Although it’s not true that what’s good for General Motors is necessarily good for the United States, in this case, slashing our tax rate to, say, 15 percent and adopting a territorial system would be a big win for American businesses and American workers,” he said.

Trust-Fund Bailout

Taxing overseas profits to fund road construction will have negative consequences for the quality of American highways, says Reason Foundation Transportation Policy Analyst Baruch Feigenbaum. 

“Using repatriation for the [Highway] Trust Fund seems like a bailout. That will weaken the users-pay principle, leading to more bailouts in the future,” he said.

Instead of spending hundreds of billions of dollars on surface transportation spending, Feigenbaum says reforming the way the government funds highway spending would be a better option.

“The federal transportation budget should support only nationally relevant infrastructure. Aviation, ports, inland waterways, freight rail, and passenger rail where it is economically viable, are also nationally relevant, but shouldn’t be funded out of the surface transportation budget,” he said.

Cutting Fluff and Waste

“I would say approximately 65 percent of federal highway spending is for national highway needs, while 35 percent of the budget is for funding lesser roadways, transit, bicycling, or walking, and other fluff,” Feigenbaum added. “About 20 percent of the total funding supports transit. This leaves about 15 percent of the total budget as pure waste, ranging from recreational trails to weed removal to designing historic byways.”

Feigenbaum says phasing out federal gas taxes, in favor of use fees, would establish a fairer and more stable source of highway funding.

“Mileage-based user fees are the purest road fees, making them the best funding source because they charge travelers an exact price for how far they travel,” he said.

Matt Hurley ([email protected]) writes from Cincinnati, Ohio.