Hatch Pours More Cold Water on Global Tax Overhaul

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Feb. 10 — Advocates for revising U.S. tax laws on international income this year continue to get pushback from Senate Finance Committee Chairman Orrin G. Hatch (R-Utah).

Congress doesn't have enough time to finish such an ambitious task, he said during a hearing on President Barack Obama's budget proposal for fiscal year 2017. As an alternative to slowing the pace of tax-driven corporate relocations, called inversions, Hatch pitched his own plan to end double taxation on corporations, known as “corporate integration.”

Still in development, Hatch's corporate integration proposal is awaiting a score from the Joint Committee on Taxation. It could involve dividend deductions (18 DTR G-6, 1/28/16).

“I'm actually working on international, but I just don't think it's going to get done this year, because, you know, let's face it, the Democrats are going to want to raise revenue,” Hatch told reporters after the hearing. “They want money to spend.”

Infrastructure Needs

Treasury Secretary Jacob J. Lew testified that U.S. infrastructure needs should benefit from funds that would arise from international tax proposals in the budget plan, including a 19 percent minimum tax on U.S. companies' earnings from abroad, and a one-time, 14 percent repatriation tax on overseas-accumulated earnings still sitting offshore (27 DTR G-9, 2/10/16).

Revenue from the minimum tax provision would total $350.4 billion from fiscal 2017-2026, according to Treasury estimates, and the repatriation tax would raise $299.4 billion over the same 10-year budget period. Lew said such money, along with revenue from a proposed tax on oil barrels also included in Obama's final budget plan, could fund the out-years of the five-year highway bill enacted last year that only included three years of funding, and more.

Schumer: Shot Across Bow

Both the minimum tax and repatriation revenue projections exceed previous forecasts largely because more profits have built up or been shifted abroad since the last official estimate, Lew said, which international tax overhaul advocates on Hatch's panel underscored.

“That increase in revenues also means lost jobs lost here, and it should be a warning signal, a shot across the bow, to us,” Sen. Charles E. Schumer (D-N.Y.) said during the hearing.

Schumer, who supports using international tax revenue for U.S. infrastructure, said he would continue to work across the aisle on international taxes this year as he did last year, principally with Sen. Rob Portman (R-Ohio) and House Speaker Paul D. Ryan (R-Wis.), who then chaired the House Ways and Means Committee. Later in the hearing, Portman said he is among the few on the committee who still believe an international tax agreement can come together this year, a sentiment later backed by Sen. Dean Heller (R-Nev.).

Lew encouraged them all to keep the flicker of hope alive.

“We continue to believe that working together to get business tax reform done is absolutely a high priority,” Lew said. “We got closer last year than people outside thought. There were very good conversations going on. There was a pretty broad sense of where there might be an agreement on international business tax reform in a way where we use the one-time revenues to pay for infrastructure that we all want to be able to support and not build future liabilities into the tax system that are unsustainable due to cost.”

Corporate Integration

Across the Capitol, Ways and Means Committee Chairman Kevin Brady (R-Texas) has remained steadfastly opposed to applying any revenue from reshaping international taxes to infrastructure spending.

He instead supports using such funds to lower tax rates, for example, as a way to make the U.S. more competitive from a business perspective.

Brady said the House and Senate committee staffs are meeting about the issue.

“I want to learn more, our committee wants to learn more,” he told Bloomberg BNA. “We ought to be exploring every idea on how we make the code simpler and more competitive.”

Hatch invited Lew to learn more about his forthcoming corporate integration proposal, too, given his expectation that transforming international taxes won't happen fast enough to slow inversions.

“Mr. Secretary, with regard to inversions, I doubt seriously that you're going to be able to get through before the end of the year the territorial recovery of monies for many reasons, some of which are political, some of which are just time concerns, and some of which has come from being difficult to get both sides together,” Hatch said during the hearing.

Lew said he hasn't yet seen Hatch's plan, but said he hopes the two “can talk about whether the anti-inversion provisions and the earning-stripping provisions might be do-able even if we can't do all of business tax reform.”

To contact the reporter on this story: Aaron E. Lorenzo in Washington at aaron@bna.com
To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com