When you picture an “offshore holiday,” you might think of white sand beaches, gentle breezes, turquoise waves, and rum-based drinks served in coconut shells.
However, when Congress conjures up an “offshore holiday,” it looks a little more like a $96 billion tax break for multinational corporations that deliberately keep their earnings overseas.
Sens. Harry Reid (D-Nev.) and Rand Paul (R-Ky.) are currently floating a $96 billion offshore tax holiday as part of a bizarre last-ditch attempt to cover a looming government shortfall. Without an influx of cash, the Highway Trust Fund, which finances federal road and infrastructure repairs, will drop below its “prudent balance” on July 18, and go bankrupt by September, causing repair and construction projects to be canceled nationwide. Here’s how the New York Times describes it:
Companies would be allowed to deduct 85 percent of the money their parent corporations in the United States receive from foreign subsidiaries, a move that would bring the Treasury between $20 billion and $30 billion in the next two years, while flooding the domestic economy with hundreds of billions of dollars otherwise trapped abroad.
It’s clear that we need to fund and fix roads and bridges across the country, and we certainly shouldn’t let the Highway Trust Fund falter. However, giving a pass to the very companies that count tax avoidance as part of their business model might not be the best way to fund the federal government.
We’ve been here before. In 2004, a similar tax holiday put forth by the Bush administration temporarily lowered corporate taxes from 35% to a meager 5.25%. While that move encouraged more than 800 companies to bring home over $300 billion in income, those same tax-avoiding companies — shockingly — used the money to manipulate their financial statements, give executives raises, and pay dividends to their investors, rather than creating a single job or making good on taxes owed.
Repeating the experiment is only going to teach major corporations that they can safely hide funds overseas for years at a time, until the government forgets the same stupid lesson and ends up in a pinch. And for all that trouble, The current Reid-Paul proposal is hardly a long-term solution — or a solution at all. It would bring in a mere $19 billion over two years, a figure that hardly offsets its $96 billion hit to the federal deficit.
Perhaps, instead of piddling around with offshore tax schemes, or threatening to cut mail delivery, or finding some other questionable stopgap measure that has absolutely nothing to do with driving, we could fund the Highway Trust Fund the way we used to: by having an effective gasoline tax.
Thanks to cowardice on the part of Congress, the gasoline tax hasn’t been raised for an astonishing 21 years. Taking into account the inflation that’s occurred since 1993, the effective tax rate has dropped from 17% to 5%. The resulting loss in revenue is a big part of why the Senate is frantically fumbling through its pockets for transportation funding, even as it pulls up to the toll booth.
Would adjusting fuel taxes be popular? Hell no. But it would be a truly long-term solution. And if our best alternative involves bribing giant corporations that keep their profits in the Cayman Islands (and encouraging others to do the same) at the cost of tens of billions of dollars, it seems like we might not have that much to lose.