by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The latest issue of Forbes magazine features Steve Forbes‘ critical assessment of the latest ideas for funding federal highway projects.
UH-OH! Washington is coming down with another tax-and-spend fever. The cause this time is an old-timer: highway spending. The prospect of ladling out more money for roads even has many Republicans acting like dogs in heat.
The Highway Trust Fund–from which come most of the outlays for our transportation programs–is broke. The fund is 90% financed by federal gasoline and diesel taxes, now 18.4 cents and 24.4 cents per gallon, respectively, and the revenue generated isn’t enough to cover the existing projects.
What to do? In Washington the answer is almost always more taxes. Earlier this year our political class was seized with the idea of boosting the gasoline tax. After all, the price of oil had plunged and with it the cost of fuel at the pump. Under such wonderful circumstances motorists would hardly notice a hike in the gas levy. Grassroots outrage quickly put the kibosh on that idea.
Now Washington politicians are salivating at another source of manna: how our multinational firms are taxed. The U.S. is one of the few countries that taxes the profits its businesses earn overseas. Our multinational companies pay tax not only to a foreign government but also to Uncle Sam, when they repatriate those earnings. No wonder U.S.-based companies have some $2 trillion in cash parked abroad.
Levying a one-time tax on those profits sitting offshore to shore up the Highway Trust Fund has widespread support. However, this maneuver may well become part of a broader overhaul. For instance, one idea is to have a permanent tax on overseas earnings, whether they’re brought home or not. The rate, though, would be far lower than the current 35% levied on domestic and repatriated profits.
Nevertheless, the bottom line here is inescapable: The result of all this would be a net tax increase.
Any substantive change in business taxes should wait until Obama leaves office, when such an effort would be part of a comprehensive overhaul of the federal income tax code or its elimination altogether to institute a flat tax.