    [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.

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        Please Note: Any person(s) and/or organization(s) wishing to submit
    written comments for the hearing record must follow the appropriate
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    which you would like to make a submission, and click on the link
    entitled, ``Click here to provide a submission for the record.'' Once
    you have followed the online instructions, submit all requested
    information. ATTACH your submission as a Word document, in compliance
    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:

        The Committee relies on electronic submissions for printing the
    official hearing record. As always, submissions will be included in the
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    must conform to the guidelines listed below. Any submission not in
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    maintained in the Committee files for review and use by the Committee.

        1. All submissions and supplementary materials must be submitted in
    a single document via email, provided in Word format and must not
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    the Committee relies on electronic submissions for printing the
    official hearing record.

        2. All submissions must include a list of all clients, persons and/
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    identifiable information in the attached submission.

        3. Failure to follow the formatting requirements may result in the
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        The Committee seeks to make its facilities accessible to persons
    with disabilities. If you are in need of special accommodations, please
    call 202-225-1721 or 202-226-3411 TDD/TTY in advance of the event (four
    business days notice is requested). Questions with regard to special
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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:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        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:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        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:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        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:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        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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