By John D. McKinnon
WASHINGTON--Fresh off their victory on trade legislation,
President Barack Obama and the Republican Congress in the coming
weeks will face another test of their ability to work together on
an issue important to business: highway funding.
Early indications are that the fight will prove at least as
difficult as just-completed trade legislation tussle, where
Republicans joined forces with Mr. Obama to overcome Democrats'
objections.
This time, the debate is complicated by the issue of taxes, as
some House Republicans led by Ways and Means Chairman Paul Ryan
(R., Wis.) are weighing the possibility of teaming up with Mr.
Obama and Senate Democrats, including Charles Schumer of New York,
to use corporate tax changes to help pay for an infrastructure
package.
Messrs. Ryan and Schumer are expected this week to step up their
efforts to build bipartisan support for a deal combining a tax
overhaul with highway funding. But the idea faces significant
hurdles.
Other Republicans, particularly in the Senate, are cautious
about the plan, say aides and others familiar with their thinking.
In particular, they are concerned that a tax overhaul benefiting
big U.S. multinational corporations might open some of their
vulnerable incumbents to populist attack by Democratic opponents
next year.
"The politics are difficult. It'll be hard for some members to
explain why they are doing tax legislation benefiting multinational
businesses and not local businesses and local individuals," said
Jon Traub, a former GOP congressional aide who's now at Deloitte
Tax LLP. However, he thinks there is a strong chance lawmakers will
attempt such legislation because the alternatives are even more
difficult.
Even big businesses are divided over the idea, with many
concerned it could sap momentum for an eventual broader tax
overhaul.
"I think [a tax overhaul] for roads is a lot harder than it
looks," former Ways and Means Chairman Dave Camp, a Michigan
Republican who now works for accounting firm PwC, said on
Thursday.
Among ideas being floated is a partial tax overhaul that would
change U.S. rules that discourage American multinationals from
bringing home foreign profits and paying U.S. taxes on them.
By now, some $2 trillion in such "stranded" profits has built up
offshore. An influx of these foreign profits could generate
significant new tax revenues for the U.S., a share of which could
be earmarked for the troubled Highway Trust Fund.
The highway program faces both short-term and long-term
problems. In the short run, the trust fund's authorization runs out
at the end of July. Over the long term, its finances have suffered
because the federal gasoline tax of 18.3 cents per gallon has been
hurt by higher-mileage vehicles, reduced driving and inflation.
The trust fund, absent reauthorization, is projected to dry up
in coming weeks, slowing construction projects nationwide.
For Republicans, though, the highway-funding debate generally
raises painful questions. Approving any type of new taxes for a
highway bill is increasingly difficult.
Historically, debates about transportation and infrastructure
bills have broken down along geographical lines, not partisan ones,
said former Sen. Evan Bayh, an Indiana Democrat. But in the current
political environment, "there will be an element within the
Republican caucus that won't be in favor of raising revenue from
any source," he said.
The debate also opens the door to increased spending levels for
the fund in coming years, another potential problem for some GOP
lawmakers.
For Democrats, the highway debate generally represents a welcome
change from the fractious politics of trade, where many were forced
to oppose their own president.
Funding roadways is a cause that unites Democrats--as well as
most Republicans--because of the jobs and other benefits it
creates.
Still, the highway debate is raising the possibility of unlikely
alliances. Mr. Ryan has spoken with Sen. Schumer recently about the
possibility of joining forces on a highway deal, according to a
person familiar with the matter. Sen. Schumer has been working for
a while on an overhaul of international tax rules that could help
cover highway needs.
Ways and Means aides said on a blog post last week that "if we
find common ground on limited changes to our tax system, we'll
explore what can get done over the next year and a half. It could
even provide the solution to fund a multiyear highway bill."
In a statement on Thursday, Mr. Schumer expressed optimism.
"International tax reform could put gas in the tank when it
comes to getting a long term highway bill, which we desperately
need this year," he said. "It's a complicated needle to thread so
it may take some time, but I'm hopeful we can get a bipartisan deal
in the next several months."
Senate Republicans, however, are more skeptical.
Finance Chairman Orrin Hatch (R., Utah) also questions whether
it is politically feasible to link highway funding to international
tax changes.
At a recent hearing, Mr. Hatch noted that one version of the
idea advanced by some Democrats--cutting tax rates on foreign
income to encourage companies to bring home more money
voluntarily--actually would cost the government money. "In other
words, it is not a serious proposal to pay for a long-term highway
bill," Mr. Hatch said.
The Business Roundtable, a group of CEO's of major firms, issued
a statement recently raising concern about the concept. Using
repatriation revenue to support "stand-alone unrelated new spending
would imperil the ability to achieve meaningful tax reform," said
Mark Weinberger, who is CEO of accounting firm Ernst and Young and
chairman of the Roundtable's tax policy committee.
If the effort to use a tax overhaul to pay for road work fails,
lawmakers likely will fall back on a patchwork approach to fund the
program for the next six months to two years. That could include a
mix of narrow spending cuts and revenue increases, possibly
including tougher enforcement of existing taxes or expanded oil and
gas exploration.
Lawmakers also might choose simply not to offset the cost of
some or all the highway spending, as they have in the recent
past.
"Obviously there's an appetite in Congress to do things that are
fiscally irresponsible," said former GOP Sen. Judd Gregg of New
Hampshire, a onetime Budget Committee chairman. "It's not a way to
govern, but I lost this fight so often [on highway funding].... I
just got run over, every time."
Write to John D. McKinnon at john.mckinnon@wsj.com