A bipartisan push to change the tax rules governing U.S. corporate profits overseas that seemed promising just months ago is now in danger of crumbling.

Lawmakers in Congress are divided in particular over whether to use a one-time tax on companies' stockpiled offshore profits to pay for a burst of spending on highways and other construction projects.

Democrats, including Sen. Charles Schumer (D., N.Y.) want a significant amount of the one-time money be used for infrastructure. Republicans such as Sen. Rob Portman (R., Ohio) are growing wary of that approach, though Mr. Portman said Wednesday he was probably the only remaining Finance Committee member who thinks a deal can be reached in 2016.

Lawmakers and the Obama administration were close to attaching an international tax agreement to a long-term highway funding bill. It didn't happen. Instead, Congress cobbled together other money for a transportation bill, and now there is a divide emerging over whether to continue pressing ahead with the same approach on international taxes and infrastructure.

"I just hope people on the other side won't pull away from that [infrastructure spending], because that will make it much harder to pass it," Mr. Schumer said Wednesday at a hearing of the Senate Finance Committee.

The basic idea remains the same. Under current law, U.S. companies owe taxes on the income they earn around the world. They get tax credits for payments to foreign governments and have to pay the residual U.S. tax only when they bring the money home.

That system encourages companies to book profits overseas in low-tax countries and leave them there, which they have done now to the tune of more than $2 trillion. Companies such as Apple Inc. and Oracle Corp. have been agitating for change.

A senior Treasury official said this week that the department's estimates of offshore profit-shifting have increased. An administration proposal for a 19% minimum tax on future foreign profits would raise $350 billion over 10 years, 70% more than last year's estimate of the same proposal.

Last year's bipartisan position—shared by many House Republicans, some Democrats and President Barack Obama—was for a one-time tax on those profits, regardless of whether they are brought home. Then, a new system would be written that wouldn't link U.S. taxation with the act of repatriation.

In addition to disagreements over what the one-time tax rate should be and the details of new international tax rules, lawmakers now split over what to do with the money. Congress's abbreviated election-year calendar imposes an extra challenge.

Democrats still want to pour any money into infrastructure projects. "There's a huge, huge backlog of important infrastructure," said Sen. Ron Wyden of Oregon, the top Democrat on the Finance Committee. "In my state, we would be able to put together a list of important projects very, very quickly."

Mr. Obama's final budget, released Tuesday, is calling for the one-time tax to be used for "a temporary near-term surge in investment," while long-term funding would come from a dead-on-arrival $10.25-a-barrel tax on oil. The administration, which estimates its one-time 14% tax would yield $299 billion over a decade, doesn't want to use that pot for sustained spending or to finance tax cuts, because that would expand budget deficits in the future.

But Republicans are having second thoughts. When Republicans on the House Ways and Means Committee unveiled their 2016 agenda, they put international tax policy near the top of the list. But they haven't said exactly what they would do with the one-time money, and they don't sound inclined to plow it into capital projects.

"The goal of these reforms is not to generate more spending. It's to bring back real dollars to be reinvested in the United States," said Rep. Kevin Brady (R., Texas), chairman of the House Ways and Means Committee. "We're going to work on the most pro-growth policy to bring those dollars back to the United States. How that's structured is still to be determined."

Mr. Portman, one of the top Senate GOP advocates for international tax changes, said in a brief interview last week that the one-time revenue would be needed to pay for the new tax system, which will lose money in the short term. In the long run, Mr. Portman said, a so-called territorial tax system would spur economic growth.

Treasury Secretary Jack Lew said Wednesday that he hoped lawmakers could make progress on the issue this year.

But Mr. Wyden is skeptical of the whole idea of focusing on international taxes only, in part because of the political challenges of advancing a bill that would help multinational corporations without clear benefits for smaller businesses.

"The tax code's an ecosystem," he said. "You fluff it up over here and it fluffs up over there. It's not something where you can just bite off a piece and say that's that."

Write to Richard Rubin at richard.rubin@wsj.com

 

(END) Dow Jones Newswires

February 10, 2016 15:45 ET (20:45 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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