Why Is Rand Paul Working With Barbara Boxer on a Hated Transportation Policy?

He's the only contender with an infrastructure plan, but few like it.

In the middle of an April 7 speech announcing his candidacy for president, Rand Paul dropped an unusually specific bit of policy.

"We'll dramatically lower the tax on American companies that wish to bring their profits home," the Republican senator from Kentucky said. "More than $2 trillion in American profit currently sits overseas. In my vision for America, new highways and bridges will be built across the country, not by raising your taxes, but by lowering the tax to bring this American profit home."

Even more unusual is his partner on the proposal, which was formally introduced last week: California Democrat Barbara Boxer. Not to mention the fact that it's a variation of one proposed by the White House, albeit on a smaller scale.

The odd couple's transportation proposal would allow companies to voluntarily return overseas profits at a reduced 6.5 percent tax rate (it's normally taxed at 35 percent when companies repatriate). All tax revenue from the returned money would go to shore up the near-empty Highway Trust Fund.

"He was the one who came to me, and I said, 'Yeah, I'm already for it, I'm working on a bill; let's team up,'" Boxer said in an interview. "We are in a world of hurt, and we're going to have desperate states, desperate construction workers, and desperate businesses soon, so I'm happy Rand and I were able to work together on this."

Infrastructure spending is set to run dry in a manner of months, and Paul and Boxer's idea isn't likely to go anywhere. Budget wonks on both sides of the aisle tend to scoff at the long-term prospects of a repatriation holiday after an ill-fated trial run in 2004 returned little money to taxpayers and led to corporations actually spending more overseas. The Joint Committee on Taxation has said that after a short burst, a general repatriation holiday would cost $96 billion over 11 years (the Paul-Boxer proposal is slightly different than the one studied).

Sen. Orrin Hatch, the Utah Republican who chairs the Senate Finance Committee overseeing transportation funding, was cool to the idea, to put it mildly. Pointing to the JCT studies, Hatch said in a statement that using the holiday to pay for infrastructure is "just bad policy, plain and simple."

Sen. James Inhofe, chair of the Environment and Public Works Committee, said it's a solution he'd pick up "in a heartbeat"—before adding the caveat, "if it would work.

"Unfortunately, there's a serious question of whether that would produce the revenue," Inhofe said.

And analysts from groups as diverse as the Center for American Progress and Taxpayers for Common Sense have said they don't see it as a viable fix. After it was tried with a 5.25 percent tax rate in 2004, the companies that brought the most money back to the U.S. ended up cutting jobs and spending less on research and development in the years after. Chuck Marr of the Center on Budget and Policy Priorities said it was a "pretty terrible idea" that's "been recognized as a failure."

With all that negativity around it, why would any senator, especially one in the early stages of a presidential run, back the repatriation tax holiday?

The Highway Trust Fund desperately needs money now, and the idea does allow Paul to engage on the imminent policy discussions to keep the transportation sector going. Boxer has acknowledged that the bill isn't a long-term fix, but says it could provide a short-term boost to ensure construction crews can keep working.

It also sets Paul apart—for better or worse—from his fellow presidential contenders as having some sort of transportation-funding policy ideas on paper. And it lets him talk about it by getting around the true political nonstarter of raising the 18.4-cent-per-gallon federal gas tax.

Paul's office didn't return a request for comment.

The Department of Transportation says the Highway Trust Fund will be bankrupt by the end of August, owing largely to dwindling receipts from the federal gas tax, which has not been raised or indexed to inflation since 1993. According to a DOT report last week, the trust fund had just $8.4 billion on hand at the end of March, lower than the country's projected infrastructure costs for the rest of the year.

Congress is working on a multiyear transportation reauthorization bill, with legislators on the Environment and Public Works Committee saying they have policy written and are waiting for the funding proposal from Finance. Congress faces a May 31 deadline for reauthorization, but it's likely a short-term patch will be passed to give legislators more time for a permanent bill.

Interest groups on both sides of the aisle, from labor unions to major companies, agree on the need to fix the Highway Trust Fund, but raising the federal gas tax is politically toxic, even at a time when gas prices are low. Without an easy solution, many contenders have stayed away from the transportation problem, instead offering general support for more infrastructure spending.

Paul's early attention could change that and force other contenders to release their own funding ideas.

"If one candidate brings this up at debates or in speeches, the others have to respond and lay out some sort of proposal," said Marcia Hale, president of Building America's Future. "We want to get people on record with creative ideas. This is a hard subject, but with this diverse group and all the states they're running from, they know it's a problem we have to address."

Even Inhofe said he was encouraged to see a senator as high-profile as Paul get out front on infrastructure spending, saying he was "glad to have attention." But he cautioned that the idea was being pitched as "an easy answer to something that isn't easy."

Despite the griping, the tax holiday is a proposal that could actually gain legs in some form. The White House pitched something similar to fund a multiyear transportation proposal in its fiscal 2016 budget, although that plan involves a mandatory "transition tax" that analysts say would bring in more money at a more reliable rate.

The Obama administration's plan would set a onetime 14 percent tax on foreign earnings for companies that repatriate, plus a permanent 19 percent tax on companies' foreign earnings. Most Republicans oppose the permanent tax.

Outside analysts are also looking at ways to marry the repatriation holiday to a long-term transportation fix. A proposal from the Brookings Institution would use a repatriation holiday to fund an infrastructure bank, a mechanism that would offer loans to transportation projects that would be repaid and create a reliable flow of money.

The American Road and Transportation Builders Association has proposed raising the gas tax, while also using a tax on foreign earnings to fund a rebate for consumers that would offset the immediate impact of the tax hike. Matt Jeanneret, a spokesman for the group, said the idea has gotten positive feedback on the Hill.

"If the discussion is going to be on repatriation or some other one-off, fine, but let's address the underlying problem with the trust fund," Jeanneret said. "The challenge only gets greater the longer we wait."

The time is right, he added, for presidential contenders like Paul to get in the weeds and fix the problem.

"Any candidate has to deal with big problems," he said. "This is a national priority. If you want to be taken seriously talking about national challenges, you have to talk about infrastructure."