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 Reviving a long-running debate about corporate tax avoidance,
Obama will target a loophole that lets companies pay no tax on
earnings held abroad, the White House said. But his proposal was
certain to encounter stiff resistance from Republicans.
In his budget plan to be unveiled on Monday, Obama will call for a
one-time, 14 percent tax on an estimated $2.1 trillion in profits
piled up abroad over the years by multinationals such as General
Electric <GE.N>, Microsoft <MSFT.O>, Pfizer Inc <PFE.N> and Apple
Inc <AAPL.O>.
He will also seek to impose a 19 percent tax on U.S. companies'
future foreign earnings, the White House said.
At present, those earnings are supposed to be taxed at a 35-percent
rate, but many companies avoid that through the loophole that defers
taxation on active income that is not brought into the United
States, or repatriated.
The $238 billion raised from the one-time tax would fund repairs and
improvements to roads, bridges, transit systems and freight networks
that would replenish the Highway Trust Fund as part of a $478
billion package, the White House said.
 The annual budget proposal is as much a political document as a
fiscal roadmap, requiring approval from Congress. Given Washington's
current political division, much of what will be laid out on Monday
is unlikely to become law.
Obama's budget will set a spending target of $4 trillion for fiscal
year 2016, including a $474 billion deficit, which would represent a
manageable 2.5 percent of U.S. Gross Domestic Product, The New York
Times reported on Sunday. The budget also includes $105 million for
“trade adjustment assistance” to help workers who have been affected
by free trade pacts, it said.
Obama's latest tax proposals are part of a broad tax reform package
that he says is meant to help middle-income Americans.
'ENVY ECONOMICS'
On proposed tax increases for the wealthy and large companies that
are part of that package, Paul Ryan, the top Republican tax writer
in the House of Representatives, said on NBC's "Meet the Press":
“What I think the president is trying to do here is to, again,
exploit envy economics."
Republicans, who took control of the Senate and boosted their House
majority after November's congressional elections, have said tax
reform is one area where they hope to find compromises with
Democrats and the White House, although Obama's proposals have so
far received a lukewarm reception.
On the foreign profits proposal specifically, Ryan aide Brendan Buck
said in an emailed reply to questions that tax reform should be
about simplifying the code and lowering rates.
"If that’s the approach the administration is willing to take, there
may be room to find common ground," he said.
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"There won’t be, however, if the president instead tries to sock
American businesses with big tax hikes just to increase spending and
add even more complexity to the code."
Tax reform has eluded Washington for decades. There has been renewed
talk about it this year, but consensus is still far from evident.
Obama has already offered to cut the corporate income tax, but he
wants to offset the revenue losses that would result by closing
loopholes. Republican proposals have varied, while generally seeking
deeper cuts in the rate and fewer loophole closings.
The White House said that under the new approach to foreign earnings
companies would have to pay a 19 percent tax on all foreign earnings
as they earn them, while continuing to get tax credits for foreign
taxes paid. After this payment, foreign earnings could be reinvested
in the United States without added tax.
The president’s proposal also includes cracking down on corporations
that shift profits to tax havens to avoid paying their fair share or
undertake "inversion" deals in which they reincorporate abroad to
avoid paying U.S. taxes.
The one-time tax "would mean that companies have to pay U.S. tax
right now on the $2 trillion they already have overseas, rather than
being able to delay paying any U.S. tax indefinitely," a White House
official said.
"Unlike a voluntary repatriation holiday, which the president
opposes and which would lose revenue, the president’s proposed
transition tax is a one-time, mandatory tax on previously untaxed
foreign earnings, regardless of whether the earnings are
repatriated."
Corporations have been pushing for years for a tax holiday that
would let them repatriate such earnings at a discounted tax rate.
This was tried in 2004 under former Republican President George W.
Bush. Framed as an economic stimulus, the Bush measure did result in
a substantial portion of deferred profits being repatriated, but
studies showed it did little for the economy.
(Additional reporting by Bill Trott; Editing by Frances Kerry)
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