Obama plans 19 pct tax on US companies’ foreign earnings – Reuters
(Adds background on proposal, companies, comment from Ryan)
By Jeff Mason and Kevin Drawbaugh
WASHINGTON Feb 1 (Reuters) – President Barack Obama’s
fiscal 2016 budget proposes a 19 percent tax on U.S. companies
future foreign earnings and a one-time 14 percent tax on roughly
$2 trillion of profits being held offshore, the White House said
Revenues from the one-time tax would be used to fund
infrastructure projects and fill a projected shortfall in the
Highway Trust Fund.
The budget, which is set for release on Monday, is as much a
political document as a fiscal roadmap. It requires approval
from Congress to take effect and full approval by the
Republican-controlled legislature is very unlikely.
The White House has long been critical of practices by U.S.
companies that it views as avoiding tax responsibilities at
home. The proposals are part of a broader tax reform package
that the Obama administration hopes will re-focus tax advantages
toward middle-income Americans.
“This transition 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.”
Obama’s proposal is aimed at closing a tax loophole that
lets multinationals avoid paying taxes on profits earned abroad,
or that they shift into foreign countries from the United States
to reduce their U.S. taxable income.
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.
The Obama budget also proposes that U.S. companies pay a 19
percent tax on all foreign earnings as they are earned, while a
tax credit would be issued for foreign taxes paid.
“After this initial payment, foreign earnings could be
reinvested in the U.S. without additional tax, which would level
the playing field, and encourage firms to create jobs here at
home,” the official said.
The corporate tax rate is 35 percent but abundant loopholes
allow many major corporations to avoid paying altogether.
Republicans have said tax reform is one area where they hope
to find compromises with Democrats and the White House, though
Obama’s proposals have so far received a lukewarm reception.
“We want to work with this administration to see if we can
find common ground on certain aspects of tax reform and we want
to exhaust that possibility,” Republican Representative Paul
Ryan, chairman of the House of Representatives’ Ways and Means
Committee, said on NBC’s “Meet the Press” on Sunday.
“If and when that possibility is exhausted, then we will put
out what we think ought to be done.”
Foreign corporate earnings can be held offshore for years if
they are classified as indefinitely invested abroad.
Research firm Audit Analytics said in April 2014 that the
total of such earnings exceeded $2.1 trillion, up 93 percent
from 2008 to 2013.
At that time, General Electric Co had the most stored
abroad, at $110 billion, the research firm said. Next were
Microsoft Corp, with $76.4 billion, Pfizer Inc,
with $69 billion, Merck & Co Inc with $57.1 billion and
high-tech group Apple Inc with $54.4 billion, it said.
(Additional reporting by Bill Trott; Editing by Louise Ireland)