 "'Obama budget proposes to tax offshore profits'")
President Barack Obama's fiscal 2016 budget proposes a 19 per cent tax on US companies future foreign earnings and a one-time 14 per cent tax on roughly $2 trillion of profits being held offshore, the White House said on Sunday.
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 US 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.
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 per cent 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.
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 US 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.
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"This transition tax would mean that companies have to pay US tax right now on the $2 trillion they already have overseas, rather than being able to delay paying any US 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 US 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 per cent 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.