US President Barack Obama's budget will propose an ambitious six-year, USD 478 billion public works program of highway, bridge and transit upgrades, half of it financed with a one-time mandatory tax on profits that US companies have amassed overseas, White House officials said.
The proposal, one of the key components of the USD 4 trillion spending plan for the 2016 budget year that Obama will send to Congress tomorrow, attempts to tap into bipartisan support for spending on badly needed infrastructure repairs and construction.
The tax on accumulated foreign profits would be set at 14 per cent and due immediately. Under current law, those profits only face federal taxes if they are returned, or repatriated, to the US where they face a top rate of 35 per cent. Many companies avoid US taxes on those earnings by simply leaving them overseas.
The foreign earnings tax would be part of a broader administration plan to overhaul corporate taxes by ending certain tax breaks and lowering rates, a challenging task that Obama and Republican congressional leaders insist they are poised to tackle this year.
Obama's new budget offers an array of spending programs and tax increases on the wealthy that the Republicans lawmakers now running Congress have already rejected.
"What I think the president is trying to do here is to, again, exploit envy economics," Republican Rep. Paul Ryan of Wisconsin, the new chairman of the tax-writing Ways and Means Committee, said today.
But Ryan, appearing on NBC's "Meet the Press," said he was willing "to work with this administration to see if we can find common ground on certain aspects of tax reform."
The White House believes it has some leverage on taxing foreign earnings by linking the revenue to construction projects that could potentially benefit the home districts of every member of Congress.
White House officials were not authorized to discuss the budget by name and described the proposal to The Associated Press on the condition of anonymity.
Obama's budget will call for a one-time 14 per cent mandatory tax on the up to USD 2 trillion in estimated US corporate earnings that have accumulated overseas. That would generate about USD 238 billion, by White House calculations. The remaining USD 240 billion would come from the federal Highway Trust Fund, which is financed with a gasoline tax.
Another issue is how to get companies to bring back some of their foreign earnings to invest in the United States. The current 35 per cent top tax rate for corporations in the United States, the highest among major economies, serves as a disincentive and many US companies with overseas holdings simply keep their foreign earnings abroad and avoid the US tax.
