WASHINGTON - 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 approximately $2 trillion of profits being held offshore, the White House said on Sunday.
Revenues from the one-time tax would be used to fill a projected shortfall in the Highway Trust Fund, helping to finance infrastructure projects.
Set for release on Monday, the budget is as much a political document as a fiscal roadmap. The required approval from Congress and full approval by the Republican-controlled legislature is very unlikely.
The White House has long been critical U.S. companies whose practices it views as avoiding domestic tax responsibilities. The proposals form part of a broader tax 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 allows multinationals to avoid paying taxes on profits earned abroad, or otherwise shifted from the United States into foreign countries to reduce their U.S. taxable income.
For years, corporations have been pushing 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 resulted 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 payment of foreign taxes.
"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.
LOOPHOLES GALORE
While the corporate tax rate is at 35 percent, 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 so far Obama's proposals have 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 as long as they are classified as indefinitely invested abroad. In April 2014 that the total of such earnings exceeded $2.1 trillion, up 93 percent from 2008 to 2013, according to research firm Audit Analytics.
At that time, the research firm said, General Electric Co <GE.N> had the most stored abroad, at $110 billion. Next were Microsoft Corp <MSFT.O>, with $76.4 billion, Pfizer Inc <PFE.N>, with $69 billion, Merck & Co Inc <MRK.N> with $57.1 billion and high-tech group Apple Inc <AAPL.O> with $54.4 billion, it said.