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Obama Ties Foreign Profits Tax to Big Public Works Spending

The White House proposes taxing foreign earnings and linking the revenue to construction projects that could potentially benefit every member of Congress.

Wed February 04, 2015 - National Edition

WASHINGTON (AP) - President Barack Obama is sending Congress a $4 trillion budget that calls for huge spending on infrastructure funded by a one-time tax on profits U.S. companies have amassed overseas. The business-friendly Republican-controlled Congress is all but certain to say no.

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.

The spending document for the 2016 fiscal year beginning Oct. 1 also reflects goals Obama set out in his State of the Union speech, particularly higher taxes on wealthy Americans to shrink the growing gap between high-income and middle-class citizens.

The administration said the budget represented a strategy to strengthen the middle class and help “hard-working families get ahead in a time of relentless economic and technological change.”

Obama’s fiscal blueprint, for the budget year that begins Oct. 1, proposes spending $4 trillion _ $3.99 trillion before rounding - and projects revenues of $3.53 trillion.

That would leave a deficit of $474 billion. Obama’s budget plan never reaches balance over the next decade and projects the deficit would rise to $687 billion in 2025.

The administration contends that various spending cuts and tax increases would trim the deficits by about $1.8 trillion over the next decade, leaving the red ink at manageable levels.

Congressional Republicans say the budgets they produce will achieve balance and will attack costly benefit program like Social Security, Medicare and Medicaid.

The question is what kind of negotiated middle ground, if any, will emerge in a climate of the overwhelming partisan divide separating Obama and his Democrats from Republicans, many of whom have made their goal to stop or reverse virtually all of the president’s domestic initiatives.

Obama, in an NBC interview before the Super Bowl, disputed a suggestion that he and Congress are so far apart that his budget proposals have no chance of winning approval.

“I think Republicans believe that we should be building our infrastructure,” Obama said. “The question is how do we pay for it? That’s a negotiation we should have.”

Obama’s new budget offers an array of spending programs and tax increases on the wealthy that Republican lawmakers have already rejected.

The likely meeting ground is the tax rate on U.S. companies. The current 35 percent top tax rate for corporations in the United States, the highest among major economies, serves as a disincentive and many U.S. companies with overseas holdings simply keep their foreign earnings abroad.

The question remains whether there will be sufficient flexibility in negotiations to keep Obama from vetoing the budget, a move that would force, yet again, last-minute emergency talks, a possible government shutdown or a so-called continuing resolution that would fund the government at current levels.

Under Obama’s plan, the top corporate tax rate for company profits earned in the U.S. would drop to 28 percent. While past foreign profits would be taxed immediately at the 14 percent rate, going forward new foreign profits would be taxed immediately at 19 percent, with companies getting a credit for foreign taxes paid.

Republicans are opposed virtually across the board to anything that would increase taxes, such as closing loopholes. They also are against taxing foreign profits and will likely block that avenue for funding Obama’s infrastructure plans.

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.

The budget will call for the one-time 14 percent mandatory tax on the up to $2 trillion in estimated U.S. corporate earnings that have accumulated overseas. That would generate about $238 billion, by White House calculations. The remaining $240 billion would come from the federal Highway Trust Fund, which is financed with a gasoline tax.

Obama is releasing his budget as the federal deficit drops and his poll numbers inch higher. Although Republicans will march ahead on their own, they ultimately must come to terms with the Democratic president, who wields a veto.

Ahead loom big challenges. Obama is proposing to ease automatic cuts to the Pentagon and domestic agencies with a 7 percent increase in annual appropriations. He wants a $38 billion increase for the Pentagon that Republicans probably will want to match. But his demand for a nearly equal amount for domestic programs sets up a showdown with Republicans.

Another centerpiece of the president’s tax proposal is an increase in the capital gains rate on couples making more than $500,000 a year. The rate would climb from 23.8 percent to 28 percent. Obama wants to require estates to pay capital gains taxes on securities at the time they are inherited. He also is trying to impose a 0.07 percent fee on the roughly 100 U.S. financial companies with assets of more than $50 billion.

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