APNewsBreak: Obama ties foreign profits tax to public works
By JIM KUHNHENN and ANDREW TAYLOR, Associated Press
Feb 1, 2015 8:03 AM CST
FILE - In a Friday, Jan. 30, 2015 file photo, President Barack Obama speaks in the East Room of the White House in Washington. President Barack Obama’s budget will propose an ambitious six-year, $478 billion public works program of highway, bridge and transit upgrades, half of it financed with a one-time...   (Associated Press)

WASHINGTON (AP) — President Barack Obama's budget will propose an ambitious six-year, $478 billion public works program of highway, bridge and transit upgrades, half of it financed with a one-time mandatory tax on profits that U.S. companies have amassed overseas, White House officials said.

The proposal, one of the main components of the $4 trillion spending plan for the 2016 budget year that Obama will send to Congress on Monday, attempts to tap into bipartisan support for spending on badly needed infrastructure repairs and construction.

The tax on accumulated foreign profits, to be paid once, would be set at 14 percent, significantly lower than the current top corporate rate of 35 percent.

It 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 budget proposal for the fiscal year that begins Oct. 1 will offer an array of spending programs and tax increases that Republicans now running Congress have already dismissed as nonstarters.

"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. "This top-down redistribution doesn't work."

But Ryan also told NBC's "Meet the Press" that 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 potentially could benefit the states and districts of virtually 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.

The proposal improves on an idea that the administration has pushed since the summer of 2013. The administration's budget last year proposed a smaller four-year bridge and highway fund. While it paid for it by taxing accumulated foreign earnings, it did not specify a formula.

This time, the budget will call for a 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.

The former chairman of the House Ways and Means, now-retired Rep. Dave Camp, R-Mich., proposed a similar idea last year with a lower mandatory tax, but the plan did not make headway in Congress.

At issue is how to get companies to bring back some of their foreign earnings to invest in the United States. 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 and avoid the U.S. tax.

Under Obama's plan, the top corporate tax rate for U.S. earnings would drop to 28 percent. Foreign profits would be taxed at 19 percent, with companies getting a credit for foreign taxes paid.

Most U.S. companies and Republican lawmakers prefer a "territorial" tax system employed by most developed countries, in which companies are taxed only on income earned within a country's borders. That difference could be a major hurdle to a broad overhaul of corporate taxes.

Sens. Rand Paul, R-Ky., and Barbara Boxer, D-Calif., have proposed paying for highway and bridge fixes by letting companies voluntarily pay taxes on foreign earnings at a one-time low rate of 6.5 percent. The White House opposes such "tax holidays," however, and critics say that without broader tax fixes, such holidays simply encourage companies to park their foreign profits overseas.

Other lawmakers have proposed boosting the Highway Trust Fund with a higher gasoline tax, an idea considered more palatable now that gas prices are low.

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

Ahead are big challenges.

Obama is proposing to ease painful, 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 also will want to match. But his demand for a nearly equal amount for domestic programs sets up a showdown that may not be resolved until late in the year.

Another centerpiece of the president's tax proposal is an increase in the capital gains rate on couples making more than $500,000 per 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.

Obama would take the $320 billion that those tax increases would generate over 10 years and funnel them into middle-class tax breaks. His ideas: a credit of up to $500 for two-income families, a boost in the child care tax credit to up to $3,000 per child under age 5, and overhauling breaks that help pay for college.

Altogether, the White House calculates that Obama's tax increases and spending cuts would cut the deficit by about $1.8 trillion over the next decade, according to people briefed on the basics of the plan. The tax increases, especially the increase on capital gains, bring in far more over the longer term, helping the White House claim it would stabilize the debt in relation to the size of the economy for 25 years.

For 2016, the Obama budget promises a $474 billion deficit, about equal to this year. The deficit would remain under $500 billion through 2018, but would rise to $687 billion by 2025 — though such deficits would remain manageable when measured against the size of the economy.

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