President Obama is set propose his $4 trillion fiscal 2016 budget to Congress, which includes a plan to introduce taxes on profits accumulated by American companies overseas.
Obama’s plan to tax foreign profits comes as part of an effort to reopen the debate on corporate tax avoidance. The President will set his sights specifically on a loophole that allows companies to avoid paying taxes on foreign earnings. The new tax would be a one time, 14 percent tax on $2.1 trillion in profits made by companies such as General Electric, Pfizer, Apple and Microsoft. The revenue from the tax would be used to rebuild roads, bridges, and other parts of America's aging national infrastructure.
The tax would, according to a White House official, “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.
“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.”
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President Obama’s foreign profit tax received a less-than-enthusiastic response from Republicans ahead of Monday’s proposal. Congressman Paul Ryan, the top Republican tax writer, was particularly skeptical.
“What I think the president is trying to do here is to, again, exploit envy economics,” Ryan said on NBC’s Meet The Press.
Ryan’s aide, Brendan Buck, said in an email that Republicans would be willing to compromise on tax reform if it focused more on simplifying the tax code and lowering rates. “If that’s the approach the administration is willing to take, there may be room to find common ground,” Buck said. “There won’t be, however, if the president instead tries to sock American businesses with big tax hikes just to increase spending and add even more complexity to the code.”