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 key 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 would be set at 14 percent and due immediately. Under current law, those profits only face federal taxes if they are returned, or repatriated, to the U.S. where they face a top rate of 35 percent. Many companies avoid U.S. 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 Sunday.
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 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.
Another 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, whereby companies are taxed only on income earned within a country’s borders.
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 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 credit 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.
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.