Obama targets foreign profits with tax proposal, Republicans skeptical

(Agencies) Updated: 2015-02-02 10:06

'ENVY ECONOMICS'

On proposed tax increases for the wealthy and large companies that are part of that package, Paul Ryan, the top Republican tax writer in the House of Representatives, said on NBC's "Meet the Press": "What I think the president is trying to do here is to, again, exploit envy economics."

Republicans, who took control of the Senate and boosted their House majority after November's congressional elections, have said tax reform is one area where they hope to find compromises with Democrats and the White House, although Obama's proposals have so far received a lukewarm reception.

On the foreign profits proposal specifically, Ryan aide Brendan Buck said in an emailed reply to questions that tax reform should be about simplifying the code and lowering rates.

"If that's the approach the administration is willing to take, there may be room to find common ground," he 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."

Tax reform has eluded Washington for decades. There has been renewed talk about it this year, but consensus is still far from evident. Obama has already offered to cut the corporate income tax, but he wants to offset the revenue losses that would result by closing loopholes. Republican proposals have varied, while generally seeking deeper cuts in the rate and fewer loophole closings.

The White House said that under the new approach to foreign earnings companies would have to pay a 19 percent tax on all foreign earnings as they earn them, while continuing to get tax credits for foreign taxes paid. After this payment, foreign earnings could be reinvested in the United States without added tax.

The president's proposal also includes cracking down on corporations that shift profits to tax havens to avoid paying their fair share or undertake "inversion" deals in which they reincorporate abroad to avoid paying US taxes.

The one-time tax "would mean that companies have to pay US tax right now on the $2 trillion they already have overseas, rather than being able to delay paying any US 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."

Corporations have been pushing for years 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 did result in a substantial portion of deferred profits being repatriated, but studies showed it did little for the economy.