U.S. corporations are currently storing roughly $2 trillion in profits offshore and Obama wants to tap into that money through a one-time 14 percent repatriation tax and a 19 percent minimum tax on future foreign earnings. Republican lawmakers haven’t embraced Obama’s foreign profits tax proposals warmly, but the plan’s similarity to ideas pitched by some in the GOP may set it as an opening bid for business tax reform, particularly since House Ways and Means Chairman Paul Ryan wants to start the reform process by summer’s end.
The similarity between Obama’s plan and one pitched by former Republican House Ways and Means Committee chairman Dave Camp shows there is some space for negotiation — space that will be crucial as Ryan tries to solidify reform efforts in the coming months.
Obama unveiled his international tax plan as part of his 2016 budget blueprint, which the White House released at the beginning of the month. Under the plan, U.S. companies will no longer be allowed to defer taxes on their foreign earnings until they are returned to the U.S. Instead, corporations would pay a one-time tax of 14 percent on so-far untaxed offshore profits and a minimum tax of 19 percent on future earnings.
According to the budget, the 14 percent repatriation tax could raise $268 billion to help pay for a $478 billion, six-year reauthorization of the Highway Trust Fund, which is expected to run out of money in June. The minimum 19 percent tax would raise $206 billion over 10 years, the budget says.
By way of comparison, Dave Camp proposed an 8.75 percent repatriation tax in a comprehensive tax reform proposal he released last year. Camp also wanted to place a minimum 15 percent tax on companies’ intangible earnings, regardless of where they were earned.
Meanwhile, Sens. Rand Paul, R-Ky., and Barbara Boxer, D-Calif., also support a repatriation tax, albeit at a much smaller 6.5 percent rate. At the end of January, the bipartisan duo introduced legislation that would give companies five years to bring their deferred offshore earnings back to the U.S. and would use that revenue to fill the Highway Trust Fund, much like the Obama proposal would.
Meanwhile, it does appear that both sides of the aisle are seriously considering some sort of comprehensive reform plan, which could be aided by the similarities in Camp and Obama’s international tax proposals.