U.S. President Barack Obama may eventually come up with a corporate tax plan the Republicans can stomach. He certainly keeps trying, and his latest effort to squeeze more tax dollars out of major U.S. corporations comes closer to Republican aims than previous attempts. But close doesn't count when your opponent controls both houses of Congress.
Mr. Obama's proposed $4-trillion (U.S.) budget once again attempts to tackle the thorny issue of foreign profits deliberately stockpiled offshore by corporations seeking to avoid a heavy U.S. tax hit. In his latest bit of windmill-tilting, the President is offering more favourable terms – a one-time 14-per-cent levy followed by a 19-per-cent tax rate on all future earnings abroad, with credits for taxes paid in foreign jurisdictions. Money could then be repatriated without any further tax hit.
That's a sharp discount from the current top domestic rate of 35 per cent, which only companies with bad accountants pay anyway. The Obama budget calls for that to fall as well, to a more competitive 28 per cent – 25 per cent for companies with U.S. manufacturing operations.
One point in favour of the tax changes: both business and organized labour hate them.
"[W]hen it comes to fixing our rigged corporate tax system, the actual proposals in President Obama's budget don't match the rhetoric," Richard Trumka, president of the AFL-CIO, said in a statement. "As this budget stands, it falls short of a very simple standard: our tax system should not encourage corporations to shift jobs or profits overseas."
Plenty of Republicans are as uncomfortable as Democrats when it comes to the perfectly legal corporate tax schemes that keep a valuable source of revenue out of their grasp. Estimates of the income sheltered overseas run as high as $2-trillion. Apple's stockpile alone has grown to $158-billion. General Electric, Microsoft and Pfizer are other U.S. multinationals with hefty assets outside the current reach of the U.S. taxman.
As a further incentive to Congress, the one-time tax take would be earmarked for spending on deteriorating highways, bridges, transit, rail and other transportation infrastructure, always a crowd-pleaser for politicians seeking to win favour with local constituents.
White House calculations estimate the one-time corporate tax could bring home $238-billion. Capital Economics calculates that the Obama plan to take a bite out of foreign earnings could theoretically goose GDP by as much as 1.5 per cent.
So far, though, the GOP has largely parroted the main business argument that a hefty cut in the loophole-laced U.S. corporate tax would be enough to reduce the incentive to park cash abroad or shift head offices to Dublin, Bermuda and other tax havens. And Republicans vehemently oppose continuing efforts by the Obama team to target wealthy individuals with higher tax bills.
One Republican proposal floated last year called for a one-time tax of 8.75 per cent on corporate cash stashed abroad and 3.5 per cent for other assets. And even that met resistance from corporate lobbies, which have talked about 5 per cent as number they might possibly be able to live with.
"A lower corporate tax rate would be the most efficient and effective inducement for the repatriation of foreign corporate earnings," Tim Wach, global managing director with Taxand, a tax advisory firm that works with multinationals, said in a statement.
Corporate America doesn't have to worry about this budget plan seeing the light of day. Like all of President Obama's previous tax reform proposals, it will sink in Washington's fetid political swamp. But the issue of untaxed foreign income isn't going away, no matter who calls the shots in Washington.