STOCK MARKET WATCH -- Wednesday, 4 February 2015

[Demeter]

10. Obama targets foreign profits with tax proposal, Republicans skeptical

http://www.reuters.com/article/2015/02/01/us-usa-budget-tax-idUSKBN0L51IX20150201

President Barack Obama's fiscal 2016 budget will seek new taxes on trillions of dollars in profits accumulated overseas by U.S. companies, and a new approach to taxing foreign profits in the future, but Republicans were skeptical of the plan on Sunday. Reviving a long-running debate about corporate tax avoidance, Obama will target a loophole that lets companies pay no tax on earnings held abroad, the White House said. But his proposal was certain to encounter stiff resistance from Republicans. In his budget plan to be unveiled on Monday, Obama will call for a one-time, 14 percent tax on an estimated $2.1 trillion in profits piled up abroad over the years by multinationals such as General Electric (GE.N), Microsoft (MSFT.O), Pfizer Inc (PFE.N) and Apple Inc (AAPL.O). He will also seek to impose a 19 percent tax on U.S. companies' future foreign earnings, the White House said. At present, those earnings are supposed to be taxed at a 35-percent rate, but many companies avoid that through the loophole that defers taxation on active income that is not brought into the United States, or repatriated.

The $238 billion raised from the one-time tax would fund repairs and improvements to roads, bridges, transit systems and freight networks that would replenish the Highway Trust Fund as part of a $478 billion package, the White House said...Obama's budget will set a spending target of $4 trillion for fiscal year 2016, including a $474 billion deficit, which would represent a manageable 2.5 percent of U.S. Gross Domestic Product, The New York Times reported on Sunday. The budget also includes $105 million for “trade adjustment assistance” to help workers who have been affected by free trade pacts, it said.

...The one-time tax "would 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," 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.