The Obama administration’s budget for fiscal 2016 has proposed a 19 percent tax on future foreign earnings of American companies and a one-time 14 percent tax on nearly USD 2 trillion of profits being held offshore, according to the White House statement on Sunday.
According to the White House officials, the revenues generated from the one-time tax would be utilized for funding the infrastructure projects as well as fill a projected deficit in the Highway Trust Fund.
Analysts said that the government’s budget, which is scheduled to be released on Monday, can be seen as much as a political document as a fiscal roadmap. This is for the fact that it also needs green signal from Congress to come into effect. Political analysts said getting full approval from the Republican-controlled legislature is very unlikely.
For a long time, the White House has been critical of the ill-practices adopted by the companies-based in the US for cutting their US taxable income and avoiding the tax responsibilities at their home country.
In a statement, a White House official said, “This transition tax would mean that companies have to pay US tax right now on the USD 2 trillion they already have overseas, rather than being able to delay paying any US tax indefinitely.”
US President Barack Obama’s proposal is aimed at shutting down a tax loophole that allows multinational firms to avoid paying taxes on profits that they earn from abroad, or that they shift into other nations in order to cut their US taxable income.
The budget also proposes imposing a 19 percent tax on American firms’ foreign earnings, while a tax credit would be issued for paid foreign taxes.
The budget proposals are part of Obama administration’s broader tax reform initiative that they are hoping will re-focus tax advantages towards the middle-income Americans.