Corporations Await The President’s Proposal on Taxes

President Barack Obama will extend a new offer to congressional Republicans today in which he would back an overhaul of the corporate tax system in exchange for a guarantee that resulting one-time windfall be used to underwrite various job creation proposals in an attempt to break an impasse. He plans to lay out the plan in Chattanooga, TN, in hopes of winning over Republican lawmakers who have opposed requests from the White House for new spending on infrastructure aimed at boosting the economy.

The president devoted a series of speeches last week to the idea of Washington taking more aggressive steps to shore up the middle class and boost long-term economic growth. In today’s speech, he intends to entice Republican lawmakers to agree to job proposals in exchange for business tax reductions that are important to the GOP’s political base.

Originally, Mr. Obama insisted that corporate rates be reduced only as part of a larger plan that would revamp the tax code for individuals, end tax advantages benefiting wealthier Americans, and apply the proceeds to deficit reduction. With no breakthrough in sight, the president is dropping his insistence that individual tax rates be a part of that package.

In past years, the Obama administration has put forward business tax plans that would reduce the top rate from 35% to 28%, end certain tax advantages, cut the rate on manufacturers to 25% and impose a minimum tax on foreign earnings, among other measures. The president’s proposal appears to be clearing the way to raising revenue on a one-time basis from several sources in the tax code.

One of those areas in particular is the international tax code. With the current system, U.S. businesses are able to avoid taxation on overseas earnings, so long as they keep those earnings overseas. This has caused many American companies to develop large stockpiles of cash offshore. Moody’s Investor Service estimated in March that U.S. companies held an estimated 58% of their earnings, or $840 billion, overseas.

The White House may attempt a proposal based on earlier initiatives to tax foreign profits. It is estimated that this could bring in between $8 billion and $15 billion a year in revenue. However, any attempts to rework the tax treatment of multinationals could cause large corporations like General Electric Co, Microsoft Corp., and Walt Disney Co. to mobilize on Capitol Hill.