President Obama’s proposed 2016 budget is widely considered anathema to Republicans, but aides say at least one proposal was taken directly from the GOP playbook.
The president’s budget, released Monday, calls for “a $478 billion, six-year surface transportation reauthorization proposal paid for with transition revenue from pro-growth business tax reform.”
Specifically, the president is asking Congress to impose a 14 percent tax on existing corporate overseas earnings that would require companies 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.”
Future overseas corporate profits would be taxed at 19 percent, but firms could avoid the tax altogether by reinvesting those earnings in the U.S., the administration claims.
In addition, the proposal would reduce the statutory corporate tax rate from 35 percent to 28 percent, with manufacturing concerns taxed at 25 percent. (RELATED: Analysis: Are US Corporate Tax Rates Really the Highest in the World?)
At a press briefing with senior administration officials on Monday, Office of Management and Budget director Shaun Donovan claimed that the president’s proposal is “similar to a proposal included in the Camp plan,” a reference to the Tax Reform Act of 2014 proposed last February by former Republican Rep. Dave Camp.
“Congress may not lead [on this issue],” Donovan said, but by adopting a past Republican proposal, the White House hopes that, “they might end up following.”
While it is true that Camp’s plan called for a “toll” on accumulated foreign earnings, as well as reducing the corporate tax rate to 25 percent, that is where the similarities end. (RELATED: Mike Lee Would Send Highway Funds to the States)
According to a Tax Foundation analysis, the Camp plan would have taxed accumulated foreign earnings at a rate of 8.75 percent—considerably lower than the 14 percent rate envisioned by Obama—but would then have switched to a territorial tax system for future foreign earnings, which would “exempt from domestic corporate taxation 95 percent of all active foreign income.”
Moreover, Camp’s plan would have imposed a statutory corporate tax rate of 25 percent on all businesses, not just those engaged in manufacturing activities, and (unlike Obama’s proposal) also called for eliminating the 10 percent surtax on incomes over $400,000, which increases the tax burden on small business owners who file through the individual income tax code.
However, officials did emphasize that the president’s proposal differs in significant details from a bipartisan plan currently before Congress that would fund transportation projects through a repatriation tax holiday. (RELATED: Lobbying Intensifies as Congress Mulls Gas Tax Increase)
Jeff Zients, director of the National Economic Council, said the president’s plan is “very different from a repatriation holiday, which we believe is bad policy.”
Under the president’s plan, Zients explained, “Repatriation would be mandatory,” whereas the congressional plan would be voluntary, hoping to entice companies to repatriate foreign earnings by offering a temporarily lower rate.
“We are not supportive of a voluntary repatriation holiday,” he reiterated, saying such a policy would tend to reduce tax revenues without fixing the “broken business tax system.” (RELATED: Repatriation Holiday Won’t Fix Highway Funding Shortfall, Critics Say)
“Everyone agrees that our infrastructure needs to be modernized,” Zients added, because, “infrastructure is critical to creating jobs, and is also critical to our long-term economic competitiveness.”
The fundamental question, according to White House press secretary Josh Earnest, is whether Republicans will “put aside politics and work to find common ground.”
In a press release responding to the president’s budget proposal, House Ways and Means Committee Chairman Paul Ryan said, “I want to work with this administration, and I hope that we can find common ground … but the President has to demonstrate that he’s interested in governing, not just posturing.”
“Tackling big policy challenges,” he continued, “requires not just hard work, but also an appreciation that our economy grows best from the bottom up with empowered individuals, rather than top down through government.”
“For six years the president has pursued higher taxes and higher spending, and our economy has paid the price,” Ryan said, adding that, “This budget is simply more of the same.”
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