POLITICO Pro Obama budget pitch: Tax offshore profits to fix U.S. roads

President Barack Obama will revive his pitch to revamp business taxes in his budget vision on Monday — including a mandatory 14 percent tax on corporate profits now stashed abroad — to fix roads, bridges and other infrastructure, according to a White House document.

Obama will propose tapping taxes on the $2 trillion in profits sitting outside the U.S. to “to make critical new investments in our roads, bridges, transit systems and freight networks as part of a $478 billion, six-year surface transportation reauthorization,” according to a summary of the plan.


While the proposal will not go far in the GOP-controlled Congress, it draws battle lines heading into the 2016 presidential contest, which Obama has framed as a fight for “middle-class economics.” It also sends a message as lawmakers begin working on the next long-term funding bill for highway and transit programs.

The proposals will include hiking taxes on capital gains and ending a loophole that benefits the wealthy when their heirs inherit their assets, using the money to fund tax breaks for those lower down the income spectrum.

The business-taxes-for-roads plan is a more detailed version of one Obama has been pitching for several years: Revamp business taxes with the carrot of lower rates, using one-time “transition” taxes to fund infrastructure.

Obama’s business reform seeks to lower the top rate from 35 percent to 28 percent — the carrot. The sticks include the 14 percent tax on profits that now escape the U.S. government’s reach offshore, along with a new 19 percent minimum tax on global profits going forward.

This year’s pitch will come with a $176 billion boost in proposed spending on federal highway and transit programs over an additional two years. Last year Obama’s budget proposed a $302 billion, four-year infrastructure component, compared to the new $478 billion, six-year proposal for the fiscal year that begins in October.

The White House will likely hype the fact that the transition tax echoes one proposed last year by then-House Ways and Means chairman Dave Camp, who proposed an 8.75 percent mandatory “toll” tax on profits coming back to the United States.

Camp’s plan fell flat, and even his fellow Republicans didn’t embrace it.

The latest White House offer could be an opening position for negotiating a full plan with Republicans in Congress.

“This proposal has all of the qualities of a negotiating position, not an expectation of an ultimate outcome,” said Ed Kleinbard, a sometimes ally of the White House and former chief of the staff at nonpartisan Joint Committee on Taxation.

On its face, though, one ally said it not likely to receive immediate applause from Obama’s opponents.

“The notion that this would be at all palatable to the business community or Republicans is farfetched,” said a former Obama administration official.

That’s because the White House plan appears to apply to a broader base of foreign income compared with Camp’s plan, and with all the revenue raised going toward the public works spending, there is less available to lower the rate.

Current Ways and Means chairman Paul Ryan (R-Wis.) has left the door open to working with the White House and he took a similar stance Sunday. A major sticking point has been individual tax rates: The White House successfully raised the rate for the wealthiest in the “fiscal cliff” deal, which Republicans say hinders growth.

Since both parties agree the current 35 percent top corporate rate is out of step globally, the White House for years has pitched “business-only” reform, which cuts the rate and clears out “loopholes.”

Ryan, speaking on NBC’s “Meet the Press,” didn’t comment on the latest proposals but said he wanted to “exhaust” all areas of potential agreement with the White House.

“The question is, which I don’t know the answer to: Is there common ground on aspects of tax reform that we think can help grow the economy?” the Wisconsin Republican said, noting reform of the earned income tax credit was one area of common ground.

But he went on to slam tax hikes the White House is pitching — including one the administration calls the “trust fund loophole.”

“What I think the president is trying to do here is to again exploit envy economics,” Ryan said. “This top-down redistribution doesn’t work.”

The U.S. is relatively out of step from its peers in that it taxes “worldwide profits,” but not until they come back to the U.S., usually in the form of dividend payments.

Business groups have been pushing to lower the 35 percent tax rate, which they bitterly note is the highest in the industrialized world. They have been pushing for a “repatriation” of foreign profits — a lower rate to allow them to bring the money back, but they are unlikely to favor this mandatory levy.

“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,” the administration document says.

Transportation advocates will applaud the longer-term nature of Obama’s latest proposal to boost funding for roads, bridges and mass transit, but even under the best of circumstances it’s still a temporary solution, because the funding proposal will not address flagging revenues from an 18.4 cents-per-gallon tax on gasoline. Politicians haven’t mustered the political will necessary to raise the gas tax, leading to a series of short-term cash infusions from general tax revenues — or, in this case, it would come from so-called repatriated funds.

The budget will also include proposals aimed to cracking down on companies that “invert” or move their headquarters overseas to escape U.S. taxes.

David Nather and Kathryn A. Wolfe contributed to this report.