President Obama opened the door even further Monday to using an overhaul of the tax code to help fix the nation’s crumbling infrastructure, a priority for leaders in both parties.
Senior administration officials have cast the meatier proposals, which include a 14 percent tax on the income that corporations have built up offshore, as a way to jumpstart negotiations on revamping how U.S. businesses pay taxes.
“This is a significant step forward, I think, by the administration to flesh out the framework for business tax reform, to see if there’s opportunity for movement,” a top Treasury official said Monday.
{mosads}The administration said its new proposals illustrate the overlap between Obama and Republicans on business tax reform, though the details themselves underscore the limited options available in the effort to give the Highway Trust Fund a serious influx of revenue.
Highway funding is scheduled to run out at the end of May, and revenues from the transition tax on offshore income would contribute roughly half the funds needed for a $478 billion, six-year transportation plan. The bipartisan team of Sens. Barbara Boxer (D-Calif.) and Rand Paul (R-Ky.) has also floated a plan of using tax revenue on offshore corporate income to prop up the Highway Trust Fund.
But if the administration’s fiscal 2016 budget did bring Democrats and Republicans closer together on tax reform, top GOP lawmakers were in no mood to point that fact out.
Republicans instead blasted the administration for raising taxes and spending. Neither did business groups, that have long sought ways to more easily move offshore profits back to the U.S., rush to embrace the plan.
Senate Finance Chairman Orrin Hatch (R-Utah) said the president’s budget would only make the tax code more confusing and complex, and House Ways and Means Chairman Paul Ryan (R-Wis.) insisted Obama had yet to “demonstrate that he’s interested in governing, not just posturing.”
A spokeswoman for Hatch added that Treasury Secretary Jack Lew, who will testify before the Finance panel on Thursday, could expect to be pressed about “whether these proposals will put American-based companies at a further disadvantage, incentivize foreign takeovers, and make America a comparatively less advantageous place to center business investment and activity.”
Lew testifies before the Ways and Means Committee on Tuesday. In his appearances this week, Lew is likely also to discuss other features of the administration’s tax plan, including a 19 percent minimum tax rate on a multinational corporations’ foreign earnings.
In addition to the new taxes on foreign earnings, Obama’s budget takes another shot at cracking down on the offshore tax deals known as inversions, as well as seeking other rules to make it more difficult for U.S. companies to shift assets and income to low-tax countries.
Currently, companies are required to pay up to the full 35 percent corporate rate on offshore income. But corporations get credit for taxes paid to foreign governments, and don’t have to pay until the foreign profits are brought to the U.S.
Companies would also get credit for taxes paid to foreign governments for the 19 percent minimum rate, which would be part of a broader revamp of the tax code that would reduce the top corporate tax rate to 28 percent, or 25 percent for manufacturers.
The Obama administration has cast its new international tax plan as a “hybrid” system, with the senior Treasury official saying there’s a lot of “baggage” in the current debate pitting the worldwide tax system that the U.S. currently employs against the territorial system sought by the GOP and the business community.
A territorial system would limit U.S. taxation of offshore corporate profits, with previous GOP proposals being more generous to the roughly $2 trillion in corporate offshore income than Obama’s new minimum tax.
John Engler, the president of the Business Roundtable, said Monday that the White House had “proposed steep tax increases on businesses that will negatively impact their competitiveness — especially those businesses that compete in the global marketplace.” Still, Engler also praised the Obama administration for seeking to cut the corporate rate, and agreed “that infrastructure investment is important.”
And even as the administration said the budget gave Republicans a much clearer picture of Obama’s vision for tax reform, the senior Treasury official also acknowledged that there were still plenty of details that needed to be worked out.
Republicans, for instance, want to bring the corporate rate down to 25 percent, and the two parties are divided over how tax reform can help the businesses that pay taxes through the individual system. The GOP wants to lower the top individual rate, currently almost 40 percent, for those businesses, while the administration wants to give them more robust tax breaks.
In all, the budget includes a roughly $141 billion reserve for business tax reform — or, the official said, enough to bring the corporate rate down from 35 to below 34 percent.
Hatch and Ryan have both said they plan to put out more details on how the GOP wants to revamp the tax code at some point, and have repeatedly urged the president to put out a more fleshed out plan.
But both sides also remember that the last Republican to put out a full tax reform plan, former House Ways and Means Chairman Dave Camp (R-Mich.), absorbed criticism from across the political spectrum.
“The experience of a number of folks in that area is that you just find yourself getting picked apart very quickly,” the senior Treasury official said about putting out a detailed plan.