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Obama Proposes One-Time Tax On $2 Trillion US Companies Hold Overseas
mrspoonsi writes with news about a new proposed tax on overseas profits to help pay for a $478 billion public works program of highway, bridge and transit upgrades. President Barack Obama's fiscal 2016 budget would impose a one-time 14 percent tax on some $2 trillion of untaxed foreign earnings accumulated by U.S. companies abroad and use that to fund infrastructure projects, a White House official said. The money also would be used to fill a projected shortfall in the Highway Trust Fund. "This transition tax would mean that companies have 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," the official said. "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." In the future, the budget proposes that U.S. companies pay a 19 percent tax on all of their foreign earnings as they are earned, while a tax credit would be issued for foreign taxes paid, the official said.
If the Obama admin really insists on something like this, then it would probably be best to have a minimum effective tax rate system. I.e. the tax must be payed SOMEWHERE and there has to be proof of that sent to the IRS. If the effective tax rate is below the minimum (say 20%) then they pay the remainder to the IRS.
I guessed you missed the part in the summary where they mentioned the rate would be 19% and "while a tax credit would be issued for foreign taxes paid, the official said." So they are doing almost exactly as you are suggesting.
Australia also holds that view on personal income for Australian citizens on money earned abroad. I think the key with this proposal (vs. others which are just a pure money grab or in the Australian income tax case, double dipping) is the credit for taxes paid abroad. Presumably, if the company was already taxed at a higher rate, they would be refunded all the tax they paid to the USA. I think it's a good compromise - the company should have to pay taxes somewhere, and this will ensure that they do.
I run: Windows, OS X, Linux, FreeBSD. Just because you have a hammer, doesn't mean everything is a nail.
The problem is that this money is not exclusively earned abroad. Large companies can easily setup shell "holding" companies that own their IP licensing and use transfer pricing to pull fund legitimately earned in countries where they would owe tax out to the tax havens by use of internal licensing fees. And since the US corporate taxes are on profits and not revenue, this internal transfer of funds is heavily abused by anyone with a half-way competent accounting department.
Overly Simplified Example:
Revenue: $100M
Fictitious Licensing Cost of already developed internal system: $80M
Staffing Costs: $10M
=============
Taxable Income: $10M instead of $90M
Effective Tax: $3.5M instead of $31.5M
Evaded Tax: $28M
Nobody's talking about "taxing other countries".
US law says that, if you're a US citizen, you're liable for US taxes. Doesn't matter where you live or where your money comes from. However, it also recognises that it's not nice to subject citizens residing overseas to double taxation--so if you live in $country and pay $country's taxes on your income there, the US will often accept this as having fulfilled your obligation. But if you've income that you're not paying taxes on, anywhere, and the IRS finds out, they will come calling.
What Obama is apparently intending is to extend this philosophy to US corporations, which currently enjoy a much better deal than you or I. They pay US taxes on profits reported in the US. They don't pay US taxes on profits reported in other countries--and here comes the important part--even if they report those profits in $nation, which happens to have negligible or even zero corporate taxes. Whereas, if I move to $nation and they don't make me pay income tax there, then I get to pay it to the US.
So corporations currently get a huge overseas tax dodge that you and I don't. Quoth TFS,
In the future, the budget proposes that U.S. companies pay a 19 percent tax on all of their foreign earnings as they are earned, while a tax credit would be issued for foreign taxes paid, the official said.
So in other words, US corporations making money overseas would be subject to taxes on it in a manner very much like how US citizens are already subject to their overseas earnings, and with same proviso that they won't be doubly taxed.
Okay, go ahead and explain how this is "retarded" or unfair. Seems pretty smart and fair to me.
Il n'y a pas de Planet B.