(MENAFN- AFP) President Barack Obama on Monday targeted US companies' retained offshore profits with a one-time tax to repair roads and bridges and build a "21st century infrastructure."
By proposing a more than 50 percent reduction from current corporate tax rates, Obama's plan could be more palatable for business chiefs and for the Republicans who control Congress, both normally opposed to additional taxation.
Obama's nearly $4 trillion budget for fiscal 2016 aims to raise $238 billion from a 14 percent levy on income US companies have socked away offshore to avoid paying US taxes.
US companies hold an estimated $2 trillion outside the country. Under current rules, companies would have to pay up to the top US corporate tax rate of 35 percent if they wanted to repatriate the funds.
In addition to the one-time tax on existing profits, Obama proposed a minimum 19 percent tax on companies' future offshore earnings, without allowing them to defer the payments.
Obama said the proposal would help fund needed spending by the government and encourage companies to reinvest their profits inside their home country.
"The budget closes loopholes that punish businesses investing domestically and reward companies that keep profits abroad," the president said in the budget statement.
The receipts from that will be used "to rebuild our aging infrastructure", he said.
The new proposal would offer "no loopholes or opportunities for deferral" for offshore earnings, the statement said.
Many of the largest US companies hold tens of billions of dollars in profits outside the country in low or no-tax jurisdictions to avoid paying taxes on the money.
General Electric and Apple both have more than $100 billion; Microsoft, Pfizer, Merck, IBM and others have more than $50 billion each.
The companies have lobbied for Washington to grant a holiday, or an extremely low rate, on offshore profits in order to bring the money back to the United States.
While the companies say they would invest the repatriated funds, critics say a previous tax holiday 11 years ago saw most of the benefits go to shareholders.
According to a US Senate report in 2011, "rather than producing new jobs or increasing research and development expenditures, the 2004 repatriation tax provision was followed by an increase in dollars spent on stock repurchases and executive compensation."
It added that it gave the beneficiaries of the tax holiday an advantage over other US companies not operating abroad, and had little benefit for the US economy as a whole.
- Infrastructure plans -
Obama said the funds raised in the 14 percent tax levy would be used for a $478 billion, six-year program to upgrade roads, bridges and mass transit around the country.
"Devoting one-time transition revenue to infrastructure investments is both pro-growth... and fiscally responsible," the budget proposal said.
The proposal earned modest criticism from the business world while others said it was too much a giveaway to the big companies.
John Engler, the head of Business Roundtable, a grouping of major corporate chief executives, said the Obama administration "has correctly identified the importance of reducing the corporate tax rate to competitive levels and overcoming barriers to the reinvestment of foreign earnings at home."
''Unfortunately, the administration has proposed steep tax increases on businesses that will negatively impact their competitiveness -- especially those businesses that compete in the global marketplace."
The US Chamber of Commerce did not address the offshore earnings tax, but condemned the Obama budget as simply "more spending, more taxes, more debt."
On the other hand, Citizens for Tax Justice, which lobbies against tax breaks for companies, called Obama's proposal "a smart move" that nevertheless lets companies off with a tax rate that is "far too low."
''Such a low tax rate would disproportionately benefit the worst corporate tax dodgers and leave billions in tax revenue on the table that could be used to make critical public investments."
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