Wednesday, February 4, 2015

THE BEGINNING OF THE END OF CORPORATE WELFARE & PUERTO RICO COLONIALISM

Obama proposes tax on foreign profits of U.S. corporations


Article by: JIM SPENCER , Star Tribune
Last update: February 3, 2015 - 12:26 PM

WASHINGTON – President Obama wants to impose a one-time mandatory 14 percent tax on foreign profits that U.S. companies have stashed abroad, a move that would force Minnesota’s major companies to pay the government billions of dollars.

The tax revenue would be used to fund bridges, roads and other projects in America’s aging infrastructure system and to provide revenue for America’s sagging Highway Trust Fund.

Under current law, companies face a top rate of 35 percent on foreign profits if they are returned to the U.S. Many opt to leave them abroad to avoid the tax. Collectively, American corporations have not paid U.S. taxes on $2 trillion in foreign profits.

The proposal for the one-time tax, announced Monday as part of Obama’s 2016 budget, faces a chilly reception in the Republican-controlled U.S. Senate and House. But polls show corporate tax avoidance remains a peeve of most Americans. Moreover, the White House has tried to buffer the blow of the newly proposed tax by embedding it in a larger program of business tax reforms.

Rep. Rick Nolan, a Democrat who represents Minnesota’s Eighth Congressional District, said he thought the proposal is worth considering. “Fourteen percent of 2 trillion dollars is better than 35 percent of nothing,” he said.

The levy would hit some of the state’s biggest corporate players hard. For example, Medtronic, which held $14.361 billion in tax-deferred foreign profits as of October, would have to pay more than $2 billion in taxes.

Medtronic, 3M, St. Jude Medical, Ecolab and General Mills now hold at least 90 percent of their cash as foreign profits indefinitely deferred from U.S. taxes. They also have noncash tax-deferred assets on which they would owe.

The White House budget plan envisions the foreign-profits tax as part of overall corporate tax reform, National Economic Council director Jeff Zients told reporters Monday. The administration wants to lower the overall corporate tax rate while closing loopholes that allow some companies to pay nothing while others pay the entire U.S. statutory rate.

Democratic Sen. Al Franken of Minnesota said he would look at the foreign-profits tax in that context. “I’m glad the president has proposed reforms to close these loopholes, while also taking steps to help U.S. businesses compete,” Franken said. “I am also looking at his proposal for a one-time tax on existing overseas profits, which makes sense in the context of comprehensive corporate tax reform. ”

Sen. Amy Klobuchar, also a Democrat, said she is “still looking at the details of this proposal, as well as others that are being discussed in Congress. I have long believed we need to find ways to bring back some of the money U.S. companies have overseas and link it to improvements in our nation’s infrastructure.”

Third District Republican Rep. Erik Paulsen countered that “implementing a one-off tax increase is not the way to create a healthier economy or help American employers succeed and create jobs.”

“Instead,” Paulsen said, “we should pursue comprehensive tax reform and move toward a fairer, flatter tax code.”

Reps. John Kline and Tom Emmer, the other Republicans in the Minnesota delegation, did not immediately respond to Star Tribune requests for comment.

Once U.S. taxes have been paid on current foreign profits, those profits can be used in the United States for stock dividends, executive bonuses, research and development, and other outlays that are now prohibited, administration officials stressed.

Under the White House plan, companies would no longer be able to defer their foreign profits from U.S. taxes. Instead, they would face an immediate U.S. tax of at least 19 percent. But that amount would be reduced by any taxes paid in the countries where the money was earned.

The proposed rates on foreign profits were too low for some members of Congress, including Democratic Rep. Keith Ellison of Minneapolis.

“Allowing these American firms to pay a much lower rate than they would in the U.S. rewards the most egregious corporate tax dodgers,” Ellison said. “A lower rate would result in the loss of billions we need to invest in infrastructure improvements for our roads, bridges, transit and our electrical grid, as well as investments in education, housing and health care.”

Medtronic did not respond to a Star Tribune request for comment on the foreign-profits tax plan. St. Jude Medical, Ecolab and General Mills declined to comment.

A 3M spokeswoman said, “Your question specifies one part of the president’s proposal for tax reform. We would like to see how congressional debate shapes the entire reform proposal before taking a position.”

Under the president’s plan, Maplewood-based 3M could owe more than $1.3 billion on the $9.7 billion in foreign profits it held at the end of 2013.

Zients and other administration officials tried to differentiate the White House foreign-profits tax from a so-called “tax holiday” like the one corporate America enjoyed in 2004. At that time, Congress tried to stimulate the U.S. economy by giving companies a yearlong opportunity to bring foreign profits back to the United States at a tax rate of just 5.25 percent, a fraction of the 35 percent statutory levy.

Tax holidays are optional, Zients explained. The foreign-profits tax Obama now pushes would be mandatory. It would secure a six-year, $480 billion capital construction and repair plan for the country’s aging roads, bridges and other public works, while filling a current revenue shortfall in the Highway Trust Fund.

Allowing corporations to indefinitely defer U.S. taxes on foreign profits has long been controversial. Critics say it encourages companies to use accounting tricks to park money outside the country, often in tax havens that charge low corporate taxes or none.