He presented this idea at a time when major U.S.-based companies such as Apple, Google, Microsoft and Pfizer have built up hundreds of billions of dollars' worth of unrepatriated earnings with the intention of transferring it back to the U.S. at a lower tax rate, The New York Times reported.
Because they would need to pay this bill to bring the earnings back home
, many of these companies are holding them in foreign nations and reinvesting the profits there, even if doing so results in them generating less of a return before taxes, according to the news source.
Tax on foreign earnings
Amid this situation, Obama has proposed levying a one-time assessment of 14 percent on profits held overseas, the media outlet reported. This levy, which would have a tax base of roughly $2 trillion in unrepatriated earnings, would go toward restoring the Highway Trust Fund and funding infrastructure projects. This policy would generate around $248 billion in revenue over the next five years, the president has asserted.
In addition, Obama wants to introduce a separate tax that would obligate companies based in the U.S. to pay a minimum rate of 19 percent on all new earnings, while receiving a credit for any foreign taxes paid, according to FoxNews.com.
Corporate tax rates
The president's proposal would also cut the corporate tax rate on profits generated
in the U.S. to 28 percent, the media outlet reported. The current top rate, 35 percent, is the highest for any of the major economies. This figure dissuades many companies from moving their earnings back to America, and they instead retain these profits overseas.
Currently, most republican lawmakers - and also U.S. companies - would like to have a so-called territorial system, whereby businesses only pay tax on income generated within a nation's borders, according to the news source. Most developed countries already use this approach.
Business groups critical
While some may be warming to this proposal, many organizations representing businesses quickly expressed their disapproval, Bloomberg reported. The National Association of Manufacturers, The Business Roundtable and targeted coalitions of companies are all contending the proposal would harm companies based in the U.S. Further, some have warned that implementing the new tax policies could make it easier for foreign companies to buy American firms.
"The litany of new taxes placed on globally engaged, U.S. companies is at best a short-sighted attempt to raise government revenues, and at worst a misguided policy that doesn't recognize America's role in the 21st century economy," the LIFT America Coalition, which counts major companies Johnson & Johnson and Cisco Systems Inc. among its members, said in a statement, the media outlet reported.