Obama urges tax for transit work plan

US president Barack Obama’s budget will propose an ambitious six-year, $478bn (€422bn) public works programme of highway, bridge, and transit upgrades, half of it financed with a one-time mandatory tax on the profits that US companies have amassed overseas, White House officials said.

The proposal, one of the main components of the $4trn spending proposal for the 2016 budget year that Obama will send to Congress today, attempts to tap into bipartisan support for spending on badly needed infrastructure repairs and construction.

The tax on accumulated foreign profits, to be paid once, would be set at 14%, significantly lower than the current top corporate rate of 35%.

It would be part of a broader administration plan to overhaul corporate taxes by ending certain tax breaks and lowering rates, a challenging task that Obama and Republican congressional leaders insist they are poised to tackle this year.

Obama’s budget proposal for the fiscal year, which begins on October 1, will put forward an array of spending programmes and tax increases that Republicans now running Congress have already dismissed as nonstarters.

However, the White House believes it has some leverage on taxing foreign earnings by linking the revenue to construction projects that could potentially benefit the states and districts of virtually every member of Congress.

White House officials were not authorised to discuss the budget by name and sources described the proposal to the Associated Press on the condition of anonymity.

The proposal improves on an idea that the administration has pushed since the summer of 2013. The administration’s budget last year proposed a smaller four-year bridge and highway fund. While it paid for it by taxing accumulated foreign earnings, it did not specify a formula.

This time, the budget will call for a one-time 14% mandatory tax on the up to $2trn in estimated US corporate earnings that have accumulated overseas. That would generate about $238bn, by White House calculations.

The remaining $240bn would come from the federal Highway Trust Fund, which is financed with a tax on petrol.

The former chairman of the House of Representatives committee Ways and Means, the now-retired Michigan Republican Dave Camp, proposed a similar idea last year with a lower mandatory tax, but the plan did not make headway in Congress.

At issue is how to get companies to bring back some of their foreign earnings to invest in the US.

The current 35% top tax rate for corporations in the US, the highest among major economies, serves as a disincentive and many American companies with overseas holdings simply keep their foreign earnings abroad and avoid the US tax.

Under Obama’s plan, the top corporate tax rate for US earnings would drop to 28%. Foreign profits would be taxed at 19%, with companies getting a credit for foreign taxes paid.