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Obama Seeks $100 Billion in New Taxes on Multinationals

Fiscal Year 2015 Budget
Copies of U.S. President Barack Obama's Fiscal Year 2015 Budget are wheeled to the Senate Budget Committee office in Washington, D.C., on March 4, 2014. Photographer: Andrew Harrer/Bloomberg

President Barack Obama proposed raising about $100 billion in revenue over the next decade through new taxes and restrictions on U.S. multinational companies.

The changes, included in his budget plan for fiscal 2015, would affect digital goods, deductions for “excessive” interest and so-called hybrid arrangements that can lead to income that isn’t taxed in any country, according to the budget. Obama also wants to make it tougher for U.S.-based companies to move to other countries.

In all, the budget plan, which isn’t likely to more forward in Congress, seeks to raise $276 billion over the next decade from international tax changes -- 75 percent more than was sought in last year’s proposal.

The provision on interest would make it harder for foreign-owned multinational companies to locate their interest payments in the U.S., where they can be deducted from the 35 percent corporate tax rate that’s the highest in the industrialized world. It wouldn’t apply to financial services companies.

Immediate Payment

Obama’s proposed change on digital goods would require companies to pay the U.S. tax immediately on income they earn from leasing or selling digital items or providing cloud-based digital services. Currently, companies can book those profits in low-tax jurisdictions and owe no U.S. tax until they bring the money home.

The proposed change on expatriation is designed to limit the transactions that U.S.-based companies such as Actavis Plc and Eaton Plc have used to move outside the country. With the change, the U.S. would continue to treat companies as domestic for tax purposes if they have substantial U.S. business activities and are managed and controlled in the U.S.

Obama wants to dedicate the revenue from the international changes to lowering the corporate tax rate to 28 percent from 35 percent.

Obama’s budget and specific tax proposals are unlikely to become law any time soon. Lawmakers are deadlocked on tax policy, largely because of a partisan dispute over whether high-income individuals should pay more taxes.

Foreign Income

Representative Dave Camp, chairman of the House Ways and Means Committee, released a proposed revamp of the tax code last week that also would alter taxes on the foreign income of U.S. multinationals.

Like Obama, Camp seeks to make it harder for U.S. companies to shift profits to low-tax countries. Unlike Obama’s plan, Camp’s proposal wouldn’t tax many offshore profits and would make it easier for companies to bring such profits home without an additional layer of taxation.

“Unfortunately, the president’s budget adds more complexity to the tax code and increases taxes for more Washington spending,” Camp said in a statement today. “That is the wrong direction.”

The tax portion of Obama’s budget plan would expand the earned income tax credit for low-income workers, exclude Pell grants from income and establish automatic enrollment in individual retirement accounts.

It also continues dozens of proposals that haven’t advanced in prior years, such as taxing private-equity managers’ carried interest as ordinary income, limiting deductions for high-income taxpayers and ending certain breaks for oil and gas companies.

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