Obama Seeks Corporate Tax Restructure

On February 2, President Obama is expected to submit a $3.99 trillion 2016 budget that he says will help ease the burden on lower and middle class Americans. Among other things, Obama is likely to face some pushback against his plans to target US firms’ foreign income in an effort to streamline the US tax system.

According to Bloomberg, Obama’s proposal will raise around $238 billion by taxing US companies’ offshore profits by 14 percent. That rate will be a significant increase from the less than 10 percent tax that many are paying in countries like Ireland where tax laws are more lenient/

Currently, the tax system charges 35 percent on earnings outside the US once that money is returned to the states. In order to avoid that tax rate, companies like Google Inc. GOOG and Starbucks Inc. SBUX keep their foreign earnings offshore. However, they will be facing a large tax penalty next year if Obama’s reforms are passed.

The tax proposal is likely to create a problem companies whose operations overseas have been able to save a great deal through tax breaks. The new tax code would also make it more difficult for companies to make international mergers and acquisitions which allow for the transfer of funds overseas, something that has already been called in to question by US regulators.

While those against the new tax code say it could put US corporations at a disadvantage in the global marketplace, others say the plan is a step in the right direction for corporate tax reform. The US tax system has been widely criticized around the world recently, with many saying it allows US based corporations to avoid paying taxes to any government.