President Barack Obama is planning to close a tax loophole that allows American companies to avoid paying taxes on overseas profits, the White House says.
Barack Obama’s 2016 budget will impose a one-off 14% tax on US profits stashed overseas, as well as a 19% tax on any future profits as they are earned.
The $238 billion raised will be used to fund road projects in the US.
The proposal is one of the main components of Barack Obama’s latest budget, due to be presented on February 2.
The spending plan, including the proposal on overseas profits, would require approval from the Republican-controlled Congress to be made law, something seen as unlikely.
Research firm Audit Analytics calculated last April that US companies in total have $2.1 trillion-worth of profits stashed abroad.
It found US conglomerate General Electric had the most profit stored overseas at $110 billion. Tech giants Microsoft and Apple and drugs companies Pfizer and Merck all featured in the top five.
No tax is currently due on foreign profits as long as they are not brought into the United States.
As a result some companies put their earnings in low tax jurisdictions and simply leave them there.
The White House said its plans for an immediate 14% tax would raise $238 billion, which would be used to fund a wider $478 billion public works program of road, bridge and public transport upgrades.
“This transition tax would mean that companies have to pay US tax right now on the $2 trillion they already have overseas, rather than being able to delay paying any US tax indefinitely,” a White House official said.
The official said that after this one-off tax, the 19% permanent tax firms would have to pay on overseas profits “would level the playing field, and encourage firms to create jobs here at home”.
The tax rate is far lower than the current US top corporate tax rate of 35%.
US political leaders are meeting for last-ditch talks at the White House, amid the prospect of steep budget cuts.
Cuts worth $85 billion, originally passed in an effort to push Congress to strike a budget deal, are due to become law by the end of Friday.
President Barack Obama is hosting Democratic and Republican leaders, as a blame game rages in Washington. Congress has adjourned for the weekend.
The IMF has said the cuts could have an impact on global growth.
Analysis in the US suggests the nation’s GDP (economic output) could grow by just 1.4% in 2013 if the cuts are not delayed or replaced. US GDP grew by 2.2% in 2012.
The White House meeting comes as prospects for a deal to avert the cuts, known as the sequester, appear extremely slim.
Budget bills from both parties were defeated in the Senate on Thursday.
Although Republicans and Democrats both say they want to reduce the budget deficit, estimated at $845 billion this year, the president accused Senate Republicans of allowing the cuts to proceed.
Barack Obama favors what he calls a “balanced” approach to deficit reduction, mixing cuts with tax rises for some Americans.
“They voted to let the entire burden of deficit reduction fall squarely on the middle class,” he said of his rivals, in a statement on Thursday.
Barack Obama criticized Republicans for refusing to close “a single tax loophole that benefits the well-off and well-connected.”
The president said that by not doing a budget deal to avoid the cuts, Congress would impose a “self-inflicted wound” on America.
But Republicans contend that the president and his advisers created and proposed the idea of the cuts during budget negotiations in 2011.
House Speaker John Boehner has referred repeatedly to “the president’s sequester”, according to Politico.
John Boehner and House Democratic leader Nancy Pelosi, as well as the Senate’s Democratic majority leader Harry Reid and Republican minority leader Mitch McConnell, arrived at the White House for talks that began at 10:18 EST, officials said.
Reports say Barack Obama is still hoping to push for a wider fiscal deal to reduce the deficit by $1.5 trillion over the next 10 years.
But attention will also turn to the next congressional challenge – a possible shutdown of the US government if no funding bill is passed in the next month.
US political leaders are meeting for last-ditch talks at the White House, amid the prospect of steep budget cuts
The cuts are split roughly evenly between military and domestic programmes, but effects will be felt over time rather than immediately.
While hundreds of thousands of jobs are expected to be lost, no US government programmes will be closed down entirely. Cuts to healthcare provision for the elderly will be limited.
The scale of cuts will increase gradually over 10 years, totalling $1.1 trillion by 2023, according to the non-partisan Congressional Budget Office.
If there is no agreement, they are scheduled to be signed into the federal budget by President Barack Obama by 23:59 local time on Friday.
When Barack Obama signs an order later on Friday, a process to cut the defence budget by 10% and other programmes by 8.5% will be set into motion.
Millions of federal workers could face up to 22 forced days off without pay this year.
The cuts will not happen overnight – they will be spread over the next seven months and many think Congress will agree to a deal sooner rather than later.
In the Senate on Thursday, a Democratic plan blocked by Republicans proposed nearly $30 billion in future cuts in defence spending and a minimum tax rate on incomes exceeding $1 million.
White House spokesman Jay Carney said there were “no preconditions” on what could be discussed in Friday’s meeting.
With Republicans refusing to allow tax rises and Democrats vowing to protect cherished social programmes, Congress is just weeks away from its next budget battle.
On March 27 a temporary federal budget that has kept the federal government running since 2012 is due to expire.
Failure by Congress to enact a new stop-gap budget could see parts of the federal government shut down.
House Republicans said they would vote on a bill next week to fund the government through the end of the fiscal year, on September 30, but keep in place some automatic cuts taking effect on Friday.
Meanwhile the International Monetary Fund (IMF) said the global economic recovery could be harmed by the automatic spending cuts.