(Bloomberg) President Barack Obama’s latest budget plan narrows the gap between the two parties on U.S. business taxes, offering the glimmer of a potential agreement.

His proposal would require U.S. companies to pay taxes on foreign income, though lower than what they pay at home, and give them the freedom to bring profits home whenever they want. It would also aim to create simpler accounting rules for small businesses.

Obama’s moves to tax U.S. companies’ offshore profits aren’t as aggressive as his campaign promises and reduce the number of disputed areas with Republicans. The parties are still divided on which business tax breaks should be curtailed, how much revenue should come from corporate taxes, and the treatment of businesses that pay taxes through their owners’ individual tax returns.

Republicans won’t embrace Obama’s proposals, which amount to an opening bid in an effort to reach a deal on business taxes, said Rohit Kumar, co-leader of the U.S. Tax Policy Services practice at PricewaterhouseCoopers LLP in Washington. A bipartisan deal is possible to lower corporate tax rates with international rules more favorable to companies than the ones Obama proposed, he said.

“The president put out what I consider to be the left goal post of tax reform,” said Kumar, a former aide to Senate Majority Leader Mitch McConnell, a Kentucky Republican. “You can see the contours of where they might land.”

Alcoa and Caterpillar
Companies including Alcoa Inc., Caterpillar Inc., Cisco Systems Inc. and Bank of America Corp. have been urging Congress to lower tax rates on foreign profits and let them bring money home without an extra layer of U.S. taxes. Groups representing U.S.-based multinationals criticized Obama’s plans Monday.

“Unfortunately, the administration has proposed steep tax increases on businesses that will negatively impact their competitiveness—especially those businesses that compete in the global marketplace,” said John Engler, president of the Business Roundtable. The association of large companies’ chief executives includes Michael Corbat of Citigroup Inc. and A.G. Lafley of Procter & Gamble Co.

Obama is pushing the parties further apart on taxation of individuals. His budget plan layers new taxes—higher levies on capital gains and people who die with appreciated assets— on top of previous ideas that Congress has repeatedly ignored.

Potential Overlap
Administration officials have been emphasizing the potential overlap between the parties on business taxation, because lawmakers in both parties favor cutting the 35 percent top corporate rate—the industrialized world’s highest—and curbing business breaks.

“The president’s budget proposal takes direct aim at two of the nation’s most pressing challenges,” taxation of U.S. companies’ overseas profits and providing money to repair the nation’s infrastructure, Representative Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, said in a statement.

Obama’s latest international tax plan represents a departure from his campaign rhetoric—and yet it’s not exactly what major corporations had in mind.

The proposal would impose a 19 percent minimum tax on U.S. companies’ foreign earnings, which would mean a tax increase for technology and pharmaceutical companies that have been booking profits in low-tax and no-tax jurisdictions for years.

Domestic Profits
The 19 percent rate would be a discount from the new rate on domestic profits under Obama’s plan—28 percent for most companies and 25 percent for U.S. manufacturers. And it is different from Obama’s early budget proposals, which would have retained the tax upon repatriation and made it tougher for U.S. companies to defer taxes on foreign profits.

The latest Obama plan would include new rules to prevent companies from shifting domestic profits outside the U.S. and limits to keep them from changing their addresses for tax purposes through transactions known as inversions.

The minimum tax applies only to profits above what is considered an ordinary return to capital.

“The minimum tax thus is a high rate, but one applied only to supersized returns,” said Ed Kleinbard, a tax law professor at the University of Southern California.

One-Time Tax
Companies would face a 14 percent one-time tax on about $2 trillion they have stockpiled overseas under the current system, which provides incentives to shift profits overseas and leave them there to avoid a U.S. tax upon repatriation.

Companies with profits parked overseas include Apple Inc., Google Inc. and Microsoft Corp., which holds $92.9 billion in profits outside the U.S. If that money were brought home, the company would owe $29.6 billion in U.S. taxes—or a 31.9 percent rate.

The revenue from the one-time tax—$248 billion over five years—would be used for an infrastructure program.

“It’s really an attempt to balance the need to make sure we’re not eroding our tax base, but also to make sure our companies are competitive as they operate around the world,” Jason Furman, chairman of Obama’s Council of Economic Advisers, said Monday on CNBC.

Camp’s Plan
Last year, House Ways and Means Committee Chairman Dave Camp, who retired in January, offered a similar proposal that also included a one-time tax on stockpiled profits and rules to prevent U.S. companies from shifting future profits overseas. His proposed tax rates were more favorable to companies.

Timothy Karpoff, a former U.S. Treasury official and now a partner at Jenner & Block LLP, said in an e-mail that Obama’s proposed one-time tax is similar to Camp’s plan although they had different rates.

Because the president’s plan would continue to treat profits earned overseas differently from those earned in the U.S., there would be incentives for “complex tax structuring transactions” to reduce companies’ tax bills, Karpoff said.

The Alliance for Competitive Taxation is pleased with Obama’s willingness to revisit past proposals on taxing overseas profits, said Douglas Holtz-Eakin, an adviser to the group and former director of the Congressional Budget Office.

“At the same time, the proposals in the budget would harm international competitiveness, hurt jobs and economic growth,” Holtz-Eakin said in a telephone interview. “Not every opening bid is created equal.”

Pass-Through Businesses
The two parties are still divided on the taxation of businesses known as pass-throughs, those that pay taxes through their owners’ individual returns. That includes small businesses including corner stores and dry cleaners and large global businesses such as Ernst & Young LLP.

The administration has focused on offering benefits to small businesses, such as faster write-offs of capital expenses. The budget plan released Monday would let businesses with receipts of up to $25 million use cash accounting, up from the $10 million threshold Obama proposed in 2012.

Republicans in Congress would rather cut both the individual and corporate tax rates so businesses pay the same top rate regardless of how they’re organized. They haven’t yet proposed a plan that would address the issue if Congress only focuses on business taxation.

Obama also hasn’t described exactly which tax benefits would be curbed to offset his proposed rate cut. The budget sets aside $141 billion over a decade to pay for the rate cut.

A reduction to 34 percent from 35 percent costs about $110 billion.

Obama’s budget repeats many of the tax proposals he has offered before, including higher taxes on fund managers’ carried interest, the repeal of breaks for oil companies and the end of last-in, first-out accounting rules.

This year’s plan has some new corporate proposals, including a requirement that master limited partnerships for fossil fuels, such as Enterprise Products Partners LP, be treated as corporations for tax purposes.

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