Cross-Posted from Progress Central:
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In President Barack Obama's 2015 budget is a reform to the way the United States taxes international and multinational corporations and people. Here's all you need to known about Obama's international tax plan:
Global Minimum Tax:
In Obama's international tax plan is a global minimum tax of 19% on all foreign profits of US-based corporation, which according to the
Brookings Institute, would raise $206 billion.
The global minimum tax is exactly what the name means: a minimum tax that every multinational corporation has to pay. For example, if a multinational corporation puts its earnings in a country with a 0% tax rate, they still have to pay the US government a 19% tax rate to make up the difference. Conversely, if a multinational corporation puts its earnings in a country with a 25% tax rate, they wouldn't have to pay taxes to the US government because they already paid those taxes to the foreign country.
This a sensible solution because in almost all situations, corporations choose to put their profits in countries with a lower tax rate than the US. However, Obama's plan would make tax havens less attractive because even if these corporations chose to use places like the Cayman Islands and Switzerland, these corporations would still have to make up the difference between the United States' global minimum tax and the foreign country's tax rate.
Transition Tax:
Obama's plan also has a provision to levy a one-time, mandatory 14% on all the foreign holdings of multinational corporations. Obama wants to use the $268 billion from this transition tax to pay for a bill that would help fix our crumbling infrastructure.
Doing so would obviously create jobs but also would increase productivity. Heather Boushey of the Center for American Progress explains:
Investing in infrastructure not only creates jobs; it increases the productivity of businesses small, medium, and large. At the most basic level, infrastructure investments make it possible for firms to rely on well-maintained roads to move their goods, on an electricity grid that is always on to run their factories, and water mains that provide a steady stream of clean water to supply their restaurants.
Changing the Insane Status Quo:
Right now, multinational corporations can defer payment on taxes on their foreign earnings until they bring their profits back to America. Unfortunately, these corporations have no incentive to bring their profits back because they don't want to pay taxes on them. Therefore, they keep their dollars in these tax havens indefinitely, dodging taxes time and time again. As the
Brookings Institute explains:
Under the current deferral system, U.S. multinationals have a powerful tax incentive to construct facilities and buy companies located outside the United States. If deferral were ended, these companies would make locational decisions based on business factors, rather than tax rates. Thus, a substantial portion of foreign profits of U.S. multinationals would likely be brought back to the United States to build plants, buy technologies and pay dividends.