President Obama said Wednesday that he plans to put forward a series of tax proposals to “reward companies that choose to bring jobs home” and eliminate tax breaks “for companies that are moving jobs overseas.”
The announcement offers a clue about the president’s agenda for the State of the Union address on Jan. 24 and his reelection campaign.
Obama did not give any more details about the proposals he will make. But some close to the White House expect him to repackage old ideas, such as making it harder for U.S. companies to postpone paying taxes on foreign profits, along with new ideas.
One idea that the administration has explored is a recurring tax credit for profits derived from selling products developed in the United States, but it is unclear whether this will be part of the package the president will announce.
Last year, the Obama administration was ready to release a white paper on corporate taxation that officials hoped would offer a place for rare bipartisan agreement. The administration sought to cut the 35 percent corporate tax rate, among the world’s highest, while eliminating many deductions. But the proposal was shelved during the bitter clashes between congressional Republicans and Obama.
Earlier in his term, Obama called for scaling back laws that allow U.S. companies to deduct expenses from overseas operations from their U.S. tax bill, while at the same time postponing payment of taxes on foreign profits. The president has also suggested limiting tax credits that U.S. companies receive for tax payments to foreign governments.
Meanwhile, to encourage investment in the United States, he has suggested making permanent a research and development credit that has been extended each year by Congress. The White House has also looked at the idea of “patent boxes,” which have become popular in Europe and allow companies to receive credit each year when paying taxes on profits earned by selling products developed domestically.
Another idea that has been examined is giving companies a tax credit when they move an overseas job — particularly in hard-hit areas like manufacturing or call centers — back to the United States. But administration officials have struggled to design such a credit.
The challenge for the White House has been to come up with ideas for tax credits that don’t increase the federal budget deficit.
Another more controversial idea is to allow U.S. companies, which hold about $2 trillion in assets overseas, to bring money back to the United States tax-free. In exchange, they would have to agree to use the tax savings on investment or job training.
This idea, known as “repatriation,” has many opponents in the Obama administration. The last time it was tried, during the Bush administration, companies did not increase their workforces.
“The general critique was that repatriation really was a holiday that wasn’t linked to the things you care about,” said James Manyika, a director of the McKinsey Global Institute who was invited Wednesday to take part in the discussions. “If policymakers are smart about it and link it to the things the economy needs, such as training and jobs and R&D, it can be a good thing.”
The president spoke Wednesday at an event at the White House focused on “insourcing,” which refers to encouraging companies to create jobs in the United States rather than abroad. Obama’s remarks struck the same tone of aiding the middle class that has been featured heavily in his speeches recently and that his aides say will be a central facet of his reelection platform.
“Ask yourselves what you can do to bring jobs back to the country that made our success possible,” Obama told a group of executives gathered at the White House. “It can make all the difference for the strength of our middle class and folks working their way into the middle class.”
Most corporate leaders see slashing the U.S. corporate tax-rate as the highest priority.
“If tax policy was going to be the instrument upon which the administration relied upon to attract more global investment, lowering the rate to be competitive with other countries would be effective. But that wasn’t discussed today,” said Nancy McLernon, chief executive officer of the Organization for International Investment, which represents foreign companies with U.S. subsidiaries.